As filed with the Securities and Exchange Commission on July 8, 1997
Registration File Nos. 333-23359/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 33770
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Vice President and Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
---------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
hereby elects to register an indefinite amount of securities being offered.
--------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1 Cover Page; The Series Account
2 Cover Page; Western Reserve Life Assurance Co. of Ohio
3 Not Applicable
4 Distribution of the Policies
5 The Series Account
6 The Series Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Introduction; Policy Benefits; Payment and Allocation of
Premiums; Investments of the Series Account; Policy Rights
11 The Series Account; WRL Series Fund, Inc.
12 The Series Account; WRL Series Fund, Inc.
13 Charges and Deductions; The Series Account; Investments of
the Series Account
14 Introduction; Allocation of Premiums and Cash Value
15 Allocation of Premiums and Cash Value
16 The Series Account
17 Cash Value; The Series Account; Policy Rights
18 Payment and Allocation of Premiums; Cash Value
19 Voting Rights of the Series Account; Reports and Records
20 Not Applicable
21 Loan Privileges
22 Not Applicable
2
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
23 Safekeeping of the Series Account's Assets
24 Policy Rights
25 Western Reserve Life Assurance Co. of Ohio
26 Not Applicable
27 Western Reserve Life Assurance Co. of Ohio; The Series
Account; WRL Series Fund, Inc.
28 Western Reserve Life Assurance Co. of Ohio; Executive Officers
and Directors of Western Reserve
29 Western Reserve Life Assurance Co. of Ohio
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Western Reserve Life Assurance Co. of Ohio
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
40 Not Applicable
41 Distribution of the Policies; Western Reserve Life Assurance
Co. of Ohio
42 Not Applicable
43 Not Applicable
44 Cash Value
45 Not Applicable
46 Cash Value
3
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
47 Introduction; Allocation of Premiums and Cash Value
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Introduction; Western Reserve Life Assurance Co. of Ohio;
Policy Benefits; Charges and Deductions
52 The Series Account; WRL Series Fund, Inc.
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
4
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P R O S P E C T U S E S F O R
W R L F I N A N C I A L
F R E E D O M B U I L D E R SM
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[GRAPHIC OMITTED]
I N D I V I D U A L F L E X I B L E
P R E M I U M V A R I A B L E
L I F E I N S U R A N C E P O L I C Y
A N D W R L S E R I E S
F U N D , I N C .
I S S U E D B Y
W E S T E R N R E S E R V E L I F E
A S S U R A N C E C O. O F O H I O
This cover is not part of these prospectuses.
<PAGE>
WRL FINANCIAL FREEDOM BUILDER/sm/
INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE LIFE
INSURANCE POLICY
Issued by
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
201 Highland Avenue
Largo, Florida 33770
(800) 851-9777
(813) 585-6565
The individual flexible premium variable life insurance policy ("Policy")
issued by Western Reserve Life Assurance Co. of Ohio ("Western Reserve") and
described in this Prospectus is designed to provide lifetime insurance
protection and maximum flexibility in connection with premium payments and
death benefits. A Policyowner may, subject to certain restrictions, vary the
timing and amount of premium payments and increase or decrease the level of
life insurance benefits payable under the Policy. This flexibility allows a
Policyowner to provide for changing insurance needs under a single life
insurance policy. The minimum Specified Amount for Issue Ages 0-45 is $50,000,
declining to $25,000 for Issue Ages 46 to 80.
The Policy provides a death benefit payable at the Insured's death, and a
Net Surrender Value that can be obtained by completely or partially
surrendering the Policy. Net premiums are allocated according to the
Policyowner's directions among the Sub-Accounts of the WRL Series Life Account
("Series Account"), or to a fixed interest account ("Fixed Account"), or a
combination of both. With respect to amounts allocated to Sub-Accounts of the
Series Account, the amount of the death benefit may, and the Cash Value will,
vary to reflect both the investment experience of the Sub-
Accounts and the timing and amount of additional premium payments. However, as
long as the Policy remains In Force, Western Reserve guarantees that the death
benefit will never be less than the Specified Amount of the Policy. While
additional premium payments are not required under the Policy, additional
premium payments may be necessary to prevent Lapse if there is insufficient Net
Surrender Value.
The Policy provides a free-look period allowing the Policyowner to cancel
the Policy within 10 days after receipt. Certain states require a free-look
period longer than 10 days, either for all Policyowners or for certain classes
of Policyowners.
The assets of each Sub-Account of the Series Account will be invested
solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the "Fund").
The Prospectus 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.
It may not be to your advantage to replace existing insurance or
supplement an existing flexible premium variable life insurance policy with a
Policy described in this Prospectus.
Please read this Prospectus and the Prospectus for the Fund carefully and
retain for future reference.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK OR DEPOSITORY INSTITUTION, AND THE POLICY IS NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS FOR
THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL
STATES. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
Prospectus Dated July , 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS ................................. 1
INTRODUCTION ................................. 3
INVESTMENT EXPERIENCE INFORMA-
TION .......................................... 7
Rates of Return .............................. 7
Death Benefit, Cash Value and Net Surrender
Value Illustrations ..................... 8
Other Performance Data ..................... 12
WESTERN RESERVE AND THE
SERIES ACCOUNT .............................. 13
Western Reserve Life Assurance Co.
of Ohio ................................. 13
The Series Account ........................... 13
POLICY BENEFITS .............................. 13
Death Benefit .............................. 13
When Insurance Coverage Takes Effect ......... 16
Cash Value .................................. 17
INVESTMENTS OF THE SERIES AC-
COUNT ......................................... 18
WRL Series Fund, Inc. ........................ 18
Addition, Deletion, or Substitution
of Investments ........................... 20
PAYMENT AND ALLOCATION OF
PREMIUMS .................................... 21
Issuance of a Policy ........................ 21
Premiums .................................... 21
Allocation of Premiums and Cash Value ...... 22
Dollar Cost Averaging ........................ 23
Asset Rebalancing Program .................. 23
Policy Lapse and Reinstatement ............... 24
CHARGES AND DEDUCTIONS ........................ 25
Premium Expense Charges ..................... 25
Surrender Charge ........................... 25
Pro Rata Decrease Charge ..................... 26
Cash Value Charges ........................... 26
Optional Cash Value Charges .................. 27
Charges Against the Series Account ......... 27
Expenses of the Fund ........................ 27
Group or Sponsored Policies .................. 28
Employee Associate Policies .................. 28
Builder Plus Programsm ..................... 28
POLICY RIGHTS ................................. 29
Loan Privileges .............................. 29
Surrender Privileges ........................ 30
Examination of Policy Privilege ("Free-
Look") ................................. 31
Conversion Rights ........................... 31
Benefits at Maturity ........................ 31
Payment of Policy Benefits .................. 31
PAGE
----
GENERAL PROVISIONS ........................... 32
Postponement of Payments ..................... 32
The Contract ................................. 32
Suicide .................................... 32
Incontestability ........................... 32
Change of Owner or Beneficiary ............... 32
Assignment ................................. 33
Misstatement of Age or Sex .................. 33
Reports and Records ........................ 33
Optional Insurance Benefits .................. 33
Terminal Illness Accelerated Death Benefit
Rider ................................... 34
THE FIXED ACCOUNT ........................... 35
Fixed Account Value ........................ 35
Minimum Guaranteed and Current
Interest Rates ........................... 35
Allocations, Transfers and Withdrawals ...... 35
DISTRIBUTION OF THE POLICIES .................. 36
FEDERAL TAX MATTERS ........................... 36
Introduction ................................. 36
Tax Charges ................................. 36
Tax Status of the Policy ..................... 36
Tax Treatment of Policy Benefits ............ 37
Employment-Related Benefit Plans ............ 38
SAFEKEEPING OF THE SERIES
ACCOUNT'S ASSETS .............................. 38
VOTING RIGHTS OF THE SERIES AC-
COUNT ......................................... 39
STATE REGULATION OF WESTERN
RESERVE ....................................... 39
REINSURANCE ................................. 39
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE ........................... 39
LEGAL MATTERS ................................. 40
LEGAL PROCEEDINGS ........................... 40
EXPERTS ....................................... 40
ADDITIONAL INFORMATION ........................ 41
INFORMATION ABOUT
WESTERN RESERVE'S
FINANCIAL STATEMENTS ........................ 41
APPENDIX A - ILLUSTRATION
OF BENEFITS ................................. 42
APPENDIX B - LONG TERM
MARKET TRENDS ................................. 46
INDEX TO FINANCIAL
STATEMENTS .................................... 48
APPENDIX C - SURRENDER CHARGE ............... 49
The Policy is not available in the State of New York
i
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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.
FIXED ACCOUNT -- An allocation option other than the Series Account. The
Fixed Account is 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 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.
MINIMUM MONTHLY GUARANTEE PREMIUM -- During the No Lapse Period, an
amount as shown on the Policy Schedule Page, used to determine whether a grace
period will begin whenever Net Surrender Value is insufficient to meet monthly
deductions for cost of insurance, the Policy Charge and any optional cash value
charges.
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 as of the date of surrender, less any surrender charge,
and less any outstanding Policy loan, plus any unearned loan interest.
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 the applicable premium expense charges.
NO LAPSE DATE -- The No Lapse Date as specified in the Policy, which, for
a Policy issued to an Insured at Issue Ages 0-60, is the lesser of the number
of years to Attained Age 65, or the twentieth Anniversary, and, for a Policy
issued to an Insured at Issue Ages 61-80, is the fifth Anniversary.
NO LAPSE PERIOD -- The period of time between the Policy Date and the No
Lapse Date, during which the Policy will not Lapse if certain conditions are
met, even though Net Surrender Value is insufficient to meet the monthly
deductions.
OFFICE -- The administrative office of Western Reserve whose mailing
address is P. O. Box 5068, Clearwater, Florida 34618-5068.
PLANNED PERIODIC PREMIUM -- A scheduled premium of a level amount at a
fixed interval over a specified period of time.
POLICY -- The flexible premium variable life insurance policy offered by
Western Reserve and described in this Prospectus.
POLICY DATE -- The date set forth in the Policy when insurance coverage
is effective and monthly deductions commence under the Policy. The Policy Date
is used to determine Policy years and Policy Months. Policy Anniversaries are
measured from the Policy Date.
POLICY MONTH -- A month beginning on the Monthly Anniversary.
POLICYOWNER ("OWNER") -- The person who owns the Policy and who may
exercise all rights under the Policy while living.
PORTFOLIO -- A separate investment portfolio of the Fund.
RECORD DATE -- The date the Policy is recorded on the books of Western
Reserve as an In Force Policy.
SERIES ACCOUNT -- WRL Series Life Account, a separate investment account
established by Western Reserve to receive and invest Net Premiums allocated
under the Policy.
SPECIFIED AMOUNT -- The minimum death benefit payable under the Policy as
long as the Policy remains In Force. The death benefit proceeds will be reduced
by any outstanding indebtedness and any due and unpaid charges.
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SUB-ACCOUNT -- A sub-division of the Series Account. Each Sub-Account
invests exclusively in the shares of a specified Portfolio of the Fund.
TERMINATION -- Condition when the Insured's life is no longer insured
under the coverage provided.
VALUATION DATE -- Each day on which the New York Stock Exchange is open
for business.
VALUATION PERIOD -- The period commencing at the end of one Valuation
Date and continuing to the end of the next succeeding Valuation Date.
2
<PAGE>
INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED-BENEFIT
LIFE INSURANCE POLICY?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide: (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 Sub-Accounts. 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. 22.) Unlike conventional fixed-benefit life insurance, a
Policyowner also has the flexibility, subject to certain restrictions (see
Premiums - Premium Limitations, p. 21), to vary the frequency and amount of
premium payments and to decrease the Specified Amount. Thus, unlike
conventional fixed-benefit life insurance, the Policy does not require a
Policyowner to adhere to a fixed premium schedule. Moreover, the failure to
pay a scheduled premium ("Planned Periodic Premium") will not itself cause
the Policy to Lapse, although additional premium payments may be necessary
to prevent Lapse if Net Surrender Value is insufficient to pay certain
monthly charges, and a grace period expires without a sufficient payment.
(See Policy Lapse and Reinstatement - Lapse, p. 24.)
2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the
Insured. The Policy contains three 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 times the Cash Value of the Policy on the date of death of the
Insured. Under Death Benefit Option C, the death benefit is equal to the
greater of the amount payable under Death Benefit Option A, or the Specified
Amount times a factor equal to the lesser of 1.0, and four one-hundredths
(.04) times the result of 95 minus the Insured's Attained Age at death, plus
the Cash Value of the Policy as of the date of death of the Insured.
As long as the Policy remains In Force, the minimum death benefit
payable under any option will be the current Specified Amount. The amount of
death benefit will be reduced by any outstanding indebtedness and any due
and unpaid charges, and increased by any additional insurance benefits added
by rider and any unearned loan interest. Under Western Reserve's current
rules, the minimum Specified Amount for a Policy at issue for Issue Ages
0-45 is $50,000, declining to $25,000 for Issue Ages 46 to 80. The minimum
Specified Amount will be set forth in the Policyowner's Policy. (See Policy
Benefits - Death Benefit, p. 13.)
Optional insurance benefits offered under the Policy include a
Children's Insurance Rider; an Other Insured Rider; an Accidental Death
Benefit Rider; a Disability Waiver Rider; a Disability Waiver and Monthly
Income Rider; and Primary Insured Riders. (See Optional Cash Value Charges
- Optional Insurance Benefits, p. 27.) 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. 26.)
A Terminal Illness Accelerated Death Benefit Rider is automatically
included with every Policy at no additional charge (as of the date of this
Prospectus, Michigan, New Jersey, Pennsylavania and Vermont have not
approved this rider). This rider makes a "Single Sum Benefit" available
prior to the Insured's death if the Insured has incurred a condition
resulting from illness which, as determined by a Physician, has reduced the
Insured's life expectancy as defined in the rider. (See General Provisions -
Terminal Illness Accelerated Death Benefit Rider, p. 34.)
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. 32.)
3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under any of the death benefit options, as long as the Policy remains
In Force, the death benefit will not be less than the current Specified
Amount of the Policy. The amount of death benefit will be reduced by any
outstanding policy loan, plus any unearned loan interest, 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
3
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and the Cash Value of the Policy. (See Policy Benefits - Death Benefit, p.
13.)
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 Sub-Accounts of the Series Account is borne by the
Policyowner; Western Reserve does not guarantee a minimum Cash Value. (See
Policy Benefits - Cash Value, p. 17.)
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 changing the Death Benefit Option, by decreasing the
Specified Amount of the Policy or by adding riders to increase the total
death benefit payable. No such change or decrease may be made during the
first three Policy years. The Policyowner may either change the Death
Benefit Option or decrease the Specified Amount, but not both, only once
each Policy year after the third Policy year. (See Policy Benefits - Change
in Death Benefit Option, p. 15, and Death Benefit - Decrease in Specified
Amount, p. 16.)
5. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE IN CONNECTION WITH PREMIUM
PAYMENTS?
A Policyowner has considerable flexibility concerning the amount and
frequency of premium payments. Western Reserve will require the Policyowner
to pay an Initial Premium, at least equal to a minimum monthly guarantee
premium set forth in the Policy, before insurance coverage is In Force.
Thereafter, a Policyowner may, subject to certain restrictions, make premium
payments in any amount and at any frequency. (See Payment and Allocation of
Premiums - Premiums, p. 21.) Each Policyowner will also determine a Planned
Periodic Premium schedule. The schedule will provide a premium payment of a
level amount at a fixed interval over a specified period of time. The amount
and frequency of Planned Periodic Premium payments will be set forth in the
Policy. The amount and frequency of Planned Periodic Premium payments may be
changed upon written request. (See Premiums - Planned Periodic Premiums, p.
21.)
6. 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. 26), and a grace period expires without a sufficient payment by the
Policyowner. (See Loan Privileges - Indebtedness, p. 30.) However, until the
No Lapse Date as provided in the Policy, the Policy will remain In Force and
no grace period will begin provided there has been no addition of any
riders, the total premiums received (minus any withdrawals, any outstanding
loans, and any pro rata Decrease Charge deducted from the Cash Value) equals
or exceeds the Minimum Monthly Guarantee Premium shown in the Policy times
the number of months since the Policy Date, including the current month. The
Minimum Monthly Guarantee Premium is set forth in the Policy, unless changed
due to a requested change under the Policy by the Policyowner, at which time
the Policyowner will be notified of the new Minimum Monthly Guarantee
Premium and its effective date. The Policy, therefore, differs in two
important respects from a conventional life insurance policy. First, the
failure to pay a Planned Periodic Premium will not automatically cause the
Policy to lapse. Second, after the No Lapse Date, the Policy can lapse even
if Planned Periodic Premiums or premiums in other amounts have been paid, if
Net Surrender Value is insufficient to pay the monthly deduction, and a
grace period expires without a sufficient payment. Such a Lapse could happen
if the investment experience has been sufficiently unfavorable to have
resulted in a decrease in the Net Surrender Value, or the Net Surrender
Value has decreased because not enough premiums have been paid to offset the
monthly deductions. 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. Upon request, Western Reserve will
extend the Maturity Date, as long as there appears to be no unfavorable tax
consequences. The Net Surrender Value as of the Maturity Date will be paid
to the Policyowner. (See Policy Rights - Benefits at Maturity, p. 31.)
7. HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("Net Premium")
equals the premium paid less the premium expense charges. (See Charges and
Deductions - Premium Expense Charges, p. 25.) The Policyowner initially
determines the allocation of the Net Premium among the Sub-Accounts of the
Series Account, each of which invests in shares of a designated Portfolio of
the Fund, or to the Fixed Account, or a combination. Each Portfolio has a
different investment objective. (See Investments of the Series Account - WRL
Series Fund, Inc., p. 18.) The allocation of future Net Premiums may be
changed without charge at any time by providing Western Reserve with written
notification from the Policyowner, or by calling Western Reserve's toll-
free number, 1-800-851-9777. Western Reserve reserves the right to impose a
charge of $25 for each change in allocation instructions in excess of one
per Policy quarter.
8. IS THERE A "FREE-LOOK" PERIOD?
Yes, the Policy provides a free-look period. The Policyowner may
cancel the Policy within 10 days after the Policyowner receives it. 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
4
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make a refund in accordance with a calculation described under Policy
Rights - Examination of Policy Privilege ("Free-Look"), p. 31. In certain
states, the refund will be the total of all premiums paid. (See Policy
Rights - Examination of Policy Privilege, p. 31.)
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. 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. 30.) 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 any amount which is not greater than 90% of the Cash Value, less any
surrender charge and any already outstanding loan. Western Reserve reserves
the right to permit a Policy Loan prior to the first Policy Anniversary for
Policies issued pursuant to a transfer of cash values from another life
insurance policy, under Section 1035(a) of the Internal Revenue Code of
1986, as amended. It should be noted, however, that a loan taken from, or
secured by, a Policy may be treated as a taxable distribution, and also may
be subject to a penalty tax. (See Federal Tax Matters, p. 36.)
The interest rate on a Policy loan is 5.2% payable annually in advance
(equivalent to an effective annual rate of 5.5%). The requested loan amount,
plus interest in advance, will be transferred from the Accounts to the Loan
Reserve and credited at the end of each Policy year with guaranteed interest
at a rate of 4% per year. Western Reserve may from time to time, and in its
sole discretion, credit the Loan Reserve with additional interest at a rate
higher than 4% per year. The Loan Reserve is currently credited with a rate
higher than 4% per year. The minimum loan amount is generally $500. (See
Policy Rights - Loan Privileges, p. 29.) 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.
35.)
There are risks involved in taking a Policy loan, including the
potential for a Policy to lapse if anticipated earnings, taking into account
any outstanding loans, are not achieved, as well as adverse tax consequences
which occur if a Policy lapses with loans outstanding. (See Federal Tax
Matters - Tax Treatment of Policy Benefits, p. 37.)
11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?
Certain charges are deducted from each premium. A sales charge equal
to 3.5% of the premiums paid through the end of the tenth Policy year is
deducted to compensate Western Reserve for distribution expenses incurred in
connection with the Policy. A charge of 2.5% of each premium payment is
deducted to compensate Western Reserve for premium taxes imposed by various
states. In addition, $3.00 per premium payment is deducted to compensate
Western Reserve for costs associated with premium collections. (See Charges
and Deductions - Premium Expense Charges, p. 25.)
A "surrender charge" is deducted if the Policy is surrendered during
the first fifteen Policy years. The Surrender Charge imposed upon early
surrender or a decrease in Specified Amount will be significant. As a
result, you should purchase a Policy only if you have the financial
capability to keep it In Force for a substantial period of time. The
surrender charge is calculated by multiplying the Specified Amount as of the
Policy Date by the Surrender Charge per $1,000 of Specified Amount as shown
in the Policy for the Policy year during which surrender occurs. In
addition, a pro rata Decrease Charge equal to a pro rata portion of the
Surrender Charge will be calculated and charged to the Cash Value for any
decreases in the Policy's Specified Amount which occur during the first
fifteen Policy years. Any future Surrender Charges will be reduced
proportionately according to the amount of any previous pro rata Decrease
Charge. (See Charges and Deductions - Surrender Charge, p.25 and Pro Rata
Decrease Charge, p. 26.)
Cost of insurance charges and a current $5.00 monthly Policy Charge,
guaranteed never to exceed $7.50, are deducted monthly from the Cash Value
of each Policy to compensate Western Reserve for the cost of insurance and
the cost of administering the Policy. Cost of insurance charges will vary
with the Policy's Specified Amount, the death benefit Option chosen and the
investment experience of the Portfolios in which the Policy is invested.
(See Charges and Deductions - Cash Value Charges, p.26.)
Optional Cash Value charges are deducted from the Policy as a result
of Policyowner changes or elections made to the Policy. Optional Cash Value
charges include charges for: optional insurance benefits, certain Cash Value
transfers and cash withdrawals. (See Charges and Deductions - Optional Cash
Value Charges, p. 27.)
Western Reserve charges the Sub-Accounts of the Series Account for the
mortality and expense risks Western Reserve assumes. The charge is made
daily at an effective annual rate of 0.90% of the average daily net assets
of each Sub-Account of the Series Account. Western Reserve currently intends
to reduce this charge to 0.75% after the first fifteen
5
<PAGE>
Policy years. However, such reduction is not guaranteed, and Western Reserve
reserves the right to maintain this charge at the 0.90% level after the
first fifteen Policy years. (See Charges and Deductions - Charges Against
the Series Account, p. 27.)
Each Sub-Account invests in a corresponding Portfolio of the Fund.
Each Portfolio pays investment management fees based on a percentage of the
Portfolio's average daily net assets. The annual management fees and other
Fund expenses for the Portfolios are provided on p. 7, under the heading
Fund Annual Expenses. Effective January 1, 1997, the Fund adopted a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan")
and, pursuant to the Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths of
one percent) on an annualized basis of the average daily net assets. This
fee is measured and accrued daily and paid monthly. ISI has determined that
it will not seek payment by the Fund of distribution expenses incurred with
respect to any Portfolio during the fiscal year ending December 31, 1997.
Prior to ISI's seeking reimbursement, Policyowners will be notified in
advance. In addition, the Portfolios incur certain operating expenses. (See
Investments of the Series Account - WRL Series Fund, Inc., p. 18.)
No charges are currently made from the Series Account for Federal or
state income taxes. Should Western Reserve determine that such taxes may be
imposed by Federal or state agencies, Western Reserve may make deductions
from the Series Account to pay these taxes. (See Federal Tax Matters, p.
36.)
12. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS?
Yes. A Policyowner may transfer Cash Value among the Sub-Accounts of
the Series Account or from the Sub-Accounts to the Fixed Account. Transfers
may also be made from the Fixed Account to the Sub-Accounts subject to
certain restrictions. (See The Fixed Account - Allocations, Transfers and
Withdrawals, p. 35.) Western Reserve reserves the right to charge a $25 fee
for each transfer in excess of one per Policy month or twelve per Policy
year. This charge will not be increased. (See Payment and Allocation of
Premiums - Allocation of Premiums and Cash Value - Transfers, p. 22.)
13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
At present, there is 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
Ultimate Select, non-tobacco use, Select, non-tobacco use, Ultimate
Standard, tobacco use, Standard, tobacco use, while there is some
uncertainty due to the limited guidance on Section 7702, Western Reserve
nonetheless believes that 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 less guidance to determine whether such a
Policy meets the Section 7702 definition of a life insurance contract. Thus,
it is not clear whether 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. 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.
A Policy may be treated as a "modified endowment contract" depending
upon the amount of premiums paid in relation to the death benefit. (See Tax
Treatment of Policy Benefits - Modified Endowment Contracts, p. 37.) If the
Policy is a modified endowment contract, then all pre-death distributions,
including Policy loans and loans secured by a Policy, will be treated first
as a distribution of taxable income to the extent of any gain and then as a
return of basis or investment in the contract. In addition, prior to age
59 1/2 any distributions of gains generally will be subject to a 10% penalty
tax.
If the Policy is not a modified endowment contract, distributions
generally will be treated first as a return of basis or investment in the
contract and then as disbursing taxable income. Moreover, loans and loans
secured by a Policy will not be treated as distributions. Finally, neither
distributions nor loans from a Policy that is not a modified endowment
contract are subject to the 10% penalty tax. For further elaboration on the
tax consequences of a Policy, see Federal Tax Matters, p. 36.
6
<PAGE>
FUND ANNUAL EXPENSES* (AS A % OF FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Aggressive Emerging C.A.S.E.
Growth Growth Growth Global Balanced Value Equity Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio** Portfolio
------------ ----------- ----------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees ..................... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) 0.18% 0.14% 0.08% 0.19% 0.17% 0.20% 0.20%
Total Fund Annual Expenses ......... 0.98% 0.94% 0.88% 0.99% 0.97% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
Strategic Growth &
Bond Total Return Income
Portfolio Portfolio Portfolio
----------- -------------- -----------
<S> <C> <C> <C>
Management Fees ..................... 0.50% 0.80% 0.75%
Other Expenses (after reimbursement) 0.14% 0.11% 0.25%
Total Fund Annual Expenses ............ 0.64% 0.91% 1.00%
<CAPTION>
Tactical
Money Asset International
Market Allocation Equity U.S. Equity
Portfolio Portfolio Portfolio** Portfolio**
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Management Fees ..................... 0.40% 0.80% 1.00% 0.80%
Other Expenses (after reimbursement) 0.12% 0.10% 0.30% 0.25%
Total Fund Annual Expenses ............ 0.52% 0.90% 1.30% 1.05%
</TABLE>
* Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant
to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the
Plan, has entered into a Distribution Agreement with InterSecurities, Inc.
("ISI"), principal underwriter for the Fund. Under the Distribution Plan,
the Fund, on behalf of the Portfolios, is authorized to pay to various
service providers, as direct payment for expenses incurred in connection
with the distribution of a Portfolio's shares, amounts equal to actual
expenses associated with distributing a Portfolio's shares, up to a maximum
rate of 0.15% (fifteen one-hundredths of one percent) on an annualized
basis of the average daily net assets. This fee is measured and accrued
daily and paid monthly. ISI has determined that it will not seek payment by
the Fund of distribution expenses incurred with respect to any Portfolio
during the fiscal year ending December 31, 1997. Prior to ISI's seeking
reimbursement, Policyowners will be notified in advance.
** Because the Value Equity Portfolio commenced operations on May 1, 1996 the
"Other Expenses" and "Total Fund Annual Expenses" are annualized. Because
the International Equity and U.S. Equity Portfolios commenced operations on
January 2, 1997, the percentages set forth as "Other Expenses" and "Total
Fund Annual Expenses" are estimates.
The purpose of the preceding Table is to assist the Policyowner in
understanding the various costs and expenses that a Policyowner will bear
directly and indirectly. The Table reflects charges and expenses of the
Portfolios of the Fund for the fiscal year ended December 31, 1996, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the Value Equity
Portfolio are annualized and the "Other Expenses" and "Total Fund Annual
Expenses" for the International Equity and U.S. Equity Portfolios are
estimates. Expenses of the Fund may be higher or lower in the future. Certain
states and other governmental entities may impose a premium tax, which the
Table does not include. For more information on the charges described in this
Table, see CHARGES AND DEDUCTIONS on page 25 and the Fund Prospectus which
accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30,
1998, to pay Fund expenses on behalf of the Portfolios to the extent normal
operating expenses of a Portfolio exceed a stated percentage of each
Portfolio's average daily net assets. In 1996, Western Reserve, the Fund's
Investment Adviser prior to January 1, 1997, reimbursed the Value Equity
Portfolio in the amount of $13,672, and the C.A.S.E. Growth Portfolio in the
amount of $73,269. Without such reimbursement, the total annual Fund expenses
during 1996 for the Value Equity Portfolio and the C.A.S.E. Growth Portfolio
would have been 1.03% and 1.64%, respectively. See the Fund's Prospectus for a
description of the expense limitation applicable to each Portfolio.
INVESTMENT EXPERIENCE INFORMATION
THE INFORMATION PROVIDED IN THIS SECTION SHOWS THE HISTORICAL INVESTMENT
EXPERIENCE OF THE FUND AND HYPOTHETICAL ILLUSTRATIONS OF THE POLICY BASED ON
THE HISTORICAL INVESTMENT EXPERIENCE OF THE FUND. IT DOES NOT REPRESENT OR
PROJECT FUTURE INVESTMENT PERFORMANCE.
The Policies became available for sale in 1997. 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 for
each Portfolio in each calendar year was assumed to be uniformly earned
throughout that year. The actual performance of the Portfolios, however, has
and will vary throughout the year, resulting in variable monthly deductions
from Cash Value that could affect performance.
RATES OF RETURN
The rates of return shown below are based on the actual investment
performance, as described above, 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 ended on December 31,
1996. (See Investments of the Series Account - WRL Series Fund, Inc., p. 18.)
These rates of return do not reflect the annual charge against the assets
of the Series Account of 0.90% for mortality and expense risks. These rates of
return also do not reflect the charges deducted from premiums, monthly
deductions from Cash Value, or surrender charges. (See Charges and Deductions -
Premium Expense Charges, p. 25; Surrender Charge, p. 25; and Cash Value
Charges, p. 26.) Accordingly, these rates of return do not illustrate
7
<PAGE>
how actual investment performance will affect benefits under the Policies.
(See, however, Death Benefit, Cash Value and Net Surrender Value Illustrations,
below.) Moreover, these rates of return are not an estimate, projection or
guarantee of future performance.
Also shown are comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks (S&P 500), a widely used measure of stock market
performance. As an unmanaged index, the S&P 500 does not reflect any deduction
for the expenses of operating and managing an investment portfolio.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1996
Fund Portfolio Inception* 5 Years 3 Years 1 Year
- ------------------------ ------------ --------- --------- -----------
Growth 17.66% 11.11% 16.75% 17.96%
Global 20.82% N/A 16.37% 27.74%
Bond 7.63% 6.77% 4.65% 0.14%
Money Market 4.98% 4.99% 3.86% 5.03%
Emerging Growth 20.04% N/A 17.37% 18.88%
Strategic Total Return 13.36% N/A 12.55% 15.00%
Aggressive Growth 15.50% N/A N/A 10.45%
Balanced 8.19% N/A N/A 10.72%
Growth & Income 10.69% N/A N/A 11.64%
Tactical Asset
Allocation 17.27% N/A N/A 14.42%
C.A.S.E Growth 23.22% N/A N/A 17.50%
Value Equity 13.19% N/A N/A N/A
S&P 500 15.46% 15.22% 19.68% 22.96%
* The Growth, Bond and Money Market Portfolios of the Fund commenced operations
on October 2, 1986. The Global Portfolio commenced operations on December
3, 1992. The Emerging Growth and Strategic Total Return Portfolios
commenced operations on March 1, 1993. The Aggressive Growth, Balanced and
Growth & Income Portfolios commenced operations on March 1, 1994. The
Tactical Asset Allocation Portfolio commenced operations on January 3,
1995. The C.A.S.E. Growth Portfolio commenced operations on May 1, 1995.
The Value Equity Portfolio commenced operations on May 1, 1996. The S&P 500
returns are based on an inception date of October 2, 1986.
Because the U.S. Equity and International Equity Portfolios had not yet
commenced operations as of December 31, 1996, 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 Prospectus for the Portfolios of
the Fund.
DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS
In order to demonstrate how the actual investment experience of the
Portfolios will affect the Option A death benefits, the Policy Cash Value and
the 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. The
actual performance of the Portfolios, however, has and will vary throughout the
year, resulting in variable monthly deductions from Cash Value that could
affect performance. These illustrations do not represent what may happen in the
future.
The illustrations show Option A based on the payment of annual premiums of
$2,000 at the beginning of each Policy year, and a Specified Amount of $165,000
for a male age 35. The illustrations assume that the Insured is placed in
Western Reserve's Ultimate Select, non-tobacco use, underwriting rate class.
(See Cash Value Charges - Cost of Insurance, p. 26.) The illustrations also
assume that the Policy's entire Cash Value is allocated to the Sub-Account
corresponding to the Portfolio shown. These illustrated values would be
different if the Policyowner had chosen Death Benefit Option B or C.
The amounts shown for death benefits, Cash Values and Net Surrender
Values take into account all charges and deductions from the Policy, the Series
Account and the Fund (see Charges and Deductions - Premium Expense Charges, p.
25, Charges Against the Series Account, p. 27, and Investments of the Series
Account - WRL Series Fund, Inc., p. 18).
For each Portfolio of the Fund, one illustration is based on the
guaranteed cost of insurance rates, while the other illustration is based on
the current cost of insurance rates. These examples of Policy performance are
for the specific 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, pages 42-45.
The following example shows how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1987. This example assumes that the Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
8
<PAGE>
GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .............................. $ 1,753 $ 1,728 $ 0 $ 0
1989* .............................. 3,851 3,792 1,290 1,231
1990* .............................. 8,090 7,957 5,530 5,397
1991* .............................. 9,356 9,181 6,796 6,620
1992* .............................. 17,476 17,133 14,915 14,572
1993* .............................. 19,276 18,878 16,971 16,573
1994* .............................. 21,289 20,827 19,240 18,778
1995* .............................. 20,672 20,197 18,879 18,404
1996* .............................. 32,641 31,888 31,105 30,351
1997* .............................. 39,657 38,740 38,376 37,459
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Bond
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1987. This example assumes that Net Premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
BOND PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .............................. $ 1,479 $ 1,457 $ 0 $ 0
1989* ........................... 3,230 3,176 669 615
1990* ........................... 5,506 5,405 2,945 2,844
1991* ........................... 7,492 7,336 4,931 4,775
1992* ........................... 10,500 10,265 7,940 7,705
1993* ........................... 12,899 12,593 10,595 10,288
1994* ........................... 16,010 15,611 13,962 13,562
1995* ........................... 16,202 15,774 14,410 13,982
1996* .............................. 21,595 20,021 20,059 19,485
1997* .............................. 22,700 22,093 21,420 20,813
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
9
<PAGE>
The following example shows how the hypothetical net return of the Money
Market Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1987. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
MONEY MARKET PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .............................. $ 1,654 $ 1,631 $ 0 $ 0
1989* ........................... 3,394 3,339 833 778
1990* ........................... 5,313 5,216 2,752 2,655
1991* ........................... 7,315 7,163 4,754 4,602
1992* ........................... 9,238 9,028 6,677 6,467
1993* ........................... 11,000 10,732 8,695 8,428
1994* ........................... 12,690 12,361 10,642 10,313
1995* ........................... 14,546 14,146 12,753 12,354
1996* .............................. 16,713 16,247 15,177 14,711
1997* .............................. 18,883 18,355 17,603 17,075
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Global
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1993, if the Global Portfolio had been offered by the Policy as of January
1, 1993. This example assumes that Net Premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
GLOBAL PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1994 .............................. $ 2,142 $ 2,116 $ 0 $ 0
1995* ........................... 3,690 3,635 1,130 1,074
1996* .............................. 6,454 6,346 3,894 3,785
1997* .............................. 10,016 9,828 7,455 7,267
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Emerging Growth Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1994. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
EMERGING GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 .............................. $1,432 $1,410 $ 0 $ 0
1996* .............................. 4,466 4,398 1,905 1,837
1997* .............................. 7,041 6,922 4,480 4,361
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
10
<PAGE>
The following example shows how the hypothetical net return of the
Strategic Total Return Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1994. This example assumes that Net Premiums and
related Cash Values were in the Sub-Account for the entire period and that the
values were determined on the first Valuation Date following January 1st of
each year.
STRATEGIC TOTAL RETURN PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 .............................. $1,550 $1,527 $ 0 $ 0
1996* .............................. 3,902 3,841 1,341 1,280
1997* .............................. 6,164 6,057 3,604 3,496
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Aggressive Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1995. This example assumes that Net Premiums and
related Cash Values were in the Sub-Account for the entire period and that the
values were determined on the first Valuation Date following January 1st of
each year.
AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .............................. $2,238 $2,211 $ 0 $ 0
1997* .............................. 4,131 4,071 1,570 1,510
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Balanced Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1995. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
BALANCED PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .............................. $1,896 $1,871 $ 0 $ 0
1997* .............................. 3,769 3,711 1,208 1,150
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
11
<PAGE>
The following example shows how the hypothetical net return of the
Growth & Income Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1995. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
GROWTH & INCOME PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .............................. $1,986 $1,971 $ 707 $ 692
1997* .............................. 3,859 3,828 2,495 2,464
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Tactical Asset Allocation Portfolio of the Fund would have affected benefits
for a Policy dated January 1, 1995. This example assumes that Net Premiums and
related Cash Values were in the Sub-Account for the entire period and that the
values were determined on the first Valuation Date following January 1st of
each year.
TACTICAL ASSET ALLOCATION PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .............................. $1,912 $1,887 $ 0 $ 0
1997* .............................. 3,913 3,854 1,352 1,293
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
C.A.S.E. Growth Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1996, if the C.A.S.E. Growth Portfolio had been offered by the
Policy as of January 1, 1996. This example assumes that Net Premiums and
related Cash Values were in the Sub-Account for the entire period and that the
values were determined on the first Valuation Date following January 1st of
each year.
C.A.S.E. GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 .............................. $1,826 $1,801 $0 $0
</TABLE>
Because the Value Equity Portfolio commenced operations on May 1, 1996 and
the U.S. Equity Portfolio and International Equity Portfolio had not yet
commenced operations as of December 31, 1996, there are no hypothetical
illustrations for these Portfolios.
OTHER PERFORMANCE DATA
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable life
issuers in general, or to the performance of particular types of variable life
insurance policies investing in mutual funds, or investment series of mutual
funds, with investment objectives similar to each of the Sub-Accounts whose
performance is reported by Lipper Analytical Services, Inc. ("Lipper") and
Morningstar, Inc. ("Morningstar") or reported by other services, companies,
individuals or other industry or financial publications of general interest,
such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK, BARRON'S,
KIPLINGER'S PERSONAL FINANCE and FORTUNE.
12
<PAGE>
Lipper and Morningstar are widely used independent research services which
monitor and rank the performance of variable life insurance policies in each of
the major categories of investment objectives on an industry-
wide basis.
Lipper's and Morningstar's rankings include variable annuity contracts as
well as variable life insurance policies. The performance analyses prepared by
Lipper and Morningstar rank such policies and contracts on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level
into consideration.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance, or other widely
recognized indices. Unmanaged indices may assume the reinvestment of dividends,
but usually do not reflect any "deduction" for the expense of operating or
managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which is
published by the U.S. Department of Labor and measures the average change in
prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account performance may also be made with
appropriate indices measuring the performance of a defined group of securities
widely recognized by investors as representing a particular segment of the
securities markets. For example, Sub-Account performance may be compared with
Donoghue Money Market Institutional Average (money market rates), Lehman
Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
WESTERN RESERVE AND THE SERIES ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. The Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
5068, Clearwater, FL 34618-5068. Western Reserve is a wholly-owned subsidiary
of First AUSA Life Insurance Company ("First AUSA"), a stock life insurance
company which is wholly-owned by AEGON USA, Inc. ("AEGON"). AEGON is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON is a wholly-owned indirect subsidiary
of AEGON nv, a Netherlands corporation, which is a publicly traded international
insurance group.
PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to
time publish in advertisements, sales literature and reports to Policyowners,
the ratings and other information assigned to it by one or more independent
rating organizations such as A.M. Best Company ("A.M. Best"), Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Insurance Rating Services
("Standard & Poor's"), and Duff & Phelps Credit Rating Co. ("Duff & Phelps").
A.M. Best's and Moody's ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. Standard &
Poor's and Duff & Phelps provide ratings which measure the claims-paying
ability of insurance companies. These ratings are opinions of an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. Claims-paying ability ratings do not
refer to an insurer's ability to meet non-policy obligations (i.e.,
debt/commercial paper).
THE SERIES ACCOUNT
WRL Series Life Account ("Series Account") was established by Western
Reserve as a separate account on July 16, 1985. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The
Series Account will receive and invest the Net Premiums paid under this Policy
and other flexible premium variable life insurance policies issued by Western
Reserve.
Although the assets of the Series Account are the property of Western
Reserve, the Code of Ohio, under which the Series Account was established,
provides that the assets in the Series Account attributable to the Policies are
not chargeable with liabilities arising out of any other business which Western
Reserve may conduct. The assets of the Series Account shall, however, be
available to cover the liabilities of the General Account of Western Reserve to
the extent that the Series Account's assets exceed its liabilities arising
under the Policies supported by it.
The Series Account is currently divided into fourteen Sub-Accounts. Each
Sub-Account invests exclusively in shares of a single Portfolio of the Fund.
Income and both realized and unrealized gains or losses from the assets of each
Sub-Account of the Series Account are credited to or charged against that
Sub-Account without regard to income, gains or losses from any other
Sub-Account of the Series Account or arising out of any other business Western
Reserve may conduct.
POLICY BENEFITS
DEATH BENEFIT
Policyowners designate in the initial application one of three death
benefit options offered under the Policy: Death Benefit Option A ("Option A"),
Death Benefit Option B ("Option B") and Death Benefit Option C
13
<PAGE>
("Option C"). As long as the Policy remains In Force, (see Policy Lapse and
Reinstatement - Lapse, p. 24), 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. 32.) Western
Reserve guarantees that as long as the Policy remains In Force (see Policy
Lapse and Reinstatement - Lapse, p. 24), the death benefit proceeds under any
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 (i) the Specified Amount
of the Policy, or (ii) a specified percentage (the "limitation percentage")
times the Cash Value of the Policy on the date of death of the Insured. 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 the Cash Value above $20,000
will increase the death benefit by $2.50.
Similarly, so long as the Cash Value exceeds $20,000, each dollar taken
out of the 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 PER YEAR
OF INSURED LESS OVER AGE
--------------- ---- --------
under 40 ...... 250%
41 - 45 ......... 250% 7% 40
46 - 50 ...... 215% 6% 45
51 - 55 ...... 185% 7% 50
56 - 60 ...... 150% 4% 55
61 - 65 ...... 130% 2% 60
66 - 70 ...... 120% 1% 65
71 - 75 ...... 115% 2% 70
76 - 90 ...... 105% 0% 75
91 - 95 ...... 105% 1% 90
OPTION B. The death benefit is equal to the greater of (i) the Specified
Amount plus the Cash Value of the Policy on the date of death of the Insured or
(ii) the limitation percentage times the Cash Value of the Policy on the date
of death of the Insured. The applicable percentage is 250% for an Insured age
40 or below on the Policy Anniversary prior to the 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.
OPTION C. The death benefit is equal to the greater of (i) the Option A
death benefit; or (ii) the Specified Amount times a "Factor", plus the Cash
Value of the Policy on the Insured's date of death. The "Factor" is equal to
the lesser of 1.0, and, four one-hundreths (0.04)
14
<PAGE>
times the difference of 95 minus the Insured's Attained Age on the date of
death.
Accordingly, under Option C the amount of the death benefit will vary as
the Cash Value and the Insured's Attained Age varies.
THREE ILLUSTRATIONS OF OPTION C.
First illustration: assume that the Insured is under the age of 40 and
that there is no outstanding indebtedness. Under Option C, a Policy with a
Specified Amount of $50,000 and with a Cash Value of $10,000 will have a death
benefit of $60,000 ($50,000 x the minimum of (1.0 and (0.04 x (95-40))) +
$10,000). So long as the Insured is under age 71, this benefit is the same as
the Option B benefit.
Second illustration: assume that the Insured is Attained Age 75 and that
there is no outstanding indebtedness. Under Option C, a Policy with a Specified
Amount of $50,000 and with a Cash Value of $12,000 will have a death benefit of
$52,000 ($50,000 x the minimum of (1.0 and (0.04 x (95 - 75))) + $12,000). The
death benefit, however, must be at least 105% of Cash Value as shown in the
Limitation Percentage Table above.
Third illustration: assume that the Insured is Attained Age 75 and that
there is no outstanding indebtedness. Under Option C, a Policy with a Specified
Amount of $50,000 and with a Cash Value of $9,000 will have a death benefit
equal to the Specified Amount of $50,000 since the calculation of $50,000 times
the minimum of (1.0 and (0.04 x (95 - 75))) plus $9,000 is less than the
Specified Amount.
CHOOSING DEATH BENEFIT OPTION A, OPTION B OR OPTION C. Assuming the death
benefit is not determined by reference to the limitation percentage, Option A
will provide a Specified Amount of death benefit which does not vary with
changes in Cash Value. Thus, under Option A, as Cash Value increases, Western
Reserve's net amount at risk and therefore the pure insurance protection under
the Policy will decline. In contrast, Option B involves a constant net amount
at risk, assuming that the death benefit is not determined by reference to the
limitation percentage. Therefore, assuming positive investment experience, the
deduction for cost of insurance under a Policy with an Option A death benefit
will be less than under a corresponding Policy with an Option B death benefit.
Option C involves a constant net amount at risk at Attained Ages 70 or less,
assuming that the death benefit is not determined by reference to the
limitation percentage. At Attained Ages greater than 70, the net amount at risk
under Option C will decline, assuming that the death benefit is not determined
by reference to the limitation percentage.
Assuming positive investment experience, the deduction for cost of
insurance under a Policy with an Option C death benefit will ultimately be less
than under a 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 or Option C, but the total death benefit under
Option B and Option C will generally be greater. Thus, Option A could be
considered more suitable for Policyowners whose goal is increasing Cash Value
based upon positive investment experience while Option B could be considered
more suitable for Policyowners whose goal is increasing total death benefit,
and Option C could be considered more suitable for Policyowners whose goal is
increasing total death benefit prior to Attained Age 70 and increasing Cash
Value based upon positive investment experience after Attained Age 70.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit Option in
effect may be changed by the Policyowner once each Policy year after the third
Policy year, provided that no decrease in Specified Amount is made that year. A
change in the Option may be made by sending Western Reserve a written request
for change. A change in death benefit Option may have Federal income tax
consequences. (See Federal Tax Matters, p. 36.)
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.
On the effective date of change to a new Option the Specified Amount will
be adjusted so that the Monthly Cost of Insurance on the effective date of
change under the new Option will be equal to the Monthly Cost of Insurance that
would have been deducted on that date under the prior Option. Upon such change,
the Policyowner will be notified by Western Reserve of the new Specified
Amount.
CORRIDOR PERCENTAGE. If, pursuant to requirements of the Internal
Revenue Code of 1986, as amended, the death benefit under a Policy is
determined by reference to the limitation percentages discussed above, the
Policy is described as "in the corridor," and an increase in the Cash Value of
the Policy will increase the net amount at risk assumed by Western Reserve and
consequently increase the cost of insurance deducted from the Cash Value of the
Policy. (See "Cash Value Charges" - Cost of Insurance, p. 26.)
INSURANCE PROTECTION. A Policyowner may decrease the pure insurance
protection provided by a Policy (i.e., the difference between the death benefit
and the Cash Value) in one of several ways as insurance needs change. These
ways include decreasing the Specified Amount of insurance, changing the level
of premium payments, and, to a lesser extent, making a cash withdrawal from the
Policy. 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. 13), in general
decrease the insurance protection and the charges under the
15
<PAGE>
Policy. A pro rata Decrease Charge will be assessed against Cash
Value at the time of decrease during the first fifteen Policy years.
(See Charges and Deductions - Pro Rata Decrease Charge, p. 26.)
(b) If Option A is elected, an increased level of premium payments will
reduce the pure insurance protection, until the limitation percentage
times the Cash Value exceeds the Specified Amount. 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. 31.) 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. It results in a reduced amount of Cash Value and
increases the possibility that the Policy will Lapse.
(d) A reduced level of premium payments also generally increases the
amount of pure insurance protection if Option A is elected, or
maintains the same amount of pure insurance protection if Option B
or Option C is elected, again depending on the limitation
percentage. It results in a reduced amount of Cash Value and
increases the possibility that the Policy will Lapse.
An Owner may increase insurance protection without increasing the
Policy's Specified Amount by purchasing a lower cost Primary Insured Rider
("PIR") at any time, or Primary Insured Rider Plus ("PIR Plus") at the time of
application for the Policy. PIR or PIR Plus increases the death benefit under a
Policy by the face amount of the rider. In addition, PIR or PIR Plus may be
canceled separately from the Policy (I.E., it can be canceled without causing
the Policy to be canceled or to lapse), and no additional Surrender Charge is
assessed in connection with cancellation of these riders (see Optional
Insurance Benefits - Primary Insured Rider and Primary Insured Plus Rider,
p.33).
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
policy loan, plus any unearned loan interest, and any due and unpaid charges.
The death benefit may, however, vary with the Policy's Cash Value. Under
Option A, the death benefit will only vary when the Cash Value multiplied by
the limitation percentage exceeds the Specified Amount of the Policy. The death
benefit under Option B will always vary with the Cash Value because the death
benefit equals either the Specified Amount plus the Cash Value or the
limitation percentage times the Cash Value. The death benefit under Option C
will vary with the Cash Value and the Insured's Attained Age because the death
benefit equals either the Factor times the Specified Amount plus the Cash
Value, or the Specified Amount, or the limitation percentage times the Cash
Value.
DECREASE IN SPECIFIED AMOUNT. Subject to certain limitations, a
Policyowner may decrease the Specified Amount of a Policy. A decrease in
Specified Amount may affect the net amount at risk, which may affect a
Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of
Insurance, p.26.) A decrease in Specified Amount may also have Federal income
tax consequences. (See Federal Tax Matters, p.36.) The Policyowner may either
change the death benefit Option or decrease the Specified Amount, but not both,
only once each Policy year after the third Policy year. A pro rata Decrease
Charge will be assessed against Cash Value at the time of decrease during the
first fifteen Policy years. (See Charges and Deductions - Pro Rata Decrease
Charge, p. 26.)
No requested decrease in the Specified Amount will be permitted during
the first three Policy years. Thereafter, any decrease in the Specified Amount
will become effective on the Monthly Anniversary on or following receipt of a
written request from the Policyowner by Western Reserve. The Specified Amount
remaining In Force after any requested decrease may not be less than the
minimum Specified Amount set forth in the Policy. Western Reserve reserves the
right to limit any decrease to no more than 20% of the Specified Amount
immediately prior to the decrease. If, following the decrease in Specified
Amount, the Policy would not comply with the maximum premium limitations
required by Federal tax law (see Premiums - Premium Limitations, p. 21), the
decrease may be limited to the extent necessary to meet these requirements.
WHEN INSURANCE COVERAGE TAKES EFFECT
No life insurance coverage shall take effect unless the proposed Insured
and all additional Insureds proposed for coverage are alive and in the same
condition of health as described in the application when the policy is
delivered to the Policyowner and the full Initial Premium is paid. However, if
the full Initial Premium is paid as set forth in the conditional receipt
attached to the application, and the conditional receipt is delivered to the
Policyowner, the terms of the conditional receipt shall apply.
CONDITIONAL INSURANCE COVERAGE. Each and every person proposed for
insurance must be insurable and acceptable to Western Reserve under its
underwriting rules for the amount, plan and risk classification applied for on
the later of: (a) the date of application, or (b) the date of completion of all
medical tests and examinations required by Western Reserve. Any check given for
payment must be honored on first presentation. The conditional receipt and all
coverages applied for on the application are void if a check or draft received
for payment of the Initial Premium is not honored when first presented for
payment.
AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE. If conditional insurance
coverage becomes effective
16
<PAGE>
under the terms of the conditional receipt, then the amount of conditional life
insurance coverage on any person proposed for insurance is the lesser of: (a)
the amount of life insurance applied for on such person, or (b) $300,000
reduced by the amounts payable under all other life insurance or accidental
death benefits then in force or pending with Western Reserve.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE BEGINS. If the conditions listed
above are fulfilled, then the amount of conditional insurance coverage
specified above shall take effect on the later of: (a) the date of the
application, or (b) the date of the completion of all medical tests and
examinations required by Western Reserve. All conditional coverages for each
and every person proposed for insurance will be deemed void if the application
contains material misrepresentation or is fraudulently completed. Benefits
under the conditional receipt coverage will be denied if any person proposed
for insurance commits suicide.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE ENDS. Conditional life insurance
coverage shall terminate automatically, without notice, on the earliest of the
following dates: (a) the date Western Reserve approves the Policy as applied
for, or (b) 10 days following any counteroffer by Western Reserve to offer
insurance to any person proposed for insurance under a different plan or at an
increased premium or on a different rate class or (c) at the end of the
fraction of a year which the payment bears to the premium required to provide
one month of insurance coverage in the amount as described above, or (d) at the
beginning of the 60th day following the date of the conditional receipt.
CASH VALUE
At the end of any Valuation Period, the Cash Value of the Policy is equal
to the sum of the Policy's value in each Sub-Account of the Series Account plus
the Fixed Account Value. There is no guaranteed minimum Cash Value.
NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy
and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender
Privileges, p. 30.) 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. 25); 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 value in a Sub-Account of the Series Account will equal the portion of
any Net Premium allocated to the Sub-Account, reduced by the portion of the
first monthly deduction allocated to that Sub-Account. (See Payment and
Allocation of Premiums - Allocation of Premiums and Cash Value, p. 22.)
Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of the
Series Account will equal the number of units in the Sub-Account, multiplied by
the unit value of that Sub-Account.
The number of units that a Policy has in each Sub-Account is equal to:
(1) The initial units purchased on the Policy Date; plus
(2) Units purchased at the time additional Net Premiums are allocated to
the Sub-Account; plus
(3) Units purchased through transfers from another Sub-Account or the
Fixed Account; minus
(4) Units that are redeemed to pay for monthly deductions as they are
due; minus
(5) Units that are redeemed to pay for any cash withdrawals; minus
(6) Units that are redeemed as part of any transfer to another
Sub-Account or the Fixed Account; minus
(7) Units that are redeemed to pay any pro rata Decrease Charge incurred
as a result of a decrease in the Specified Amount.
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.
35.) 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.
UNIT VALUE. The unit value of each Sub-Account was originally
established at $10 per unit. The unit value may increase or decrease from one
Valuation Period to the next. Unit values also will vary between Sub-
Accounts. The unit value of any Sub-Account at the end of a Valuation Period is
the result of:
(1) The total value of the assets held in the Sub-Account, determined by
multiplying the number of shares of the designated Portfolio owned by
the Sub-Account times the Portfolio's net asset value per share; minus
(2) A deduction for the charge for mortality and expense risks. This
charge is used to compensate Western Reserve for its assumption of
certain mortality and expense risks. The daily amount of this charge
is equal to the net assets of the Sub-Account times the daily pro rata
portion of the annual Mortality and Expense Risk Charge rate. This
annual rate is equal to ninety one-hundredths of one percent (0.90%).
Western Reserve currently intends to reduce this rate to 0.75% after
the first fifteen Policy years, however, such reduction is not
guaranteed; minus
17
<PAGE>
(3) The accrued amount of reserve for any taxes or other economic burden
resulting from the application of tax laws that are determined by
Western Reserve to be properly attributable to the Sub-Account; and
the result divided by
(4) The number of outstanding units in the Sub-Account.
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of
shares of the Fund is determined, once daily, as of the close of the regular
session of business on the New York Stock Exchange ("Exchange") (usually 4:00
p.m., Eastern time), on each day the Exchange is open.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of the Fund, a series mutual fund
which is registered with the Securities and Exchange Commission ("Commission")
as an open-end diversified management investment company. Such registration does
not involve supervision of the management or investment practices or policies of
the Fund by the Commission.
Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of
the Series Account are: Aggressive Growth Portfolio, Emerging Growth Portfolio,
Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic Total Return
Portfolio, Bond Portfolio, Growth & Income Portfolio, Money Market Portfolio,
Tactical Asset Allocation Portfolio, C.A.S.E. Growth Portfolio, Value Equity
Portfolio, U.S. Equity Portfolio and International Equity Portfolio. The assets
of each Portfolio are held separate from the assets of the other Portfolios, and
each Portfolio has investment objectives and policies which are different from
those of the other Portfolios. Thus, each Portfolio operates as a separate
investment fund, and the income or losses of one Portfolio 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 Prospectus for the Fund which should be read carefully.
AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities.
EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by
investing primarily in common stocks of small and medium sized companies.
GROWTH PORTFOLIO: This Portfolio seeks growth of capital by investing
primarily in common stocks listed on a national securities exchange or traded on
NASDAQ.
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.
STRATEGIC TOTAL RETURN PORTFOLIO: This Portfolio seeks to provide
current income, long-term growth of income and capital appreciation by
investing primarily in common stocks, income producing securities convertible
into common stocks, and fixed-income securities.
BOND PORTFOLIO: This Portfolio seeks the highest possible current income
within the confines of the primary goal of insuring the protection of capital
by investing in debt securities issued by the U.S. Government and its agencies
and in medium to high-quality corporate debt securities.
GROWTH & INCOME PORTFOLIO: This Portfolio's objective is to seek total
return by investing in securities that have defensive characteristics. The
Portfolio will invest primarily in a diversified portfolio of equity and debt
securities with an emphasis on sector investing.
MONEY MARKET PORTFOLIO: This Portfolio seeks to obtain maximum current
income consistent with preservation of principal and maintenance of liquidity.
The Portfolio maintains a dollar-weighted average portfolio maturity of not more
than 90 days by investing in U.S. dollar-denominated securities which have
effective maturities of not more than 13 months and present minimal credit
risks.
TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation
of capital and competitive investment returns by investing primarily in stocks,
United States Treasury bonds, notes and bills, and money market funds.
C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth
through investments in small to medium-sized companies.
VALUE EQUITY PORTFOLIO: This Portfolio seeks to achieve maximum,
consistent total return with minimum risk to principal by investing primarily
in common stocks with above-average statistical value which, in the Sub-
Adviser's opinion, are in fundamentally attractive industries and are
undervalued at the time of purchase.
INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks long-term growth of
capital by investing primarily in the common stock of foreign issuers traded on
overseas exchanges and in foreign over-the-counter markets.
U.S. EQUITY PORTFOLIO: This Portfolio seeks long-term growth of capital
by investing primarily in equity securities of U.S. companies.
WRL Investment Management, Inc. ("WRL Management"), located at 201
Highland Avenue, Largo, FL 33770, a wholly-owned subsidiary of Western Reserve,
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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.
Each Sub-Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The Sub-Advisers for the Portfolios of the
Fund are:
Janus Capital Corporation ("Janus") serves as sub-adviser to the Growth,
Bond and Global Portfolios of the Fund. WRL Management and Janus will divide
equally monthly compensation at current annual rates of 0.50% of the aggregate
average daily net assets of the Bond Portfolio and 0.80% of the aggregate
average daily net assets each of the Growth Portfolio and Global Portfolio.
AEGON USA Investment Management, Inc. ("AIMI") is sub-adviser to the
Balanced Portfolio of the Fund. AIMI is a wholly-owned subsidiary of AEGON and
thus is an affiliate of Western Reserve. WRL Management and AIMI will divide
equally monthly compensation at the current annual rate of 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 WRL
Management on behalf of the Balanced Portfolio pursuant to any expense
limitation or other reimbursement.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen American
Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van
Kampen American Capital is an indirect wholly-owned subsidiary of VK/AC
Holding, Inc. ("VK/AC Holding"). VK/AC Holding is a wholly-owned subsidiary of
MSAM Holdings II, Inc., which, in turn, is a wholly-owned subsidiary of Morgan
Stanley Group, Inc. WRL Management and Van Kampen American Capital will divide
equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the Emerging Growth Portfolio. Van Kampen
American Capital's compensation will be reduced by 50% of the amount paid by
WRL Management 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 Strategic Total Return Portfolio of the Fund. Ultimate control of Luther
King is exercised by J. Luther King, Jr. WRL Management and Luther King will
divide equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the Strategic Total Return Portfolio.
Federated Investment Counseling ("Federated") is sub-adviser to the
Growth & Income Portfolio of the Fund. Federated is a wholly-owned subsidiary
of Federated Investors. WRL Management will receive monthly compensation at the
current annual rate of 0.75% of the aggregate average daily net assets of the
Growth & Income 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
Growth & Income Portfolio.
Fred Alger Management, Inc. ("Fred Alger") is sub-adviser to the
Aggressive Growth Portfolio of the Fund. Fred Alger 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. WRL Management and Fred Alger will divide equally
monthly compensation at the current annual rate of 0.80% of the aggregate
average daily net assets of the Aggressive Growth Portfolio.
Dean Investment Associates, a Division of C.H. Dean and Associates, Inc.
("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the Fund.
Dean is wholly-owned by C.H. Dean and Associates, Inc. WRL Management 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 WRL
Management on behalf of the Tactical Asset Allocation Portfolio pursuant to any
expense limitation or other reimbursement.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is sub-adviser to
the Money Market Portfolio of the Fund. J.P. Morgan is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. WRL Management will receive
monthly compensation at the current annual rate of 0.40% of the aggregate
average daily net assets of the Money Market Portfolio. From this amount, as
compensation for its services, J.P. Morgan will receive 0.15% of the average
daily net assets of the Money Market Portfolio.
C.A.S.E. Management, Inc. ("C.A.S.E.") is sub-adviser to the C.A.S.E.
Growth Portfolio of the Fund. C.A.S.E. is a wholly-owned subsidiary of C.A.S.E.
Inc. C.A.S.E. Inc. is indirectly controlled by William Edward Lange, president
and chief executive officer of C.A.S.E. WRL Management 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") is sub-adviser
to the Value Equity Portfolio of the Fund. NWQ Investment is a wholly-owned
subsidiary of United Asset Management Corporation. WRL Management 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 WRL Management on behalf of the Value Equity Portfolio pursuant to any
expense limitation or other reimbursement.
Scottish Equitable Investment Management Limited ("Scottish Equitable")
serves as a co-sub-adviser to the International Equity Portfolio. Scottish
Equitable is a
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wholly-owned subsidiary of Scottish Equitable plc, successor to
Scottish Equitable Life Assurance Society, which was founded in Edinburgh in
1831. Scottish Equitable is also an indirect wholly-owned subsidiary of AEGON
nv. WRL Management receives monthly compensation at the annual rate of 1.00% of
the aggregate average daily net assets of the International Equity Portfolio.
From this amount, Scottish Equitable receives 0.50% of average daily net assets
of the Portfolio managed by Scottish Equitable, less 50% of the amount of
excess expenses attributable to such assets.
GE Investment Management Incorporated ("GEIM") also serves as a
co-sub-adviser to the International Equity Portfolio and as sub-adviser to the
U.S. Equity Portfolio. GEIM is a wholly-owned subsidiary of General Electric
Company ("GE"). GEIM's principal officers and directors serve in similar
capacities with respect to General Electric Investment Corporation ("GEIC,"
and, together with GEIM, collectively referred to as "GE Investments"), which
like GEIM is a wholly-owned subsidiary of GE. WRL Management receives monthly
compensation at the annual rate of 1.00% of the aggregate average daily net
assets of the International Equity Portfolio. From this amount, GEIM, receives
0.50% of average daily net assets managed by GEIM, less 50% of amount of excess
expenses attributable to such assets.
With respect to the U.S. Equity Portfolio, WRL Management and GEIM will
divide equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the U.S. Equity Portfolio. GEIM's
compensation will be reduced by 50% of the amount paid by WRL Management on
behalf of the U.S. Equity Portfolio pursuant to any expense limitation or other
reimbursement. Any amount borne by GEIM pursuant to any expense limitation
constitutes an agreement between the Investment Adviser and GEIM only for the
first twelve months following each Portfolio's commencement of operations.
Thereafter, any such arrangements will be as mutually agreed upon by GEIM and
the Investment Adviser.
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, and shares of the Growth Portfolio are sold
to the PFL Endeavor Variable Annuity Account and PFL Endeavor Platinum Variable
Annuity Account, separate accounts of PFL Life Insurance Company, the AUSA
Endeavor Variable Annuity Account, a separate account of AUSA Life Insurance
Company, Inc., and to the AUSA Series Life Account, a separate account of AUSA
Life Insurance Company, Inc., all affiliates of Western Reserve. Shares of the
Fund may in the future be sold to other separate accounts, including separate
accounts established for variable life insurance policies or variable annuity
contracts issued by Western Reserve or its affiliates. It is conceivable that,
in the future, it may become disadvantageous for variable life insurance
separate accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither Western Reserve nor the Fund currently foresees
any such disadvantages, either to variable life insurance policyowners or to
variable annuity contract owners, the Fund's Board of Directors intends to
monitor events in order to identify any material conflicts between the interests
of such variable life insurance policyowners and variable annuity contract
owners and to determine what action, if any, it should take. Such action could
include the sale of Fund shares by one or more of the separate accounts, which
could have adverse consequences. Material conflicts could result from, for
example, (1) changes in state insurance 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 to transfer assets of the Series
Account to another Separate Account which Western Reserve determines to be
associated with the class of contracts to which the Policy belongs. Western
Reserve also reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the investments that
are held by any Sub-Account or that any Sub-Account may purchase. Any such
addition, deletion, or substitution by Western Reserve of shares of another
Portfolio of the Fund or of another open-end, registered investment company,
will only be taken if the shares of a Portfolio are no longer available for
investment, or if in Western Reserve's judgement further investment in any
Portfolio should become inappropriate in view of the purposes of the Series
Account. Western Reserve will not add, delete or substitute any shares
attributable to a Policyowner's interest in a Sub-Account of the Series Account
without notice to 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
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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 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, and when
permitted by law, the Series Account may be (1) operated as a management
company under the 1940 Act, (2) deregistered under the 1940 Act in the event
such registration is no longer required, (3) managed under the direction of a
committee, or (4) combined with one or more other separate accounts, or
sub-accounts.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed
application to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068.
Under Western Reserve's current rules, the minimum Specified Amount of a Policy
at issue for Issue Ages 0-45 is generally $50,000, declining to $25,000 for
Issue Ages 46 to 80. Policies will generally be issued only to Insureds who
supply evidence of insurability satisfactory to Western Reserve. Western
Reserve may, however, at its sole discretion, issue a Policy to an individual
above the age of 80. Acceptance is subject to Western Reserve's underwriting
rules and Western Reserve reserves the right to reject an application for any
reason permitted by law.
PREMIUMS
Subject to certain limitations, a Policyowner has flexibility in
determining the frequency and amount of premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy
frees the Policyowner from the requirement that premiums be paid in accordance
with a rigid and inflexible premium schedule. Western Reserve may require the
Policyowner to pay an Initial Premium at least equal to a minimum monthly
guarantee premium set forth in the Policy before issuing the Policy. (See
Charges and Deductions - Premium Expense Charges, p. 25.) Thereafter, subject to
the minimum and maximum premium limitations described below, a Policyowner may
make unscheduled premium payments at any time in any amount.
PLANNED PERIODIC PREMIUMS. Each Policyowner will determine a Planned
Periodic Premium schedule that provides for the payment of a level premium at a
fixed interval over a specified period of time. The Policyowner is not required
to pay premiums in accordance with this schedule. Furthermore, the Policyowner
has considerable flexibility to alter the amount, frequency, and the time
period over which Planned Periodic Premiums are paid.
The payment of a Planned Periodic Premium will not guarantee that the
Policy remains In Force. Instead, the duration of the Policy depends upon the
Policy's Net Surrender Value. Thus, even if Planned Periodic Premiums are paid
by the Policyowner, the Policy will nonetheless lapse any time Net Surrender
Value is insufficient to pay certain monthly charges, and a grace period
expires without a sufficient payment. However, until the No Lapse Date as
provided in the Policy, the Policy will remain In Force and no grace period
will begin provided there has been no addition of any riders and the total of
the premiums received (minus any withdrawals, any outstanding loans, and any
pro rata Decrease Charge deducted from the Cash Value) is equal to or exceeds
the minimum monthly guarantee premium set forth in the Policy times the number
of months since the Policy Date, including the current month. (See Policy Lapse
and Reinstatement - Lapse, p. 24.) The minimum monthly guarantee premium is set
forth in the Policy unless changed due to a requested change under the Policy
by the Policyowner, at which time the Policyowner will be notified of the new
minimum monthly guarantee premium.
PREMIUM LIMITATIONS. In no event may the total of all premiums paid,
both scheduled and unscheduled, exceed the current maximum premium limitations
which qualify the Policy as life insurance according to Federal tax laws. If at
any time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, Western Reserve will only accept that
portion of the premium which will make total premiums equal the maximum. Any
part of the premium in excess of that amount will be returned and no further
premiums will be accepted until allowed by the current maximum premium
limitations set forth in the Policy. Every premium payment, whether scheduled
or unscheduled, must be at least the minimum payment amount required. Under
Western Reserve's current rules, the minimum payment amount is $50. Premium
payments less than this minimum amount may be returned to the Policyowner.
PAYMENT OF PREMIUMS. Payments made by the Policyowner will be treated as
a premium payment unless clearly marked as loan repayments. Certain charges
will be deducted from each premium payment. (See Charges and Deductions -
Premium Expense Charges, p. 25.)
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 accepted via wire transfer with FAX will be
allocated in accordance with current procedures explained in the next section
entitled, "Allocation of Premiums and Cash Value - Allocation of Net Premiums,"
p. 22. An Initial Premium made by wire transfer not accompanied by a
simultaneous FAX, or accompanied by a FAX of an incomplete
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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 on the first Valuation Date on or following the Record Date
in accordance with the allocation instructions in the application with original
signature.
Policyowners wishing to make payments via bank wire should instruct their
banks to wire Federal Funds as follows:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 2452641830
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1600
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less the premium
expense charges. (See Charges and Deductions - Premium Expense Charges, p. 25.)
When an Initial Premium accompanies the application, monthly deductions from
the Cash Value of the Policy commence on the Policy Date.
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the
Policyowner will allocate Net Premiums to one or more of the Sub-Accounts of the
Series Account, to the Fixed Account, or to a combination of both.
Notwithstanding the allocation in the application, the Initial Premium, less
charges, will first be allocated, on the first Valuation Date on or following
the Policy Date, to the Sub-Account of the Series Account that invests
exclusively in shares of the Money Market Portfolio, and will be reallocated in
accordance with the Policyowner's directions in the application on the first
Valuation Date on or following the Record Date. The Record Date of the Policy
will be the date on which the Policy is recorded on Western Reserve's books as
an In Force Policy. (See Payment and Allocation of Premiums beginning on page
21, and Policy Benefits - When Conditional Life Insurance Coverage Begins, p.
17.)
Net premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions. Western Reserve does not currently require
that allocation of Net Premiums to an Account meet a minimum percentage.
Western Reserve does reserve the right to limit allocation of Net Premiums to
any Account to no less than 10% of each Net Premium payment. No fractional
percentages are permitted. The allocation of future Net Premiums may be changed
currently without charge at any time by providing Western Reserve with written
notification from the Policyowner, or 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. Western Reserve also reserves the right to impose a
charge of $25 for each change of allocation in excess of one per quarter.
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, Transfers and Withdrawals,
p. 35.) 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. 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 ("Exchange") (usually 4:00 p.m. Eastern time), which
coincides with the end of each Valuation Period. (See Policy Benefits - Cash
Value - Valuation Date and Valuation Period, p. 18.) Therefore, any transfer
request received after the close of the regular business session of the
Exchange, on any day the Exchange is open, will be processed on the next day the
Exchange is open for business utilizing the net asset value for each share of
the applicable Portfolio determined as of the close of the regular business
session of the Exchange. Cash Value available for transfer from the Fixed
Account will be determined in the same manner.
Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the Policy may, upon instructions
from the Policyowner for each transfer, make telephone transfers upon request
without the necessity for the Policyowner to have previously authorized
telephone transfers in writing. If, for any reason, a
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Policyowner does not want the ability to make transfers by telephone, the
Policyowner should provide written notice to Western Reserve at its Office. All
telephone transfers should be made by calling Western Reserve at its toll-free
number 1-800-851-9777. Western Reserve will not be liable for complying with
telephone instructions it reasonably believes to be authentic, nor for any loss,
damage, cost or expense in acting on such telephone instructions, and
Policyowners will bear the risk of any such loss. Western Reserve will employ
reasonable procedures to confirm that telephone instructions are genuine. If
Western Reserve does not employ such procedures, it may be liable for losses due
to unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon such
telephone instructions, providing written confirmation of such transactions to
Policyowners, and/or tape recording of telephone 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.
Western Reserve reserves the right to charge a $25 fee for each transfer
in excess of one per Policy month or twelve per Policy year. The transfer
charge will not be increased. (See Optional Cash Value Charges - Cash Value
Transfers, p. 27.) All transfers made in any one day will be considered a
single transfer and any transfer charges will be deducted in an equal amount
from each Sub-Account from which a transfer was made. Transfers resulting from
policy loans, the exercise of conversion rights, and the reallocation of Cash
Value immediately after the Record Date, will not be treated as a transfer for
the purpose of this charge. No transfer charge will apply to transfers from the
Fixed Account to a Sub-Account.
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Policyowners to
conduct transfers on a Policyowner's behalf, or who provide recommendations as
to how Sub-Account values should be allocated. This includes, but is not limited
to, transferring Sub-Account values among Sub-Accounts in accordance with
various investment allocation strategies such third party may employ. Such
independent third parties may or may not be appointed Western Reserve agents for
the sale of Policies. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS
OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY
HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE
TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED
ON A POLICYOWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
a Policyowner extra for providing these support services.
DOLLAR COST AVERAGING
The Policyowner may direct Western Reserve to automatically transfer
specified amounts from the Money Market Sub-Account, the Bond Sub-Account, the
Fixed Account or any combination of these Accounts on a monthly basis to a
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss. To qualify for
Dollar Cost Averaging a minimum of $5,000 must be in each Account from which
transfers will be made and at least $1,000, in the aggregate, must be
transferred each month, unless Western Reserve consents to a smaller amount.
To further qualify for Dollar Cost Averaging from the Fixed Account, no
more than one-tenth (1/10) of the amount in the Fixed Account at the
commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain other
restrictions. (See The Fixed Account - Allocations, Transfers and Withdrawals
on p. 35.)
A written election of this service, on a form provided by Western
Reserve, must be completed by the Policyowner in order to begin transfers. The
first transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market or Bond Sub-Accounts, or the Fixed Account,
will be processed monthly until the entire value of each Account from which
transfers are made is completely depleted or the Policyowner instructs Western
Reserve in writing to cancel the monthly transfers. For example, if $15,000 was
allocated to the Money Market Sub-Account and $10,000 was allocated to the Bond
Sub-Account and transfers of $500 are made each month from each of these Sub-
Accounts to the Growth Sub-Account, transfers of $500 per month would continue
to be made from the Money Market Sub-Account even though transfers from the
Bond Sub-Account had ceased as a result of depletion of value. There is no
charge for Dollar Cost Averaging. However, each transfer which occurs under the
Dollar Cost Averaging service will be counted towards the twelve free transfers
allowed during each Policy year. (See Payment and Allocation of Premiums -
Allocation of Premiums and Cash Value - Transfers on p. 22.) Western Reserve
may discontinue, modify, or suspend Dollar Cost Averaging at any time,
following prior written notice to Policyowners. Dollar Cost Averaging is not
available if the Owner has elected the Asset Rebalancing Program, or has
elected an asset allocation service provided by a third party.
ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which the Policyowner may
authorize Western Reserve to
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transfer automatically Cash Value periodically to maintain a particular
percentage allocation among the Sub-Accounts. The Cash Value allocated to each
Sub-Account will grow or decline in value at different rates. The Asset
Rebalancing Program automatically reallocates the Cash Value in the Sub-Accounts
at the end of each period to match the Contract's currently effective Net
Premium allocation schedule. The Asset Rebalancing Program is intended to
transfer Cash Value from those Sub-Accounts that have increased in value to
those Sub-Accounts that have declined in value. Over time, this method of
investing may help an Owner buy low and sell high. This investment method does
not guarantee gains, nor does it assure that any Sub-Account will not have
losses.
To qualify for Asset Rebalancing, a minimum Cash Value of $5,000 for an
existing Policy, or a minimum Initial Premium of $5,000 for a new Policy, is
required. To participate in the Asset Rebalancing Program, a properly completed
Asset Rebalancing Request Form must be received by Western Reserve at its
Administrative Office. An Asset Rebalancing Request Form is available upon
request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy Date. Following receipt of the Asset
Rebalancing Request Form, Western Reserve will effect the initial rebalancing
of Cash Value on the next such anniversary, in accordance with the Policy's
current Net Premium allocation schedule. The amounts transferred will be
credited at the unit value next determined on the dates the transfers are made.
If a day on which rebalancing would ordinarily occur falls on a day on which
the New York Stock Exchange is closed, rebalancing will occur on the next day
the New York Stock Exchange is open. The Asset Rebalancing Program is available
only before the Maturity Date, and is not available if the Policyowner has
elected Dollar Cost Averaging, or has elected an asset allocation service
provided by a third party. There is no charge for the Asset Rebalancing
Program. However, each reallocation which occurs under the Asset Rebalancing
Program will be counted towards the twelve free transfers allowed during each
Policy year. (See Payment and Allocation of Premiums - Allocation of Premiums
and Cash Value - Transfers on p. 22.)
The Policyowner may terminate participation at any time in the Asset
Rebalancing Program by oral or written request to Western Reserve.
Participating in the Asset Rebalancing Program will terminate automatically if
any transfer is made to, or from, any Sub-Account, other than on account of a
scheduled rebalancing. If the Policyowner wishes to resume the Asset
Rebalancing Program after it has been canceled, a new Asset Rebalancing Request
Form must be completed and sent to Western Reserve. The Policyowner may start
and stop participation in the Asset Rebalancing Program at any time; however,
Western Reserve reserves the right to restrict entry into the Asset Rebalancing
Program to once per Policy Year. Cash Value allocated to the Fixed Account may
not be included in the Asset Rebalancing Program.
Western Reserve may discontinue, modify, or suspend, the Asset
Rebalancing Program at any time, following prior written notice to
Policyowners.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make
a Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will only occur where Net Surrender Value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment by
the Policyowner. If the Net Surrender Value on any Monthly Anniversary is
insufficient to cover the monthly deduction on such day, Western Reserve will
mail a notice to the last known address of the Policyowner and any assignee of
record. A grace period of 61 days after the mailing date of the notice will be
allowed for the payment of premiums. The notice will specify the minimum
payment and the final date on which such payment must be received by Western
Reserve to keep the Policy In Force. (See Charges and Deductions, p 25.) 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. 22, and Charges and Deductions
- - Cash Value Charges, p. 26.) 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.
However, until the No Lapse Date as provided in the Policy, the Policy
will not lapse and no grace period will begin provided (1) no riders have been
added since the Policy Date, including the current month, and (2) the total of
the premiums received (minus any withdrawals, any outstanding loans and any pro
rata Decrease Charge deducted from the Cash Value) equals or exceeds the
minimum monthly guarantee premium shown in the Policy times the number of
months since the Policy Date, including the current month. Should the
Policyowner request the addition of any rider after the Policy Date but prior
to the No Lapse Date, the Policyowner will be notified as to the effect on
grace period processing prior to the date the rider is effective.
Essentially, the Policy will not lapse during the No Lapse Period Date,
as long as the conditions in (1) and (2) above have been met, and even though
Net Surrender Value at any point during the No Lapse Period is insufficient to
cover the monthly deduction and a grace period has expired without a payment
sufficient to cover the monthly deduction. Such a Lapse could happen if the
investment experience has been sufficiently unfavorable
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to have resulted in a decrease in the Net Surrender Value, or the Net Surrender
Value has decreased because not enough premiums have been paid to offset the
monthly charges.
REINSTATEMENT. A lapsed Policy may be reinstated any time within five
years after the date of Lapse and before the Maturity Date by submitting the
following items to Western Reserve:
1. A written application for reinstatement from the Policyowner;
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium that, after the deduction of premium expense charges, is
large enough to cover:
(a) one monthly deduction at the time of termination;
(b) the next two monthly deductions which will become due after the
time of reinstatement; and
(c) an amount sufficient to cover any surrender charge (as described
below) as of the date of reinstatement.
Western Reserve reserves the right to decline a reinstatement request.
Any indebtedness on the date of Lapse will not be reinstated. The Cash Value of
the Loan Reserve on the date of reinstatement will be zero. The amount of Net
Surrender Value on the date of reinstatement will be equal to the Net Premiums
paid at reinstatement, less the amounts paid in accordance with (a) and (c)
above.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Anniversary on or next following the
date Western Reserve approves the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Western Reserve for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering
the Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM EXPENSE CHARGES
Prior to allocation of Net Premiums among the Accounts, premiums paid
will be reduced by premium expense charges consisting of a sales charge, a
charge for premium taxes and a premium collection charge.
SALES CHARGE. A sales charge equal to 3.5% of the premiums paid through
the end of the tenth Policy year will be deducted to compensate Western Reserve
for certain distribution expenses incurred in connection with the Policy.
PREMIUM TAXES. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium tax rates vary from state to state
from a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a
particular state, a deduction of an amount equal to 2.5% of each premium
payment will be made 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.
PREMIUM COLLECTION CHARGE. Each premium payment will be reduced by a
$3.00 per premium payment charge that will compensate Western Reserve for costs
associated with premium billing and collection. The premium collection charge
will not be increased in the future.
SURRENDER CHARGE
During the first fifteen Policy years, a Surrender Charge will be
incurred upon surrender of the Policy. The Surrender Charge consists of the
SURRENDER CHARGE PER THOUSAND multiplied by the applicable SURRENDER CHARGE
FACTOR.
(a) SURRENDER CHARGE PER THOUSAND. The Surrender Charge Per Thousand
Dollars of initial Specified Amount varies with the Insured's Issue Age, gender
and classification. See Appendix C for a table of the charges per thousand
dollars of initial Specified Amount.
(b) SURRENDER CHARGE FACTOR. As stated above, the factor is applied to
the charge per thousand dollars of initial Specified Amount due upon any
Surrender of a Policy during the first fifteen Policy years. In Policy years
1-5 this factor is 1.00 for Insureds at Issue Ages 0 - 39 and then declines at
a rate of 0.10 per year until reaching zero at the end of the fifteenth (15th)
Policy year as shown below. For Insureds with Issue Ages older than 39, this
factor is less than 1.00 at the end of the first (1st) Policy year and declines
to zero at the end of the fifteenth (15th) Policy year. Therefore, application
of the factor to the Surrender Charge Per Thousand in the event of any
surrender during the second through fifteenth Policy years will result in the
same or reduced surrender charges. If a surrender occurs after the fifteenth
(15th) Policy year, there is no Surrender Charge Per Thousand due. See the
example below. Factors for the Builder Plus Program are different than those
shown below. (See Charges And Deductions - Builder Plus Program, p. 28.)
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SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
SURRENDER CHARGE FACTOR
END OF POLICY YEAR* FACTOR
------------------------- -------
At Issue ............... 1.00
1-5 ..................... 1.00
6 ..................... .90
7 ..................... .80
8 ..................... .70
9 ..................... .60
10 ..................... .50
11 ..................... .40
12 ..................... .30
13 ..................... .20
14 ..................... .10
15 ..................... 0
16+ ..................... 0
* THE FACTOR ON ANY DATE OTHER THAN ANNIVERSARY WILL BE INTERPOLATED BETWEEN
THE TWO END OF YEAR FACTORS.
(c) EXAMPLE: Assume a male tobacco user purchases the Policy at Issue Age
35. The Surrender Charge Per Thousand is $16.48 (see Appendix C). This is
multiplied by the Surrender Charge Factor resulting in the following Table of
Surrender Charges:
TABLE OF SURRENDER CHARGES PER $1,000 OF
SPECIFIED AMOUNT AS OF THE POLICY DATE
SURRENDER SURRENDER
CHARGE CHARGE
PER $1,000 PER $1,000
OF SPECIFIED OF SPECIFIED
END OF AMOUNT ON END OF AMOUNT ON
POLICY POLICY POLICY POLICY
YEAR* PAGE 3A YEAR* PAGE 3A
- ----------- -------------- -------- -------------
At Issue $16.48 9 $9.89
1 16.48 10 8.24
2 16.48 11 6.59
3 16.48 12 4.94
4 16.48 13 3.30
5 16.48 14 1.65
6 14.83 15 0.00
7 13.18 16+ 0.00
8 11.54
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR CHARGES.
PRO RATA DECREASE CHARGE
If, during the first 15 Policy years, the Specified Amount is decreased,
a pro rata Decrease Charge will be deducted from the Cash Value. The pro rata
Decrease Charge is equal to:
(1) the amount of the Specified Amount decrease; multiplied by
(2) the Surrender Charge Per Thousand of Specified Amount as of the date
of the decrease applicable to the Specified Amount as of the Policy
Date. See Appendix C for a table of Surrender Charges.
This pro rata Decrease Charge will not be deducted from the Cash Value
when a Specified Amount decrease results from (a) a change in the death benefit
Option, or (b) a withdrawal when the death benefit is Option A, as described in
the Cash Withdrawals section below. If a pro rata Decrease Charge is deducted
due to a decrease in Specified Amount, any future Surrender Charges incurred
during the first fifteen Policy years will be reduced proportionately.
CASH VALUE CHARGES
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate Western Reserve for certain administrative
costs, the cost of insurance and optional benefits added by rider. The monthly
deduction will be deducted on each Monthly Anniversary and will be allocated
among the Accounts on the same basis as Net Premiums are allocated. If the
value of any Account is insufficient to pay its part of the monthly deduction,
the monthly deduction will be taken on a pro rata basis from all Accounts.
Because portions of the monthly deduction, such as the cost of insurance, can
vary from month-to-month, the monthly deduction itself will vary in amount from
month-to-month.
COST OF INSURANCE. Western Reserve will determine the monthly cost of
insurance charge by multiplying the applicable cost of insurance rates by the
net amount at risk for each Policy Month. The net amount at risk for a Policy
Month is (a) the death benefit at the beginning of the Policy Month divided by
1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4%), less (b) the Cash Value at the beginning of
the Policy Month.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the 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 Tables 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 that actual cost of insurance
rates will not be changed for a specified period of time (e.g., one year). Any
change in the cost of insurance rates will apply to all Insureds of the same
age, sex, and rate class whose Policies have been In Force for the same length
of time.
The Policies offered by this Prospectus are based on mortality tables
that distinguish between men and women. As a result, the Policy pays different
benefits to men and women of the same age. The State of Montana prohibits the
use of actuarial tables that distinguish between men and women in determining
premiums and
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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 would reinstate such prohibition. Therefore, Policies offered by this
Prospectus to insure residents of the states of Montana and Massachusetts will
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 rate.
Western Reserve currently places Insureds into the following four standard rate
classes: Ultimate Select, non-tobacco use, Select, non-tobacco use, Ultimate
Standard, tobacco use, and Standard, tobacco use; 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 tobacco use
than for non-tobacco use and, within these two categories, higher for Insureds
not in the Ultimate category than for Insureds 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 Select, non-tobacco use, or Standard,
tobacco use, 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 POLICY CHARGE. Western Reserve has primary responsibility for
the administration of the Policy and the Series Account. Annual administrative
expenses include recordkeeping, processing death benefit claims, Policy
changes, reporting and overhead costs. As reimbursement for administrative
expenses related to the maintenance of each 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 is guaranteed never to exceed
$7.50 per Policy Month.
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.
CHANGE IN NET PREMIUM ALLOCATION. Western Reserve does not currently levy
or charge when changes are made to allocation of Net Premium. However, Western
Reserve reserves the right to impose a $25 charge for each change of Net Premium
allocation in excess of one change per Policy year quarter. If Western Reserve
decides to impose this charge, Policyowners will be notified in writing in
advance.
CASH VALUE TRANSFERS. Western Reserve reserves the right to charge a $25
fee for each transfer in excess of one per month or twelve transfers per Policy
year. If charged, this fee will be imposed and deducted from each amount
transferred to compensate Western Reserve for the costs in effectuating the
transfer. The transfer charge will not be increased in the future.
CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of
the amount withdrawn will be deducted from amounts withdrawn from the Policy
and the balance will then be paid to the Policyowner. This fee will not be
increased.
CHARGES AGAINST THE SERIES ACCOUNT
Certain expenses will be deducted as a percentage of the value of the net
assets of the Series Account to compensate Western Reserve for certain risks
assumed in connection with the Policy.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily
charge from the Series Account at an annual rate of 0.90% of the average daily
net assets of the Series Account. Western Reserve currently intends to reduce
this charge to 0.75% after the first fifteen Policy years. However, such
reduction is not guaranteed, and Western Reserve reserves the right to maintain
this charge at the 0.90% level after the first fifteen Policy years. Under
Western Reserve's current procedures, these amounts are paid to the General
Account monthly.
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. 36.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Portfolios of the
Fund, the net assets of the Series Account will reflect the investment
management fee and other expenses incurred by the Portfolios of the Fund. (See
p. 7 for a table of the Fund Annual Expenses.) (See pp. 19-20 for a discussion
of the investment management fees of each Portfolio.)
Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940
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<PAGE>
Act ("Distribution Plan") and pursuant to the Plan, has entered into a
Distribution Agreement with ISI, principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek
payment by the Fund of distribution expenses incurred with respect to any
Portfolio during the fiscal year ending December 31, 1997. Prior to ISI's
seeking reimbursement, Policyowners will be notified in writing in advance.
GROUP OR SPONSORED POLICIES
A different form of the Policy may be purchased under group or sponsored
arrangements ("Group/Sponsored Policies"). Under Group/Sponsored Policies, 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.
For Group/Sponsored Policies the premium expense charges, contingent
surrender charges, minimum premium and minimum Specified Amount described in
"Charges and Deductions" may be reduced. Western Reserve will issue
Group/Sponsored Policies in accordance with its rules in effect as of the date
an application for a Policy is approved. To qualify for Group/Sponsored
Policies, 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 for Group/Sponsored
Policies take into account such factors as the size of the group or sponsored
arrangement, its stability as indicated by its term of existence, the purposes
for which Group/Sponsored Policies are purchased and certain characteristics of
its members. The Group/Sponsored Policy's amount of reduction and the criteria
for qualification will reflect the reduced sales effort resulting from sales to
qualifying groups and sponsored arrangements. Group/Sponsored Policies may not
be available in certain states.
Western Reserve may modify from time to time on a uniform basis the
criteria for qualification for Group/Sponsored Policies. In no event, however,
will group or sponsored arrangements established for the sole purpose of
purchasing Group/Sponsored Policies, or which have been in existence for less
than six months, qualify for such Policies. Group/Sponsored Policies will not be
unfairly discriminatory against any person, including the affected Policyowners
and all other Policyowners of other forms 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 Group/Sponsored
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. 38.)
EMPLOYEE ASSOCIATE POLICIES
Certain employees, field associates, directors and their relatives may
purchase a different form of the Policy ("Employee Policy") under which Western
Reserve, in addition to waiving or reducing the premium expense charges,
contingent surrender charges, minimum premium and minimum Specified Amount, may
waive or reduce the Monthly Policy Charge and the Surrender Charge. The
Employee Policy is available to: (a) current and retired directors, officers,
full-time employees and agents of Western Reserve and its affiliates; (b)
current and retired directors, officers, full-time employees and registered
representatives of ISI and any broker-dealer which has a sales agreement with
ISI; (c) any Trust, pension, profit-sharing or other employee benefit plan of
any of the foregoing persons or entities; (d) current and retired directors,
officers and full-time employees of WRL Series Fund, Inc. and any IDEX mutual
fund, and any investment adviser or investment sub-adviser thereto; and (e) any
member of a family of any of the foregoing (e.g., spouse, child, sibling,
parent-in-law). Western Reserve reserves the right to modify or terminate this
arrangement at any time. The Employee Policy may not be available in certain
states.
BUILDER PLUS PROGRAM
Western Reserve also offers a different form of the Policy to
Policyowners who make an Initial Premium payment of at least $10,000 or more,
and which is at least 90% of the maximum allowable single premium ("Builder
Plus Program Policies"). Under a Builder Plus Program Policy, the underwriting
process is both expedited and shortened in length by reducing the number and
extent of the items required to determine the risk assumed by Western Reserve.
The Builder Plus Program Policy entails fewer administrative costs for Western
Reserve and also reduces distribution costs by relieving sales representatives
from some of the burden of assisting in the underwriting.
A Builder Plus Program Policy sold under this simplified underwriting
arrangement differs from a standard Policy in six principal respects: (1) a
minimum Initial Premium payment which is at least $10,000 and which is at least
90% of the maximum allowable premium, (2) no premium expense charges are
assessed, (3) the underwriting process is shorter and simpler, (4) the cost of
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insurance charges may be different for certain policyowners, (5) premium payment
provisions may be more restricted than for Policies issued on a standard basis,
and (6) most policies will be "modified endowment contracts" for Federal income
tax purposes. (See Tax Treatment of Policy Benefits - Modified Endowment
Contracts, p. 37.)
Due to the lower administrative and distribution expenses associated with
the Builder Plus Program Policies, no premium expense charges (I.E., sales
charge, premium tax charge and premium collection charge) are made. (See
Charges and Deductions - Premium Expense Charges, p. 25.) Depending on age of
issue and Specified Amount, certain medical underwriting requirements will be
waived.
Additionally, the length of time the Surrender Charge Factor applies is
reduced, as follows:
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
SURRENDER CHARGE FACTOR
END OF POLICY YEAR* FACTOR
------------------------- -------
At Issue ............... 1.00
1-5 ..................... 1.00
6 ..................... .80
7 ..................... .60
8 ..................... .40
9 ..................... 0
10+ ..................... 0
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR SURRENDER CHARGES.
For Insureds Issue Ages older than 39, this factor is less than 1.00 at the end
of the first (1st) Policy year and declines to zero at the end of the ninth
(9th) Policy year. Therefore, application of the factor to the Surrender Charge
Per Thousand in the event of any surrender during the second through ninth
Policy years will result in the same or reduced surrender charges. If a
surrender occurs after the ninth (9th) Policy year, there is no Surrender
Charge Per Thousand due.
For a full explanation of the Surrender Charge, see Charges and Deductions -
Surrender Charge, p. 25.
Although for non sub-standard rate classes the guaranteed cost of
insurance rates for policies will not be greater than those for standard
Policies, current rates for policies during the first ten policy years may be
higher for certain policyowners (I.E., those who are assigned to Ultimate
Select, non-tobacco use, or Ultimate Standard, tobacco use, rate classes) than
would be the case for standard Policies. (See Cash Value Charges - Cost of
Insurance, p. 26.)
Under Western Reserve's current rules, the minimum possible Specified
Amount for a Builder Plus Program Policy at issue is the amount of insurance
that the $10,000 Initial Premium payment will purchase based on the Insured's
age, sex, and rate class and certain Federal tax law guidelines. Likewise, for
any larger Initial Premium payment there will be a correspondingly larger
minimum Specified Amount at issue.
The maximum Specified Amount for a Builder Plus Program Policy is a
function of the size of the Initial Premium payment and is approximately 111%
of the lowest possible minimum Specified Amount available for the same amount
of Initial Premium payment.
Depending on the Specified Amount selected by the policyowner, a large
Initial Premium payment, such as that required for a Builder Plus Program
Policy, will generally limit the ability to make additional premium payments.
This limit exists because the total of all premiums paid under a Builder Plus
Program Policy may not exceed the maximum premium limitation imposed by Federal
tax laws. (See Premiums - Premium Limitations, p. 21.) Of course, under a
policy, there are no Planned Periodic Premiums.
Most Builder Plus Program Policies will be modified endowment contracts.
Distributions from modified endowment contracts are generally treated as
ordinary income subject to tax up to the amount equal to the excess of the Cash
Value before the distribution over the investment in the policy. In addition,
the portion of any such distribution that is included in income is subject to a
10% penalty tax, except where the distribution is made on or after the
policyowner attains age 59 1/2, is attributable to the policyowner becoming
disabled or is part of a series of substantially equal periodic payments for
the life (or the life expectancy) of the policyowner. Such distributions
include surrenders, cash withdrawals and policy loans. (See Tax Treatment of
Policy Benefits - Distributions From Policies Classified as Modified Endowment
Contracts, p. 37.)
POLICY RIGHTS
LOAN PRIVILEGES
POLICY LOAN. After the first Policy year and so long as the Policy
remains In Force, the Policyowner may borrow money from Western Reserve using
the Policy as the only security for the loan. Western Reserve reserves the
right to permit a Policy loan prior to the first Policy Anniversary for
Policies issued pursuant to a transfer of cash values from another life
insurance policy under Section 1035(a) of the Internal Revenue Code of 1986, as
amended. The maximum amount that may be borrowed is 90% of the Cash Value, less
any surrender charge and any already outstanding Policy loan. Western Reserve
reserves the right to limit the amount of any Policy loan to not less than
$500. Outstanding loans have priority over the claims of any assignee or other
person. The loan may be repaid totally or in part before the Maturity Date of
the Policy and while the Policy is In Force. A loan which is taken from, or
secured by, a Policy may have Federal income tax consequences. (See Federal Tax
Matters, p. 36.)
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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 Loan Reserve is a
portion of the Fixed Account used as collateral for any Policy loan. The
Sub-Accounts of the Series Account may be specified. If no Account is specified,
the loan amount will be withdrawn from each Account in the same manner as the
current allocation instructions.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. (See General
Provisions - Postponement of Payments, p. 32.) Under Western Reserve's current
procedures, at each Anniversary, Western Reserve will compare the amount of the
outstanding loan (including loan interest in advance until the next Policy
Anniversary, if not paid) to the amount in the Loan Reserve (including interest
credited to the Loan Reserve during the previous Policy year). Western Reserve
will also make this comparison any time the Policyowner repays all or part of
the loan, or makes a request to borrow an additional amount. At each such time,
if the amount of the outstanding loan exceeds the amount in the Loan Reserve,
Western Reserve will withdraw the difference from the Accounts and transfer it
to the Loan Reserve in the same manner as when a loan is made. If the amount in
the Loan Reserve exceeds the amount of the outstanding loan, Western Reserve
will withdraw the difference from the Loan Reserve and transfer it to the
Accounts in accordance with the Policyowner's current allocation instructions.
Western Reserve reserves the right to require the transfer of such amounts to
the Fixed Account, if such loans were originally transferred from the Fixed
Account. (See The Fixed Account, p. 35.) No charge will be imposed for these
transfers.
INTEREST RATE CHARGED. The interest rate charged on Policy loans is 5.2%
payable annually in advance (equivalent to an effective annual rate of 5.5%).
If unpaid when due, interest will be added to the amount of the loan and will
become part of the loan and bear interest at the same rate.
LOAN RESERVE INTEREST RATE CREDITED. The amount transferred to the Loan
Reserve will accrue interest at a minimum effective annual rate not less than
4%. Western Reserve may credit a higher rate, but it is not obligated to do so.
Currently, Western Reserve is crediting an effective annual interest rate of
4.75% on all amounts borrowed during the first ten Policy years. On amounts
borrowed, after the tenth Policy year, that are part of the Cash Value in
excess of the cost basis (premiums less withdrawals) of the Policy the interest
rate credited is currently equal to the interest rate being charged on the
total loan while the remaining portion, if any, of the loan is credited the
current rate of 4.75%.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy, because the
death benefit and Net Surrender Value under the Policy are reduced by the
amount of the loan. Repayment of the loan causes the death benefit and Net
Surrender Value to increase by the amount of the repayment.
As long as a loan is outstanding, an amount equal to the loan plus
interest in advance until the next Policy Anniversary is held in the Loan
Reserve. This amount will not be affected by the Series Account's investment
performance. Amounts transferred from the Series Account to the Loan Reserve
will affect the Series Account value because such amounts will be credited with
an interest rate declared by Western Reserve rather than a rate of return
reflecting the investment performance of the Series Account. (See The Fixed
Account - Minimum Guaranteed and Current Interest Rates, p. 35.)
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. 37.)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If indebtedness exceeds the Cash Value
less the then applicable surrender charge, Western Reserve will notify the
Policyowner and any assignee of record. If a sufficient payment equal to excess
indebtedness is not received by Western Reserve within 61 days from the date
notice is sent, the Policy will Lapse and terminate without value. The Policy,
however, may later be reinstated. (See Policy Lapse and Reinstatement, p. 24.)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before
the Maturity Date of the Policy and while the Policy is In Force. Payments made
by the Policyowner while there is indebtedness will be treated as premium
payments unless the Policyowner indicates that the payment should be treated as
a loan repayment. (See Policy Rights - Benefits at Maturity, p. 31.) 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
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surrender is the Net Surrender Value at the end of the Valuation Period during
which the surrender request is received at Western Reserve's Office. The Net
Surrender Value is equal to the Cash Value as of the date of Surrender, less any
surrender charge, and less any outstanding Policy loan, plus any unearned loan
interest. A Surrender Charge may apply. (See Charges and Deductions - Surrender
Charge, p. 25.) 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. 32.) Additional restrictions may be applied to surrenders from
the Fixed Account. (See The Fixed Account - Allocations, Transfers and
Withdrawals, p. 35.) For the protection of Policyowners, all requests for cash
withdrawals or total surrenders of more than $100,000, or where the withdrawal
or surrender proceeds are to be sent to an address other than the address of
record will require a signature guarantee. All required guarantees of signatures
must be made by a national or state bank, a member firm of a national stock
exchange or any other institution which is an eligible guarantor institution as
defined by rules and regulations of the Commission. If the Policyowner is a
corporation, partnership, trust or fiduciary, evidence of the authority of the
person seeking redemption is required before the request for withdrawal is
accepted, including withdrawals under $100,000. For additional information,
Policyowners may call Western Reserve at (800) 851-9777. A cash withdrawal or
total surrender may have Federal income tax consequences. (See Federal Tax
Matters, p. 36.)
TOTAL SURRENDERS. When the Policy is 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.
32.)
CASH WITHDRAWALS. For a cash withdrawal, the amount available may be
limited to no less than $500 and to no more than 10% of the Net Surrender
Value. The amount paid plus a processing fee equal to the lesser of $25 or 2%
of the amount withdrawn will be deducted from the Policy's Cash Value at the
end of the Valuation Period during which the request is received. The amount
will be deducted from the Accounts in the same manner as the current allocation
instructions unless the Policyowner directs otherwise. Cash withdrawals are
allowed only once each Policy year.
Cash withdrawals will affect both the Policy's Cash Value and the death
benefit payable under the Policy. The Policy's Cash Value will be reduced by
the amount of the cash withdrawal. Moreover, the death benefit proceeds payable
under a Policy will generally be reduced by at least the amount of the cash
withdrawal.
In addition, when death benefit Option A is in effect, the Specified
Amount will be reduced by the cash withdrawal. No cash withdrawal will be
permitted which would result in a Specified Amount lower than the minimum
Specified Amount set forth in the Policy or would deny the Policy status as life
insurance under the Internal Revenue Code and applicable regulations. (See Cash
Value Charges - Cost of Insurance, p. 26; Death Benefit - Insurance Protection,
p. 15; and Federal Tax Matters - Tax Treatment of Policy Benefits, p. 37.)
EXAMINATION OF POLICY PRIVILEGE ("FREE-LOOK")
The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it. 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. 17.) 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. A tax advisor should thus be consulted about the tax consequences
associated with any Maturity Date extension. 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
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may be postponed in certain circumstances. (See General Provisions -
Postponement of Payments, below and The Fixed Account - Allocations, Transfers
and Withdrawals, p. 35.) 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.
When death benefits are payable in a lump sum, the Beneficiary may select
one or more of the settlement options. If death benefits become payable under a
settlement option and the Beneficiary has the right to withdraw the entire
amount, the Beneficiary may name and change contingent Beneficiaries.
SETTLEMENT OPTIONS. Policyowners and Beneficiaries, subject to a prior
election of the Policyowner, may elect to have benefits paid in a lump sum or
in accordance with a variety of settlement options offered under the Policy.
Once a settlement option is in effect, there will no longer be value in the
Series Account or the Fixed Account. Western Reserve may make other settlement
options available on the Fixed Account in the future. The effective date of a
settlement provision will be either the date of surrender or the date of death
of the 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, Transfers
and Withdrawals, p. 35.
PAYMENT BY CHECK. Payments under the Policy of any amounts derived from
premiums paid by check or bank draft may be delayed until such time as the
check or bank draft has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application and any supplemental
applications are the entire contract. Only statements in the application and
any supplemental applications can be used to void the Policy or defend a claim.
The statements are considered representations and not warranties. No Policy
provision can be waived or changed except by endorsement. Only the President or
Secretary of Western Reserve can agree to change or waive any provisions of the
Policy.
SUICIDE
If 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. 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
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long as the Policy is In Force, the Policyowner or Beneficiary may be changed by
written request from the Policyowner in a form acceptable to Western Reserve.
The Policy need not be returned unless requested by Western Reserve. The change
will take effect as of the date the request is signed, regardless of whether 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 receipt.
Western Reserve assumes no responsibility for determining whether an assignment
is valid or the extent of the assignee's interest.
MISSTATEMENT OF AGE OR SEX
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 each Policyowner, at the
last known address of record, reports required by applicable laws and or
regulations.
Western Reserve will send Policyowners written confirmation within seven
days of the following transactions: unplanned and certain planned premium
payments, Cash Value transfers, change in death benefit option or Specified
Amount, total surrender or cash withdrawals, and Policy loans or repayments.
Western Reserve will also send each Policyowner an annual statement at the end
of the Policy year showing for the year, among other things, the month and
amount of each: premium payment made, monthly deduction, transfer, cash
withdrawal and Policy loan or repayment. The annual statement will also show
Policy year-end Net Surrender Value, death benefit and Policy loan value, as
well as other Policy activity during the year.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy by rider. The cost of any optional
insurance benefits will be deducted as part of the monthly deduction. (See
Charges and Deductions - Optional Cash Value Charges, p. 27.) For purposes of
the riders, the person insured under the Policy is referred to as the Primary
Insured, and the term "Face Amount" refers to the level term insurance amount
payable at death.
CHILDREN'S INSURANCE RIDER: Provides a Face Amount on each of the Primary
Insured's children, as defined in the rider. Under the terms of the rider, the
death benefit will be payable to the Insured upon receipt of proof that the
death of an insured child occurred while the rider and coverage on such child
was In Force. Upon the Primary Insured's death, while the rider is in force, the
rider will terminate 31 days after such death and a separate life insurance
policy will be offered to each insured child for an amount equal to the level
death benefit amount of the rider at a premium based upon the attained age of
each insured child.
ACCIDENTAL DEATH BENEFIT RIDER: Provides a Face Amount if the Primary
Insured's death results from accidental bodily injury, as defined in the rider.
Certain risks, as defined in the rider, are not covered. 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 from bodily injuries effected
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 Primary
Insured's 70th birthday, the date the Policy terminates, or the Monthiversary
on which the rider is terminated on request by the Policyowner.
OTHER INSURED RIDER: Provides that Western Reserve will pay the Face
Amount of the rider to the Primary Insured 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 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 will be 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
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 has
existed continuously for at least 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. Certain risks, as defined in the rider, are not
covered.
DISABILITY WAIVER AND MONTHLY 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 ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR
PLUS"): Provide term insurance
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coverage for the insured on a basis different from the coverage provided under
the Policy. The PIR may be purchased at any time, either at the time of
application for the Policy, or after the Record Date. The PIR Plus may only be
purchased at the time of application.
PIR or PIR Plus increases the death benefit provided under the Policy by
the Face Amount of the rider. The PIR terminates at age 90; the PIR Plus
terminates at age 85. No additional Surrender Charge is assessed in connection
with PIR or PIR Plus coverage. Generally, coverage provided by PIR or PIR Plus
has a lower cost than that provided under the Policy, but has no Cash Value
associated with it. Owners may reduce or cancel coverage under a PIR or PIR
Plus rider separately from reducing the Specified Amount of a Policy. Likewise,
the Specified Amount of a Policy may be decreased, subject to certain minimums,
without reducing the coverage under PIR or PIR Plus.
Because no Surrender Charge is assessed in connection with a reduction of
coverage under PIR or PIR Plus, such a reduction may be less expensive than a
decrease in Specified Amount under the Policy if the increment of Specified
Amount that is reduced is subject to a Surrender Charge. On the other hand,
continuing coverage on an increment of Specified Amount under the Policy may
have a cost of insurance that is higher than the cost of the same amount of
coverage under PIR or PIR Plus.
There may be circumstances in which it will be to your advantage to
obtain a portion of your insurance coverage under PIR or PIR Plus. These
circumstances depend on many factors, including the premium levels, amounts and
duration of coverage needed, as well as the age, sex and risk classification of
the Insured. Your registered representative can provide you with further
information explaining how PIR and PIR Plus coverage can affect your Policy
values under different assumptions. Western Reserve reserves the right to
discontinue the availability of these riders for new Policies at any time, and
also reserves the right to modify the terms of these riders for new Policies,
subject to approval by the state insurance departments.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
In states where this rider has been approved by that state's department
of insurance (as of the date of this Prospectus, Michigan, New Jersey,
Pennsylvania and Vermont have not approved this rider), upon receipt of proof
satisfactory to Western Reserve that the Insured has incurred a condition
resulting from illness which, as determined by a Physician, has reduced life
expectancy to not more than 12 months from the date of the Physician's
Statement (a "Terminal Condition"), Western Reserve will pay to the Policyowner
a "Single Sum Benefit", equal to:
(a) the Death Benefit in effect on the date the Single Sum Benefit is
paid; multiplied by
(b) the Election Percentage; divided by
(c) 1 + i, where i equals the greater of (A) and (B) on the date the
Single Sum Benefit is paid. (A) equals the interest rate determined
under Internal Revenue Code section 846(c)(2), as it may be amended
from time to time; and (B) equals the Policy Loan Interest Rate;
minus
(d) Indebtedness, if any, at the time the Single Sum Benefit is paid,
multiplied by the Election Percentage.
"Death Benefit" under the Rider means the amount payable at death of the
Insured under the Policy, plus the benefit payable under any In Force Primary
Insured Rider. (See Optional Insurance Benefits - Primary Insured Rider and
Primary Insured Rider Plus, p. 34.) "Election Percentage" means a percentage,
selected by the Policyowner, not to exceed 100% of the Policy's Death Benefit,
as defined under the Rider; however, in no event will the Election Percentage
result in a Single Sum Benefit greater than $500,000. A "Physician" may be a
Doctor of Medicine or a Doctor of Osteopathy, licensed to practice medicine and
treat injury or illness in the state in which treatment is received and who is
acting within the scope of that license, and must be someone other than the
Insured, the Policyowner, a person who lives with the Insured or Policyowner,
or a person who is part of the Insured's or Policyowner's "Immediate Family"
(spouse, child, brother, sister, parent, grandparent or grandchild of the
Insured). The "Physician's Statement" must be a written statement signed by a
Physician which provides the Physician's diagnosis of the Insured's
non-correctable medical condition. It must state with reasonable medical
certainty that the non-correctable medical condition will result in the death of
the Insured within 12 months of the Physician's Statement, taking into
consideration the ordinary and reasonable medical care, advice and treatment
available in the same or similar communities.
The Rider will not pay benefits for a Terminal Condition resulting from
self-inflicted bodily injuries occurring within the same period specified in
the Policy's suicide provision. The Rider terminates at the earliest of (a) the
date the Policy terminates, (b) the effective date of a settlement option
elected under the Policy, (c) the date the Single Sum Benefit is paid, or (d)
the date the Policyowner elects to terminate the Rider.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, Western Reserve believes that for federal income
tax purposes a Single Sum Benefit payment made under the Terminal Illness
Accelerated Death Benefit Rider should be fully excludable from the gross
income of the beneficiary, as long as the beneficiary is the Insured under the
Policy. However, a Policyowner should consult a qualified tax adviser about the
consequences of adding this Rider to a Policy or requesting a Single Sum
Benefit payment under this Rider.
There is no additional charge for this rider. This rider may not be
available in all states or, if available, the terms of the rider may vary, in
accordance with the requirements of each state's insurance laws.
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THE FIXED ACCOUNT
A Policyowner may allocate Net Premiums and transfer Cash Value to the
Fixed Account, which is part of Western Reserve's General Account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 and neither the Fixed Account
nor the General Account has been registered as an investment company under the
1940 Act. Accordingly, neither the Fixed Account, the General Account nor any
interests therein are generally subject to the provisions of these acts and
Western Reserve has been advised that the staff of the Commission has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Cash Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's General
Account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the General Account are subject to Western Reserve's
general liabilities from business operations.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Premium payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due;
minus
5. Any cash withdrawals or surrenders from the Fixed Account; minus
6. Any amounts transferred to a Sub-Account from the Fixed Account; minus
7. Any amounts withdrawn from the Fixed Account to pay the pro rata
Decrease Charge incurred as a result of a decrease in the Specified
Amount.
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, that interest rate will
be guaranteed on such allocation for at least a one year period (the "Guarantee
Period"), unless the Cash Value associated with an allocation has been
transferred to the Loan Reserve. Western Reserve reserves the right to apply a
different current interest rate to that part of the Cash Value equal to the
Loan Reserve. At the end of the Guarantee Period, Western Reserve reserves the
right to declare a new current interest rate on such allocation and accrued
interest thereon (which may be a different current interest rate than the
current interest rate on new allocations to the Fixed Account on that date).
The rate declared on such allocation and accrued interest thereon at the end of
each Guarantee Period will be guaranteed again for another Guarantee Period. At
the end of any Guarantee Period, any interest credited on the Policy's Cash
Value in the Fixed Account in excess of the minimum guaranteed rate of 4% per
year will be determined in the sole discretion of Western Reserve. The
Policyowner assumes the risk that interest credited may not exceed the
guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) cash withdrawal
amounts, b) transfers to the Series Account, or c) monthly deduction charges
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting
interest from time to time, provided that such changes will not have the effect
of reducing the guaranteed rate of interest below 4% per annum or shorten the
Guarantee Period to less than one year.
ALLOCATIONS, TRANSFERS AND WITHDRAWALS
Net premium payments and transfers to the Fixed Account will be allocated
to the Fixed Account on the first Valuation Date on or following the date
Western Reserve receives the payment or transfer request at its Office, except
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 after a Policy Anniversary. The
maximum amount that may be transferred is limited to the greater of (a) 25% of
the amount in the Fixed Account, or (b) the amount transferred in the prior
Policy year from the Fixed Account, unless Western Reserve consents otherwise.
Please consult your Policy for details. 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. 30.) Western
Reserve further reserves the right to defer payment of transfers, cash
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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 ISI, an affiliate of Western Reserve and the principal
underwriter of the Policies, or of broker-dealers who have entered into written
sales agreements ("Sales Agreements") with the principal underwriter for
promotion and sale of the Policies. ISI 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 ISI for acting as principal underwriter for the Policies. The compensation
payable to registered representatives who are appointed agents of Western
Reserve for sales of the Policies may vary with the Sales Agreement, but is not
expected to exceed 65% of all premiums paid during the first Policy year, plus
3.0% on all premiums paid thereafter. 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.
Western Reserve makes no representations regarding the likelihood of
continuation of the current Federal income tax laws, Treasury Regulations, or
of the current interpretations by the Internal Revenue Service ("IRS"). Western
Reserve reserves the right to make changes to the Policy in order to assure
that it will continue to qualify as life insurance for tax purposes.
TAX CHARGES
At the present time, Western Reserve makes no charge for any Federal,
state or local taxes (other than premium taxes) that the Company incurs that
may be attributable to such Account or to the Policies. Western Reserve,
however, reserves the right in the future to make a charge for any such tax or
other economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Series Account or to the
Policies.
TAX STATUS OF THE POLICY
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
Ultimate Select, non-tobacco use, Select, non-tobacco use, Ultimate Standard,
tobacco use, or Standard, tobacco use, 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 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 includable 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
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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
investments 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-account without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating premium
payments and Policy values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the assets of the Series Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. IN GENERAL. Western Reserve believes that the proceeds and Cash Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for Federal income tax purposes. Thus, the
death benefit under the Policy should be excludable from the gross income of
the Beneficiary under section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, the payment of an unscheduled
premium, the taking of a Policy loan, a cash withdrawal, a total surrender, a
Policy Lapse with an outstanding indebtedness, a change in death benefit
options, the exchange of a Policy, or the assignment of a Policy may have tax
consequences depending upon the circumstances. In addition, Federal estate and
state and local estate, inheritance, and other tax consequences of ownership or
receipt of Policy proceeds depend upon the circumstances of each Policyowner or
Beneficiary. A competent tax adviser should be consulted for further
information.
The Policy may also be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if a
Policyowner is contemplating the use of a Policy in any arrangement the value
of which depends in part on its tax consequences, that Policyowner should be
sure to consult a qualified tax adviser regarding the tax attributes of the
particular arrangement.
Generally, the Policyowner will not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, under the Policy until
there is a distribution. The tax consequences of distributions from, and loans
taken from, or secured by, a Policy depend on whether the Policy is classified
as a "modified endowment contract" under Section 7702A. Section 7702A generally
applies to Policies entered into or materially changed after June 20, 1988.
2. MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to
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 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.
Under Western Reserve's current procedures, the Policyowner will be
notified at the time a Policy is issued whether, according to Western Reserve's
calculations, the Policy is or is not classified as a modified endowment
contract based on the premium then received. The Policyowner will also be
notified of the amount of the maximum annual premium which can be paid without
causing a Policy to be classified as a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a competent tax adviser
before purchasing a Policy to determine the circumstances under which the
Policy would be a modified endowment contract. In addition, a Policyowner
should contact a competent tax adviser before making any change to, including
an exchange of, a Policy to determine whether such change would cause the
Policy (or the new policy in the case of an exchange) to be treated as a
modified endowment contract.
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If a Policy becomes a modified endowment contract, distributions that
occur during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified endowment
contract. In addition, distributions from a Policy within two years before it
becomes a modified endowment contract will be taxed in this manner. This means
that a distribution made from a Policy that is not a modified endowment
contract could later become taxable as a distribution from a modified endowment
contract. A Builder Plus Program Policy, however, will in most instances be
treated as a Modified Endowment Contract. (See Charges and Deductions - Builder
Plus Program,/Servicemark/ p. 28.)
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as modified endowment contracts are subject to the following
tax rules: First, all pre-death distributions from such a Policy (including
distributions upon surrender, distributions made in anticipation of the Policy
becoming a modified endowment contract, and benefits paid at maturity) are
treated as ordinary income subject to tax up to the amount equal to the excess
(if any) of the Cash Value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from, or secured by, such a Policy are treated as distributions from such a
Policy and taxed accordingly. (Unpaid Policy loan interest will be treated as a
loan for these purposes.) Third, a 10% additional income tax is imposed on the
portion of any distribution from, or loan taken from, or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the Owner attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the Policyowner's
Beneficiary.
4. DISTRIBUTION FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not classified as a modified
endowment contract are generally treated as first recovering the investment in
the Policy (described below) and then, only after the return of all such
investment in the Policy, as distributing taxable income. An exception to this
general rule occurs in the case of a cash withdrawal, a decrease in the
Policy's death benefit, or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and results in a cash
distribution to the Policyowner in order for the Policy to continue complying
with the Section 7702 definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a modified endowment
contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, distributions (including distributions upon surrender or lapse)
or loans from, or secured by, a Policy that is not a modified endowment
contract are not subject to the 10% additional income tax.
5. POLICY LOAN INTEREST. The deductibility of Policy loan interest may be
limited by the Code. For example, interest paid on any loan under a Policy
which is owned by an individual generally is not deductible. Therefore, a
Policyowner should consult a competent tax adviser as to whether Policy loan
interest will be deductible.
6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from the gross income of the Policyowner (except that the amount of any loan
from, or secured by, a Policy that is a modified endowment contract, to the
extent such amount is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a Policy that is a modified
endowment contract to the extent that such amount is included in the gross
income of the Policyowner.
7. MULTIPLE POLICIES. All modified endowment contracts that are issued by
Western Reserve (or its affiliates) to the same Policyowner during any calendar
year are treated as one modified endowment contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Code.
8. TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. Pursuant to the
recently enacted Health Insurance Portability and Accountability Act of 1996,
Western Reserve believes that for federal income tax purposes a Single Sum
Benefit payment made under the Terminal Illness Accelerated Death Rider should
be fully excludable from the gross income of the beneficiary, as long as the
beneficiary is the Insured under the Policy. However, a Policyowner should
consult a qualified tax adviser about the consequences of adding this Rider to
a Policy or requesting a Single Benefit payment under this Rider.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The Policy described in this
Prospectus contains guaranteed cost of insurance rates and guaranteed purchase
rates for certain payment options that distinguish between men and women.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS, and Title VII generally,
on any employment-related insurance or benefit program for which a Policy may
be purchased.
SAFEKEEPING OF THE
SERIES ACCOUNT'S ASSETS
Western Reserve holds the assets of the Series Account. The assets are
kept physically segregated and held
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separate and apart from the General Account. Western Reserve maintains records
of all purchases and redemptions of Fund shares by each of the Sub-Accounts.
Additional protection for the assets of the Series Account is provided by a
blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the
amount of $5 million (subject to a $1 million deductible), covering all of the
employees of AEGON U.S. and its affiliates, including Western Reserve. A
Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. provides
additional fidelity coverage, to a limit of $12 million, subject to a $50,000
deductible.
VOTING RIGHTS OF THE SERIES ACCOUNT
To the extent required by law, Western Reserve will vote the Fund shares
held in the Series Account at shareholder meetings of the Fund in accordance
with instructions received from persons having voting interests in the
corresponding Sub-Accounts of the Series Account. Except as required by the
1940 Act, the Fund does not hold regular or special shareholder meetings. If
the 1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Western Reserve
determines that it is permitted to vote the Fund shares in its own right, it
may elect to do so.
The number of votes which a Policyowner has the right to instruct will be
calculated separately for each Sub-Account. The number of votes which each
Policyowner has the right to instruct will be determined by dividing a Policy's
Cash Value in that Sub-Account by $100. Fractional shares will be counted. The
number of votes of the Portfolio which the Policyowner has the right to
instruct will be determined as of the date coincident with the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Fund. Voting instructions will be solicited by written communications
prior to such meeting in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions
are received and Fund shares which are not attributable to Policyowners in
proportion to the voting instructions which are received with respect to all
Policies participating in that Portfolio. Voting instructions to abstain on any
item to be voted upon will reduce the votes eligible to be cast by Western
Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
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.
STATE REGULATION OF WESTERN RESERVE
As a life insurance company organized and operated under Ohio law,
Western Reserve is subject to provisions governing such companies and to
regulation by the Ohio Commissioner of Insurance.
Western Reserve's books and Accounts are subject to review and
examination by the Ohio Insurance Department at all times and a full
examination of its operations is conducted by the National Association of
Insurance Commissioners at least once every three years.
REINSURANCE
Western Reserve intends to reinsure a portion of the risks assumed under
the Policies.
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE
JOHN R. KENNEY(1), CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER
AND PRESIDENT, Chairman of the Board of Directors (1987 - present) and
Chief Executive Officer (1982 - present), President, (1978 - 1987 and
December, 1992 - present), Director (1978 - present), Western Reserve Life
Assurance Co. of Ohio; Chairman of the Board of Directors (1985 -
present), President (March, 1993 - present), WRL Series Fund, Inc.;
Chairman of the Board (October, 1996 - present), WRL Investment
Management, Inc.; Chairman of the Board (October, 1996 - present), WRL
Investment Services, 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; 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 Series Fund; former Trustee of
IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all
of Largo, Florida.
ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL
OFFICER, Executive Vice
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(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
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President (June, 1993 - present), Chief Financial Officer (December, 1995 -
present), Senior Vice President (1981 - June, 1993) and Actuary (1972 -
present), Western Reserve Life Assurance Co. of Ohio; Executive Vice
President (September, 1993 - present), WRL Series Fund, Inc.; Director
(October, 1996 - present), WRL Investment Management, Inc.; Director
(October, 1996 - present), WRL Investment Services, Inc., all of Largo,
Florida.
WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL,
Senior Vice President, Secretary and General Counsel (July, 1990 -
present) of Western Reserve Life Assurance Co. of Ohio; Vice President,
Secretary and General Counsel of Pioneer Western Corporation (financial
services) and Secretary of its subsidiaries (May, 1990 to February,
1991); Vice President and Assistant Secretary (November, 1990 to present)
and Secretary (June, 1990 to September, 1990) IDEX Series Fund, former
Vice President and Assistant Secretary of IDEX Fund, IDEX II Series Fund
and IDEX Fund 3 (investment companies), all of Largo, Florida.
G. JOHN HURLEY(1), EXECUTIVE VICE PRESIDENT, Executive Vice President (June,
1993 - present), Western Reserve Life Assurance Co. of Ohio; Executive
Vice President (June, 1993 - present), Director (March, 1994 - present),
WRL Series Fund, Inc.; Director (October, 1996 - present), WRL Investment
Management, Inc.; Director (October, 1996 - present), WRL Investment
Services, Inc.; President and Chief Executive Officer (September, 1990 -
present), Trustee (June, 1990 - present) and Executive Vice President
(June, 1988 - September, 1990) of IDEX Series Fund, former Trustee and
Executive Vice President of IDEX Fund, IDEX II Series Fund and IDEX Fund 3
(investment companies); Assistant Vice President of AEGON USA Managed
Portfolios, Inc. (September, 1991 - August, 1992); Vice President (May,
1988 - February, 1991) Pioneer Western Corporation (financial services).
ALLAN J. HAMILTON(1), VICE PRESIDENT, TREASURER AND CONTROLLER, Vice President
and Controller (1987 - present), Treasurer (February, 1997 - present),
Assistant Vice President and Assistant Controller (1983 - 1987), Western
Reserve Life Assurance Co. of Ohio; Treasurer and Principal Financial
Officer (February, 1997 - present), WRL Series Fund, Inc.; Vice President
and Controller (1988 to February 1991), Pioneer Western Corporation
(financial services), Largo, Florida.
HERB C. COLLINS(1), EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER,
Executive Vice President and Chief Administrative Officer (December, 1996
to present), Western Reserve Life Assurance Co. of Ohio; Vice President
(1983-1996), Monumental Life Insurance Company, Baltimore, Maryland.
PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52499,
Director (February, 1991 to present), Western Reserve Life Assurance Co.
of Ohio; Vice President and Chief Tax Officer (1984 - present), Chief
Financial Officer (1992 - present) AEGON USA, Inc., formerly known as Life
Investors, Inc., (financial services holding company), Cedar Rapids, Iowa.
JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429,
Director (1987 - present), Western Reserve Life Assurance Co. of Ohio;
Trustee, IDEX Series Fund, former Trustee of IDEX Fund, IDEX II Series
Fund and IDEX Fund 3 (investment companies); Director, Regional Marketing,
(1986 - January, 1993), Martin Marietta Corporation, Dayton, Ohio.
LYMAN H. TREADWAY, DIRECTOR, 30195 Chagrin Blvd. Ste. 210N, Cleveland, Ohio
44124, Director (September, 1994 - present), Western Reserve Life
Assurance Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio.
JAMES R. WALKER, DIRECTOR, 3320 Office Park Dr., Dayton, Ohio 45439, Director
(June, 1996 - present) Western Reserve Life Assurance Co. of Ohio; Self-
employed, Public Accountant (1996 - present); Partner, C.P.A. (1990 -
1995), Walker-Davis C.P.A.'s, Dayton, Ohio.
- ----------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., Washington, D.C., has provided
advice on certain legal matters concerning Federal securities laws in
connection with the Policies. All matters of Ohio law pertaining to the Policy,
including the validity of the Policy and Western Reserve's right to issue the
Policy under Ohio Insurance Law, have been passed upon by Thomas E. Pierpan,
Vice President, Associate General Counsel and Assistant Secretary 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,
1996 and for the year then ended have been included herein in reliance upon the
report of Price Waterhouse LLP, independent accountants, and upon the authority
of that firm as experts in accounting and auditing.
The financial statements and schedules of Western Reserve Life Assurance
Co. of Ohio at December 31, 1996 and 1995 and for each of the three years in
the
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period ended December 31, 1996, 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 reports of Price Waterhouse LLP, independent accountants. The financial
statements referred to above are included in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Series Account, Western Reserve and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof reference is made to such instruments as filed.
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Prospectus (see p. 50) 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,
1996, 1995 and 1994, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
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APPENDIX A
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a Policy operates.
They show how the death benefit, Cash Value and Net Surrender Value of a Policy
issued to an Insured of a given age and a given premium could vary over an
extended period of time assuming hypothetical gross rates of return equivalent
to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the
Policy values that would result based on the assumptions that the premium is
paid as indicated, that the Owner has not requested a decrease in the Specified
Amount of the Policy, and that no cash withdrawals or Policy loans 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 fluctuates above and below those averages
for individual Policy years. They would also differ if any Policy loans were
made during the period of time illustrated.
The illustration on page 43 is based on a Policy for an Insured who is a
35 year old male in the Ultimate Select, non-tobacco use, rate class, annual
premiums of $2,000, a $165,000 Specified Amount and death benefit Option A. The
illustrations on that page also assume cost of insurance charges based on
Western Reserve's CURRENT cost of insurance rates.
The illustration on page 44 is based on the same factors as those on page
43, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table). The illustration on page 45 depicts, in graphic format, the same levels
of cumulative net premiums, Net Surrender Values, and death benefits payable
during any Policy year, as are shown on page 43, and assumes a hypothetical
gross annual rate of return of 12%.
The amounts shown for the death benefits, Cash Values and Net Surrender
Values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each Sub-Account which is equivalent to an
annual charge of 0.90% of the average net assets of the Sub-Accounts during the
first 15 Policy years (Western Reserve currently intends to reduce this charge
to 0.75% after the first fifteen Policy years. However, such reduction is not
guaranteed, and Western Reserve reserves the right to maintain this charge at
the 0.90% level after the first fifteen Policy years); (2) estimated daily
expenses equivalent to an effective average annual expense level of 0.93% of
the average daily net assets of the Portfolios of the Fund; and (3) all
applicable premium expense charges and Cash Value charges using the current
monthly Policy Charge. The 0.93% average Portfolio expense level assumes an
equal allocation of amounts among the fourteen Sub-Accounts and is based on an
average 0.76% investment advisory fee and 1996 average normal operating
expenses of 0.17% for each of the Portfolios in operation during 1996.
Calculation of the average annual expense level utilized annualized actual
audited expenses incurred during 1996 as adjusted for anticipated expense
modifications incurring in 1997 for the Money Market (0.52%), Bond (0.64%),
Growth (0.88%), Strategic Total Return (0.91%), Emerging Growth (0.94%), Global
(0.99%), Aggressive Growth (0.98%), Balanced (0.97%), Growth & Income (1.00%),
C.A.S.E. Growth (1.00%), and Tactical Asset Allocation (0.90%) Portfolios. In
addition, because the Value Equity Portfolio was not in existence during the
full year of 1996 (commencement of operations was May 1, 1996), and the U.S.
Equity Portfolio and International Equity Portfolio had not commenced
operations as of December 31, 1996, the estimated average annual Portfolio
expense level reflects estimated expenses for these three Portfolios at 1.00%,
1.05% and 1.30%, respectively, for 1997. During 1996, 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. WRL Management has undertaken until April
30, 1998 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 1.83%, the gross annual investment return
rates of 0%, 6% and 12% are equivalent to net annual investment return rates of
- -1.83%, 4.17%, and 10.17%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account, because Western Reserve is not
currently making such charges. In order to produce after tax returns of 0%, 6%
or 12% if such charges are made in the future, the Series Account would have to
earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
(See Charges Against the Series Account - Taxes, p. 27.)
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if an amount equal to the premium were invested to earn
interest at 5% per year, compounded annually.
Western Reserve will furnish, upon request, a comparable illustration
reflecting the proposed Insured's age, sex, risk classification and desired
plan features.
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 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%
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68 (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30(AGE 65) 139,522 165,000 165,000 354,239
40(AGE 75) 253,680 165,000 165,000 850,576
50(AGE 85) 439,631 * 259,118 2,233,562
60(AGE 95) 742,526 * 396,293 5,647,972
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 1,533 1,636 1,739
2 3,035 3,336 3,651
3 4,502 5,101 5,750
4 5,936 6,934 8,059
5 7,328 8,827 10,587
6 8,677 10,782 13,357
7 9,981 12,800 16,391
8 11,241 14,883 19,717
9 12,436 17,013 23,345
10 13,575 19,202 27,317
15 18,739 31,458 54,202
20 22,614 45,989 98,375
30(AGE 65) 27,868 86,332 290,360
40(AGE 75) 24,179 148,171 794,931
50(AGE 85) * 246,779 2,127,202
60(AGE 95) * 392,370 5,592,051
<CAPTION>
END OF NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 0 0 0
2 474 776 1,090
3 1,941 2,540 3,190
4 3,375 4,373 5,498
5 4,767 6,266 8,026
6 6,372 8,478 11,052
7 7,932 10,752 14,342
8 9,448 13,091 17,924
9 10,899 15,477 21,808
10 12,295 17,921 26,036
15 18,739 31,458 54,202
20 22,614 45,989 98,375
30(AGE 65) 27,868 86,332 290,360
40(AGE 75) 24,179 148,171 794,931
50(AGE 85) * 246,779 2,127,202
60(AGE 95) * 392,370 5,592,051
</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.
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type A
Using Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30(AGE 65) 139,522 165,000 165,000 339,443
40(AGE 75) 253,680 * 165,000 794,303
50(AGE 85) 439,631 * 172,217 2,021,980
60(AGE 95) 742,526 * 256,812 4,830,180
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 1,511 1,613 1,715
2 2,984 3,282 3,594
3 4,415 5,007 5,649
4 5,804 6,787 7,897
5 7,148 8,623 10,357
6 8,448 10,516 13,048
7 9,699 12,465 15,991
8 10,902 14,472 19,214
9 12,056 16,536 22,743
10 13,160 18,662 26,611
15 18,170 30,588 52,834
20 21,582 44,397 95,693
30(AGE 65) 18,752 76,262 278,232
40(AGE 75) * 112,026 742,339
50(AGE 85) * 164,016 1,925,696
60(AGE 95) * 254,269 4,782,357
<CAPTION>
END OF NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 0 0 0
2 423 722 1,033
3 1,854 2,446 3,088
4 3,243 4,227 5,336
5 4,587 6,063 7,796
6 6,143 8,212 10,743
7 7,650 10,416 13,943
8 9,110 12,679 17,422
9 10,519 15,000 21,207
10 11,879 17,381 25,330
15 18,170 30,588 52,834
20 21,582 44,397 95,693
30(AGE 65) 18,752 76,262 278,232
40(AGE 75) * 112,026 742,339
50(AGE 85) * 164,016 1,925,696
60(AGE 95) * 254,269 4,782,357
</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.
44
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR ULTIMATE SELECT (NON-TOBACCO USE)
$165,000 SPECIFIED AMOUNT
OPTION A - FIXED DEATH BENEFIT
CURRENT COST OF INSURANCE RATES
[GRAPHIC OMITTED]
45
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the average annual returns of common
stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is a historical record and is not
intended as a projection of future performance. Charges associated with a
variable life insurance policy are not reflected.
The data indicates that, historically, the investment performance of
common stocks over long periods of time has been positive and has generally
been superior to that of long-term, high grade debt securities. Common stocks
have, however, been subject to more dramatic market adjustments over short
periods of time. These trends indicate the potential advantages of holding a
variable life insurance policy for a long period of time.
The following chart illustrates the average annual returns of the
Standard & Poor's Index of 500 Common Stocks ("S&P 500 Stock Index") for each
of the 20 year periods shown. These returns are compared to the average annual
returns of high grade corporate bonds and U.S. Treasury bills for the same
periods. (The 20-year periods selected for the chart begin in 1936 and have
ending periods at five year intervals.)
AVERAGE ANNUAL RETURNS
TWENTY YEAR HOLDING PERIODS
[GRAPHIC OMITTED]
* Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1997 YEARBOOK/trademark/,
Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and
Rex A. Sinquefield). Used with permission. All rights reserved.
46
<PAGE>
Over the 51 20-year time periods beginning in 1927 and ending in 1996
(i.e. 1927-1946, 1928-1947, and so on through 1977-1996):
-- The average annual return of common stocks was superior to that of
high grade, long-term corporate bonds in 48 of the 51 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 51 periods.
-- Common stock average annual returns exceeded the average annual rate
of inflation in each of the 51 periods.
From 1927 through 1996 the average annual return for common stocks was
10.2%, compared to 5.4% for high grade, long-term corporate bonds, 3.7% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1927 and ending 1996.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more likely
was the chance of a loss. The chart also shows that shorter term results tend
to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
--------------------
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1987-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ......... 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 14.4% 15.3%
Small Company ......... -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.6 13.0
Long-Term Corp. ...... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 9.8 9.5
Long-Term Govt. ...... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 10.0 9.4
Inter-Term Govt. ...... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.0 7.8
Treasury Bills ......... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 5.5
Inflation ............ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.3 3.7
</TABLE>
- ----------------
* Based on the period 1926-1929.
** Based on the period 1990-1996.
Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1997 YEARBOOK/trademark/,
Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with permission. All rights reserved.
--------------------
THE WRL FINANCIAL FREEDOM BUILDER/sm/
AND THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Long Term Market Trends graph indicates, the investment
performance of many common stocks has generally been positive over certain
relatively long periods. Common stocks have, however, also been subject to
market declines, often dramatic ones, and general volatility of prices over
shorter time periods. The price fluctuations of common stocks has historically
been greater than that of high grade debt securities.
The relative volatility of common stock prices as compared with prices of
high grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
In this method of investing:
/bullet/ Relatively constant dollar amounts are invested at regular
intervals (monthly, quarterly, or annually),
/bullet/ Stock Market fluctuations, especially the savings on purchases
from price declines, are exploited for the investor's benefit.
47
<PAGE>
HOW DOLLAR COST AVERAGING WORKS
Investments at
Regular Common Stock Shares
Intervals Market Price Purchased
- ---------------- -------------- ----------
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
----------- -----
$900 87.5
Total Value of 87.5 shares @ $15/ $ 1,312.50
share
Less Investment made (900.00)
-----------
Gain/Profit $ 412.50
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
How does the dollar cost averaging method relate to the WRL Financial
Freedom Builder/sm/? A Policyowner may invest his or her Net Premium in a
Sub-Account, and although a Policy's value in a Sub-Account or Sub-Accounts is
affected by several factors other than investment experience (E.G., Cash Value
charges and charges against the Series Account), the dollar cost averaging
method can be generally applied to the Policy to the extent that the Policyowner
pays a Planned Periodic Premium on a regular basis and he or she allocates Net
Premium resulting from those Planned Periodic Premiums to Sub-Accounts in
relatively constant amounts.
INDEX TO FINANCIAL STATEMENTS
WRL SERIES LIFE ACCOUNT:
Statements of assets, liabilities and equity accounts as of March 31,
1997, statements of operations for the three months ended March 31, 1997
and statements of changes in equity accounts for the three months ended
March 31, 1997 and year ended December 31, 1996 (unaudited)
Selected per unit data and ratios for the period ended March 31, 1997 and
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992
(unaudited)
Notes to Financial Statements (unaudited)
Report of Independent Accountants dated January 31, 1997
Statements of assets, liabilities and equity accounts and statements of
operations for the year ended December 31, 1996
Statements of changes in equity accounts for the years ended December 31,
1996 and 1995
Selected per unit data and ratios for the years ended December 31, 1996,
1995, 1994, 1993 and 1992
Notes to Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Statutory-Basis Balance Sheet as of March 31, 1997 (unaudited)
Statutory-Basis Statement of Operations for the three months ended March
31, 1997 (unaudited)
Statutory-Basis Statement of Cash Flows for the threee months ended March
31, 1997 (unaudited)
Statutory-Basis Statement of Changes in Capital and Surplus for the three
months ended March 31, 1997 (unaudited)
Notes to Statutory-Basis Financial Statements (unaudited)
Report of Independent Auditors dated February 21, 1997
Statutory-Basis Balance Sheets at December 31, 1996 and 1995
Statutory-Basis Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Statutory-Basis Statements of Changes in Capital and Surplus for the
years ended December 31, 1996, 1995 and 1994
Statutory-Basis Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
48
<PAGE>
APPENDIX C
(BASED ON THE SEX AND RATE CLASS OF THE INSURED)
SURRENDER CHARGE PER THOUSAND
<TABLE>
<CAPTION>
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
0 N/A 11.76 N/A 11.76
1 N/A 8.16 N/A 8.16
2 N/A 8.16 N/A 8.16
3 N/A 7.92 N/A 7.92
4 N/A 7.68 N/A 7.68
5 N/A 7.68 N/A 7.68
6 N/A 7.68 N/A 7.68
7 N/A 7.68 N/A 7.68
8 N/A 7.68 N/A 7.68
9 N/A 7.68 N/A 7.68
10 N/A 7.68 N/A 7.68
11 N/A 7.68 N/A 7.68
12 N/A 7.68 N/A 7.68
13 N/A 7.92 N/A 7.92
14 N/A 8.16 N/A 8.16
15 N/A 8.40 N/A 8.40
16 N/A 8.52 N/A 8.52
17 0.00 8.88 0.00 8.88
18 8.72 9.20 8.72 9.20
19 8.84 9.32 8.84 9.32
20 8.96 9.44 8.96 9.44
21 9.16 9.88 9.16 9.64
22 9.32 10.04 9.32 9.80
23 9.52 10.24 9.52 10.00
24 9.68 10.40 9.68 10.40
25 9.88 10.84 9.88 10.60
26 10.56 11.28 10.32 11.04
27 11.00 11.72 10.76 11.48
28 11.40 12.12 11.16 12.12
29 12.08 12.80 11.84 12.56
30 12.52 13.24 12.28 13.00
31 13.04 14.00 12.80 13.52
32 13.76 14.48 13.52 14.24
33 14.28 15.24 14.04 14.76
<CAPTION>
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
34 14.76 15.96 14.52 15.48
35 15.52 16.48 15.28 16.00
36 16.20 17.40 15.96 16.92
37 17.20 18.40 16.72 17.92
38 18.12 19.56 17.64 18.60
39 19.08 20.76 18.36 19.56
40 20.28 21.96 19.32 20.52
41 21.64 23.56 20.68 22.12
42 23.08 25.24 22.12 23.80
43 24.44 27.08 23.15 25.40
44 26.04 29.16 23.86 26.96
45 27.44 31.04 24.59 27.83
46 28.72 32.80 25.38 28.76
47 29.84 34.56 26.22 29.73
48 31.00 36.32 27.11 30.75
49 32.24 38.32 28.04 31.84
50 33.56 40.56 29.05 32.99
51 34.98 42.56 30.11 34.20
52 36.49 45.24 31.24 35.48
53 38.10 47.68 32.45 36.84
54 39.83 50.84 33.72 38.28
55 41.68 53.28 35.09 39.79
56 43.63 55.79 36.54 41.39
57 45.74 57.00 38.08 43.06
58 47.98 57.00 39.74 44.88
59 50.38 57.00 41.54 46.85
60 52.97 57.00 43.47 48.97
61 55.74 57.00 45.57 51.26
62 57.00 57.00 47.82 53.73
63 57.00 57.00 50.26 56.41
64 57.00 57.00 52.88 57.00
65 57.00 57.00 55.68 57.00
66 and over 57.00 57.00 57.00 57.00
</TABLE>
WRL00159-05/97
49
<PAGE>
[GRAPHIC OMITTED]
-----------------------------------------------------
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Distributor: InterSecurities, Inc.
201 Highland Avenue /bullet/ Largo, Florida 33770-2597
-----------------------------------------------------
THESE PROSPECTUSES DO NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING
MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS
IN CONNECTION WITH THESE OFFERINGS, OTHER THAN THOSE CONTAINED IN THESE
PROSPECTUSES.
WRL00159
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Money Market Portfolio
(14,362,628.580 shares;
cost $14,362,629).....................$ 14,362,629
Accrued transfers from (to) depositor - net 661,819
---------------
Total assets.......................... 15,024,448
---------------
LIABILITIES:................................. 1,415
---------------
Total net assets......................$ 15,023,033
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Money Market sub-account
(962,580.140342 units;
$15.607046 unit value)................$ 15,023,033
---------------
Total equity..........................$ 15,023,033
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 157,201
Capital gain distributions.............. 0
---------------
157,201
EXPENSES:
Mortality and expense risk charges...... 28,227
---------------
Net investment income (loss).......... 128,974
---------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 0
Change in unrealized appreciation
(depreciation)........................ 0
---------------
Net gain (loss) on investments........ 0
---------------
Net increase (decrease) in equity
accounts resulting from
operations $ 128,974
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ................. $ 128,974 $ 491,185
Net gain (loss) on investments ............... 0 0
----------- -----------
Net increase (decrease) in equity accounts
resulting from operations ................. 128,974 491,185
----------- -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .......... 3,252,840 5,217,298
----------- -----------
Less cost of units redeemed:
Administrative charges .................... 719,185 2,639,279
Policy loans .............................. 189,570 285,757
Surrender benefits ........................ 181,627 776,305
Death benefits ............................ 8,428 25,737
----------- -----------
1,098,810 3,727,078
----------- -----------
Increase (decrease) in equity accounts from
capital unit transactions ............... 2,154,030 1,490,220
----------- -----------
Net increase (decrease) in equity accounts. 2,283,004 1,981,405
EQUITY ACCOUNTS:
Beginning of period .......................... 12,740,029 10,758,624
----------- -----------
End of period ................................ $15,023,033 $12,740,029
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
50
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- ------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 15.45 14.83 $ 14.19 $13.84 $13.63 $13.33
Income from operations:
Net investment income (loss)........ .16 .62 .64 .35 .21 .30
Net realized and unrealized
gain (loss) on investments........ .00 .00 .00 .00 .00 .00
------- ------- ------- ------ ------ -------
Total income (loss) from operations .16 .62 .64 .35 .21 .30
------- ------- ------- ------ ------ -------
Accumulation unit value, end of period... $ 15.61 $ 15.45 $ 14.83 $14.19 $13.84 $13.63
======= ======= ======= ====== ====== ======
Total return (a)........................ 1.01% 4.17% 4.49% 2.58% 1.52% 2.24%
Ratios and supplemental data:
Net assets at end of period (in thousands) $15,023 $12,740 $10,759 $9,706 $4,985 $4,619
Ratio of net investment income (loss) to
average net assets (b)............. 1.01% 4.07% 4.37% 2.66% 1.51% 2.12%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
51
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Bond Portfolio
(1,118,241.693 shares;
cost $12,161,061).....................$ 11,807,898
Accrued transfers from (to) depositor - net 28,449
Total assets.......................... 11,836,347
---------------
LIABILITIES:................................. 1,159
---------------
Total net assets......................$ 11,835,188
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Bond sub-account
(615,975.188599 units;
$19.213741 unit value)................$ 11,835,188
---------------
Total equity..........................$ 11,835,188
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 25,823
---------------
Net investment income (loss).......... (25,823)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... (86,646)
Unrealized appreciation (depreciation).. (74,685)
---------------
Net gain (loss) on investments........ (161,331)
---------------
Net increase (decrease) in net
assets resulting from operations..$ (187,154)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED YEAR ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss).........................$ (25,823) $ 553,012
Net gain (loss) on investments....................... (161,331) (613,958)
------------- -------------
Net increase (decrease) in equity accounts
resulting from operations......................... (187,154) (60,946)
------------- -------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed):................. 960,880 3,451,573
------------- ------------
Less cost of units redeemed:
Administrative charges............................ 378,395 1,314,254
Policy loans...................................... 46,951 191,268
Surrender benefits................................ 97,545 338,599
Death benefits.................................... 195 28,090
------------- ------------
523,086 1,872,211
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions....................... 437,794 1,579,362
------------- ------------
Net increase (decrease) in equity accounts........ 250,640 1,518,416
EQUITY ACCOUNTS:
Beginning of period.................................. 11,584,548 10,066,132
------------- ------------
End of period........................................$ 11,835,188 $ 11,584,548
============= ============
</TABLE>
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
52
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
------- ------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 19.53 $ 19.67 $ 16.14 $ 17.50 $15.57 $14.68
Income from operations:
Net investment income (loss)........ (.04) .99 1.05 .89 2.11 1.00
Net realized and unrealized
gain (loss) on investments........ (.28) (1.13) 2.48 (2.25) (.18) (.11)
------- ------- ------- ------- ------ ------
Total income (loss) from operations (.32) (.14) 3.53 (1.36) .1.93 .89
------- ------- ------- ------- ------ ------
Accumulation unit value, end of period... $ 19.21 $ 19.53 $ 19.67 $ 16.14 $17.50 $15.57
======= ======= ======= ======= ====== ======
Total return (a)......................... (1.60)% (.75)% 21.89% (7.77)% 12.40% 6.08%
Ratios and supplemental data:
Net assets at end of period (in thousands) $11,835 $11,585 $10,066 $ 6,259 $6,985 $4,558
Ratio of net investment income (loss) to
average net assets (b).............. (.90)% 5.34% 5.80% 5.57% 12.92% 6.69%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
53
<PAGE>
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Growth Portfolio
(10,208,292.649 shares;
cost $277,671,012)....................$ 341,969,269
Accrued transfers from (to) depositor - net (223,634)
---------------
Total assets.......................... 341,745,635
---------------
LIABILITIES:................................. 34,493
---------------
Total net assets......................$ 341,711,142
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Growth sub-account
(7,380,354.775126 units;
$46.300097 unit value)............... $ 341,711,142
---------------
Total equity..........................$ 341,711,142
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 803,974
---------------
Net investment income (loss).......... (803,974)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 1,154,504
Unrealized appreciation (depreciation).. (16,731,116)
---------------
Net gain (loss) on investments........ (15,576,612)
---------------
Net increase (decrease) in net
assets resulting from operations..$ (16,380,586)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED YEAR ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)...............................$ (803,974) $ 19,310,499
Net gain (loss) on investments............................. (15,576,612) 26,918,660
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... (16,380,586) 46,229,159
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions).............................. 22,845,971 91,555,979
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............ 8,560,580 29,331,415
Policy loans............................................ 2,268,083 8,442,970
Surrender benefits...................................... 3,287,707 12,385,662
Death benefits.......................................... 129,149 600,920
------------- ------------
14,245,519 50,760,967
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 8,600,452 40,795,012
------------- ------------
Net increase (decrease) in equity accounts.............. (7,780,134) 87,024,171
EQUITY ACCOUNTS:
Beginning of period........................................ 349,491,276 262,467,105
------------- ------------
End of period..............................................$ 341,711,142 $349,491,276
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
54
<PAGE>
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- -----------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 48.48 $ 41.47 $ 28.44 $ 31.30 $ 30.37 $ 29.95
Income from operations:
Net investment income (loss) ........... (.10) 2.88 3.89 .04 .46 1.09
Net realized and unrealized
gain (loss) on investments ........... (2.08) 4.13 9.14 (2.90) .47 (.67)
-------- -------- -------- -------- -------- --------
Total income (loss) from operations .. (2.18) 7.01 13.03 (2.86) .93 .42
-------- -------- -------- -------- -------- --------
Accumulation unit value, end of period ...... $ 46.30 $ 48.48 $ 41.47 $ 28.44 $ 31.30 $ 30.37
======== ======== ======== ======== ======== ========
Total return (a) ........................... (4.50)% 16.91% 45.81% (9.13)% 3.06% 1.41%
Ratios and supplemental data:
Net assets at end of period (in thousands) $341,711 $349,491 $262,467 $161,490 $169,757 $146,053
Ratio of net investment income (loss) to
average net assets (b) ................ (.90)% 6.41% 11.05% .16% 1.56% 3.84%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
55
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Short-to-Intermediate Government Portfolio
(162,956.600 shares;
cost $1,688,632)......................$ 1,668,500
Accrued transfers from (to) depositor - net 27,379
---------------
Total assets.......................... 1,695,879
---------------
LIABILITIES:................................. 164
---------------
Total net assets......................$ 1,695,715
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Short-to-Intermediate Government
sub-account (143,508.016893 units;
$11.816167 unit value)................$ 1,695,715
---------------
Total equity..........................$ 1,695,715
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 3,840
---------------
Net investment income (loss).......... (3,840)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 697
Unrealized appreciation (depreciation).. (1,790)
---------------
Net gain (loss) on investments........ (1,093)
---------------
Net increase (decrease) in net
assets resulting from operations..$ (4,933)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
OPERATIONS:
<S> <C> <C>
Net investment income (loss)..........................$ (3,840) $ 67,973
Net gain (loss) on investments........................ (1,093) (29,048)
-------------- -------------
Net increase (decrease) in equity accounts
resulting from operations.......................... (4,933) 38,925
-------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)......................... 71,312 442,872
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges....... 46,394 178,533
Policy loans....................................... 6,953 33,708
Surrender benefits................................. 27,111 77,704
Death benefits..................................... 43 0
------------- ------------
80,501 289,945
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions........................ (9,189) 152,927
-------------- ------------
Net increase (decrease) in equity accounts......... (14,122) 191,852
EQUITY ACCOUNTS:
Beginning of period................................... 1,709,837 1,517,985
------------- ------------
End of period.........................................$ 1,695,715 $ 1,709,837
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
56
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- ----------------------------------------------
1997 1996 1995 1994 1993 1992(c)
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 11.85 $ 11.55 $ 10.27 $10.40 $10.04 $10.00
Income from operations:
Net investment income (loss)........ (.03) .51 .61 .40 .14 .01
Net realized and unrealized
gain (loss) on investments........ 0.00 (.21) .67 (.53) .22 .03
------- ------- ------ ------ ------ ------
Total income (loss) from operations (.03) .30 1.28 (.13) .36 .04
------- ------- ------ ------ ------ ------
Accumulation unit value, end of period... $ 11.82 $ 11.85 $ 11.55 $10.27 $10.40 $10.04
======= ======= ======= ====== ====== ======
Total return (a)........................ (.28)% 2.56% 12.53% (1.32)% 3.64% .38%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 1,696 $ 1,710 $ 1,517 $ 945 $1,408 $ 803
Ratio of net investment income (loss) to
average net assets (b).............. (.90)% 4.53% 5.53% 4.06% 1.39% 1.92%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
57
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Global Portfolio
(5,165,138,494 shares;
cost $85,060,145).....................$ 97,917,803
Accrued transfers from (to) depositor - net 394
---------------
Total assets.......................... 97,918,197
---------------
LIABILITIES:................................. 9,664
---------------
Total net assets......................$ 97,908,533
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Global sub-account
(6,198,130.485919 units;
$ 15.796462 unit value)...............$ 97,908,533
---------------
Total equity..........................$ 97,908,533
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 202,527
---------------
Net investment income (loss).......... (202,527)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 100,838
Unrealized appreciation (depreciation).. 3,768,022
---------------
Net gain (loss) on investments........ 3,868,860
---------------
Net increase (decrease) in net
assets resulting from operations...$ 3,666,333
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREEE MONTHS ENDED YEAR ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)..................................$ (202,527) $ 6,524,214
Net gain (loss) on investments................................ 3,868,860 6,374,264
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations.................................. 3,666,333 12,898,478
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)................................. 14,534,916 43,696,555
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............... 2,428,612 6,463,101
Policy loans............................................... 439,827 1,465,510
Surrender benefits......................................... 529,637 2,225,874
Death benefits............................................. 53,723 62,009
------------- ------------
3,451,799 10,216,494
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions................................ 11,083,117 33,480,061
------------- ------------
Net increase (decrease) in equity accounts................. 14,749,450 46,378,539
Depositors' equity contribution (redemption) .............. 0 (268,153)
EQUITY ACCOUNTS:
Beginning of period........................................... 83,159,083 37,048,697
------------- ------------
End of period.................................................$ 97,908,533 $ 83,159,083
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
58
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
(UNAUDITED)
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- ----------------------------
1997 1996 1995 1994(e)
------- -------- ------ --------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 15.13 $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss)........ (.04) 1.50 .45 .71
Net realized and unrealized
gain (loss) on investments........ .71 1.68 1.70 (.91)
------- ------- ------- -------
Total income (loss) from operations .67 3.18 2.15 (.20)
------- ------- ------- -------
Accumulation unit value, end of period... $ 15.80 $ 15.13 $ 11.95 $ 9.80
======= ======= ======= =======
Total return (a)........................ 4.42% 26.60% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $97,909 $83,159 $37,049 $21,672
Ratio of net investment income (loss) to
average net assets (b)............. (.90)% 11.09% 4.25% 8.86%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
59
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
(UNAUDITED)
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Equity-Income Portfolio
(4,187,188.569 shares;
cost $50,969,738).....................$ 58,861,496
Accrued transfers from (to) depositor - net (26,144)
---------------
Total assets.......................... 58,835,352
---------------
LIABILITIES:................................. 5,894
---------------
Total net assets......................$ 58,829,458
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Equity-Income sub-account
(3,742,380.715350 units;
$ 15.719795 unit value)...............$ 58,829,458
---------------
Total equity..........................$ 58,829,458
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 129,862
---------------
Net investment income (loss).......... (129,862)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 107,352
Unrealized appreciation (depreciation).. 158,774
---------------
Net gain (loss) on investments........ 266,126
---------------
Net increase (decrease) in net
assets resulting from operations..$ 136,264
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
HREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)...............................$ (129,862) $ 2,645,668
Net gain (loss) on investments............................. 266,126 3,635,535
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... 136,264 6,281,203
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions).............................. 4,777,288 16,832,424
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............ 1,343,634 4,528,541
Policy loans............................................ 207,998 920,628
Surrender benefits...................................... 371,483 1,300,527
Death benefits.......................................... 60,706 112,479
------------- ------------
1,983,821 6,862,175
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 2,793,467 9,970,249
------------- ------------
Net increase (decrease) in equity accounts.............. 2,929,731 16,251,452
Depositor's equity contribution (redemption)............... 0 0
EQUITY ACCOUNTS:
Beginning of period........................................ 55,899,727 39,648,275
------------- ------------
End of period..............................................$ 58,829,458 $ 55,899,727
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
60
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
(UNAUDITED)
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
MAR. 31 DECEMBER 31
-------- --------------------------------------------
1997 1996 1995 1994 1993(d)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 15.66 $ 13.74 $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss)........ (.04) .82 .68 .18 .19
Net realized and unrealized
gain (loss) on investments........ .10 1.10 1.94 (.34) 1.09
-------- -------- -------- ------- --------
Total income (loss) from operations .06 1.92 2.62 (.16) 1.28
-------- -------- -------- ------- --------
Accumulation unit value, end of period... $ 15.72 $ 15.66 $ 13.74 $ 11.12 $ 11.28
======== ======== ======== ======== ========
Total return (a)........................ .39% 13.97% 23.55% (1.42)% 12.81%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 58,829 $ 55,900 $ 39,648 $ 23,649 $ 13,343
Ratio of net investment income (loss) to
average net assets (b)............. (.90)% 5.76% 5.47% 1.93% 2.27%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
61
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Emerging Growth Portfolio
(6,217,661.773 shares;
cost $92,604,950).....................$ 104,946,707
Accrued transfers from (to) depositor - net (190,943)
---------------
Total assets.......................... 104,755,764
---------------
LIABILITIES:................................. 10,662
---------------
Total net assets......................$ 104,745,102
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Emerging Growth sub-account
(5,885,207.311617 units;
$17.798031 unit value)................$ 104,745,102
---------------
Total equity..........................$ 104,745,102
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31, 1997
INVESTMENT INCOME:
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 248,931
---------------
Net investment income (loss).......... (248,931)
---------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 251,884
Unrealized appreciation (depreciation).. (10,181,110)
---------------
Net gain (loss) on investments........ (9,929,226)
---------------
Net increase (decrease) in net assets
resulting from operations.........$ (10,178,157)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)............................$ (248,931) $ 3,934,952
Net gain (loss) on investments.......................... (9,929,226) 9,284,053
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................ (10,178,157) 13,219,005
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)........................... 11,387,673 40,944,477
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges......... 3,113,863 9,201,102
Policy loans......................................... 529,727 2,095,860
Surrender benefits................................... 694,363 2,754,328
Death benefits....................................... 51,634 91,972
------------- ------------
4,389,587 14,143,262
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.......................... 6,998,086 26,801,215
------------- ------------
Net increase (decrease) in equity accounts........... (3,180,071) 40,020,220
Depositor's equity contribution (redemption)............ 0 0
EQUITY ACCOUNTS:
Beginning of period..................................... 107,925,173 67,904,953
------------- ------------
End of period...........................................$ 104,745,102 $107,925,173
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
62
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
(UNAUDITED)
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- --------------------------------------------
1997 1996 1995 1994 1993(d)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 19.51 $ 16.56 $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss)............ (.05) .82 .65 (.09) (.09)
Net realized and unrealized
gain (loss) on investments............ (1.66) 2.13 4.53 (.93) 2.49
-------- -------- -------- ------- --------
Total income (loss) from operations (1.71) 2.95 5.18 (1.02) 2.40
-------- -------- -------- ------- --------
Accumulation unit value, end of period....... $ 17.80 $ 19.51 $ 16.56 $ 11.38 $ 12.40
======== ======== ======== ======== ========
Total return (a)............................ (8.77)% 17.82% 45.49 (8.18)% 23.96%
Ratios and supplemental data:
Net assets at end of period (in thousands) $104,745 $107,925 $ 67,905 $ 36,687 $ 18,620
Ratio of net investment income (loss) to
average net assets (b)................. (.90)% 4.51% 4.66% (.86)% (.92)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
63
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Aggressive Growth Portfolio
(4,212,685.546 shares;
cost $56,506,010).....................$ 58,517,009
Accrued transfers from (to) depositor - net (68,385)
---------------
Total assets.......................... 58,448,624
---------------
LIABILITIES:................................. 5,930
---------------
Total net assets......................$ 58,442,694
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Aggressive Growth sub-account
(4,068,031.674136 units;
$14.366332 unit value)................$ 58,442,694
---------------
Total equity..........................$ 58,442,694
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 132,250
---------------
Net investment income (loss).......... (132,250)
---------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 72,963
Unrealized appreciation (depreciation).. (1,549,716)
---------------
Net gain (loss) on investments........ (1,476,753)
---------------
Net increase (decrease) in net
assets resulting from operations...$ (1,609,003)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)...............................$ (132,250) $ 1,138,792
Net gain (loss) on investments............................. (1,476,753) 2,797,147
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... (1,609,003) 3,935,939
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions).............................. 8,409,625 26,224,213
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............ 2,106,907 6,412,799
Policy loans............................................ 281,765 863,340
Surrender benefits...................................... 372,333 1,349,932
Death benefits.......................................... 5,163 29,810
------------- ------------
2,766,168 8,655,881
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 5,643,457 17,568,332
------------- ------------
Net increase (decrease) in equity accounts.............. 4,034,454 21,504,271
Depositor's equity contribution (redemption)............... 0 0
EQUITY ACCOUNTS:
Beginning of period........................................ 54,408,240 32,903,969
------------- ------------
End of period.............................................. 58,442,694 $ 54,408,240
============= ============
</TABLE>
* The inception date of this sub-account was March 1, 1993.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
64
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
--------- ----------------------------------
1997 1996 1995 1994(e)
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 14.70 $ 13.43 $ 9.82 $ 10.00
Income from operations:
Net investment income (loss)........... (.03) .36 .37 (.06)
Net realized and unrealized
gain (loss) on investments........... (.30) .91 3.24 (.12)
-------- -------- -------- --------
Total income (loss) from operations (.33) 1.27 3.61 (.18)
-------- -------- -------- --------
Accumulation unit value, end of period....... $ 14.37 $ 14.70 $ 13.43 $ 9.82
======== ======== ======== ========
Total return (a)............................ (2.24)% 9.46% 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 58,443 $ 54,408 $ 32,904 $ 8,909
Ratio of net investment income (loss) to
average net assets (b)................. (.90)% 2.65% 2.93% (.72)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
65
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
(UNAUDITED)
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Balanced Portfolio
(635,177,127 shares;
cost $6,706,119)......................$ 7,170,144
Accrued transfers from (to) depositor - net 23,821
---------------
Total assets.......................... 7,193,965
---------------
LIABILITIES:................................. 717
---------------
Total net assets......................$ 7,193,248
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Balanced sub-account
(596,076.026096 units;
$ 12.067669 unit value)...............$ 7,193,248
---------------
Total equity..........................$ 7,193,248
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 15,627
---------------
Net investment income (loss).......... (15,627)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 7,946
Unrealized appreciation (depreciation).. (100,178)
----------------
Net gain (loss) on investments........ (92,232)
---------------
Net increase (decrease) in net assets
resulting from operations.........$ (107,859)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)................................$ (15,627) $ 153,790
Net gain (loss) on investments.............................. (92,232) 341,121
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................ (107,859) 494,911
-------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)............................... 1,133,086 3,089,782
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............. 198,946 575,594
Policy loans............................................. 25,628 77,586
Surrender benefits....................................... 25,290 84,857
Death benefits........................................... 29 3,961
------------- ------------
249,893 741,998
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.............................. 883,193 2,347,784
------------- ------------
Net increase (decrease) in equity accounts............... 775,334 2,842,695
Depositor's equity contribution (redemption)................ 0 (220,175)
EQUITY ACCOUNTS:
Beginning of period......................................... 6,417,914 3,795,394
------------- ------------
End of period...............................................$ 7,193,248 $ 6,417,914
============ ============
</TABLE>
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
66
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
------- ------------------------------
1997 1996 1995 1994(e)
------- ------- ------- ------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 12.21 $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss)........ (.02) .36 .37 .22
Net realized and unrealized
gain (loss) on investments........ (.12) .72 1.39 (.85)
------- ------- ------- ------
Total income (loss) from operations (.14) 1.08 1.76 (.63)
------- ------- ------- -------
Accumulation unit value, end of period... $ 12.07 $ 12.21 $ 11.13 $ 9.37
======= ======= ======= =======
Total return (a)........................ (1.15)% 9.73% 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 7,193 $ 6,418 $ 3,795 $ 2,145
Ratio of net investment income (loss) to
average net assets (b)............. (.90)% 3.18% 3.59% 3.06%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
67
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Utility Portfolio
(472,543.172 shares;
cost $5,286,819)......................$ 5,542,445
Accrued transfers from (to) depositor - net (31,054)
---------------
Total assets.......................... 5,511,391
---------------
LIABILITIES:................................. 548
---------------
Total net assets......................$ 5,510,843
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Utility sub-account
(425,177.012914 units;
$ 12.961292 unit value)...............$ 5,510,843
--------------
Total equity..........................$ 5,510,843
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 12,337
---------------
Net investment income (loss).......... (12,337)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 58,594
Unrealized appreciation (depreciation).. (80,327)
---------------
Net gain (loss) on investments........ (21,733)
----------------
Net increase (decrease) in net
assets resulting from operations...$ (34,070)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)..................................$ (12,337) $ 245,624
Net gain (loss) on investments................................ (21,733) 210,007
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations.................................. (34,070) 455,631
-------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)................................. 289,673 3,245,136
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges............... 152,664 439,973
Policy loans............................................... 50,500 72,641
Surrender benefits......................................... 38,968 82,531
Death benefits............................................. 3,338 3,350
------------- ------------
245,470 598,495
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions................................ 44,203 2,646,641
------------- ------------
Net increase (decrease) in equity accounts................. 10,133 3,102,272
Depositor's equity contribution (redemption).................. 0 (232,644)
EQUITY ACCOUNTS:
Beginning of period........................................... 5,500,710 2,631,082
------------- ------------
End of period................................................. 5,510,843 $ 5,500,710
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
68
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
------- -----------------------------------
1997 1996 1995 1994(e)
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 13.03 $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss) ........... (.03) .76 .49 .29
Net realized and unrealized
gain (loss) on investments ........... (.04) .50 $ 1.79 (.80)
-------- -------- -------- --------
Total income (loss) from operations .. (.07) 1.26 2.28 (.51)
-------- -------- -------- --------
Accumulation unit value, end of period ...... $ 12.96 $ 13.03 $ 11.77 $ 9.49
======== ======== ======== ========
Total return (a) ........................... (.51)% 10.64% 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 5,511 5,501 $ 2,361 $ 1,215
Ratio of net investment income (loss) to
average net assets (b) ................ (.90)% 6.38% 4.57% 3.71%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
69
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Tactical Asset Allocation Portfolio
(1,579,926.390 shares;
cost $18,598,898).....................$ 19,833,651
Accrued transfers from (to) depositor - net (116,610)
---------------
Total assets.......................... 19,717,041
---------------
LIABILITIES:................................. 1,975
---------------
Total net assets......................$ 19,715,066
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Tactical Asset Allocation sub-account
(1,470,540.184800 units;
$13.406683 unit value)...............$ 19,715,066
---------------
Total equity..........................$ 19,715,066
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 42,746
---------------
Net investment income (loss).......... (42,746)
---------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 89,830
Change in unrealized appreciation
(depreciation)........................ (231,059)
---------------
Net gain (loss) on investments........ (141,229)
---------------
Net increase (decrease) in equity
accounts resulting from
operations........................$ (183,975)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED YEAR ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income (loss)................................$ (42,746) $ 584,042
Net gain (loss) on investments.............................. (141,229) 1,178,927
-------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................ (183,975) 1,762,969
-------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)......................... 2,587,336 9,061,824
------------- ------------
Less cost of units redeemed:
Administrative charges................................... 439,304 1,134,737
Policy loans............................................. 52,990 306,304
Surrender benefits....................................... 103,635 865,689
Death benefits........................................... 38,200 18,086
------------- ------------
634,129 2,324,816
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.............................. 1,953,207 6,737,008
------------- ------------
Net increase (decrease) in equity accounts............... 1,769,232 8,499,977
EQUITY ACCOUNTS:
Beginning of period......................................... 17,945,834 9,445,857
------------- ------------
End of period...............................................$ 19,715,066 $ 17,945,834
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
70
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
------- -------------------
1997 1996 1995(f)
------- ------- -------
<S> <C> <C> <C>
Accumulation unit value, beginning of period $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss)........... (.03) .53 .61
Net realized and unrealized
gain (loss) on investments........... (.06) 1.07 1.29
------- ------- -------
Total income (loss) from operations (.09) 1.60 1.90
------- ------- -------
Accumulation unit value, end of period...... $ 13.41 $ 13.50 $ 11.90
======= ======= =======
Total return (a)............................ (.67)% 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands) $19,715 $17,946 $ 9,446
Ratio of net investment income (loss) to
average net assets (b)................. (.90)% 4.35% 5.47%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
71
<PAGE>
WRL SERIES LIFE ACCOUNT
C.A.S.E. GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
C.A.S.E. Growth Portfolio
(421,409.620 shares;
cost $5,453,257)......................$ 5,319,771
Accrued transfers from (to) depositor - net (11,367)
---------------
Total assets.......................... 5,308,404
---------------
LIABILITIES:................................. 532
---------------
Total net assets......................$ 5,307,872
===============
EQUITY ACCOUNTS:
Policyowners' equity:
C.A.S.E. Growth sub-account
(520,554.569329 units;
$10.147835 unit value)................$ 5,282,502
---------------
Depositor's equity:
C.A.S.E. Growth sub-account
(2,500.000000 units;
$ 10.147835 unit value................ 25,370
---------------
Total equity..........................$ 5,307,872
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 11,470
---------------
Net investment income (loss).......... (11,470)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 7,037
Unrealized appreciation (depreciation).. (355,230)
----------------
Net gain (loss) on investments........ (348,193)
---------------
Net increase (decrease) in net
assets resulting from operations...$ (359,663)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996*
<S> <C> <C>
Net investment income (loss)................................$ (11,470) $ 70,246
Net gain (loss) on investments.............................. (348,193) 227,803
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................ (359,663) 298,049
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed):........................ 1,370,554 4,302,715
------------- ------------
Less cost of units redeemed:
Administrative charges................................... 145,745 140,145
Policy loans............................................. 18,468 7,028
Surrender benefits....................................... 5,121 12,276
Death benefits........................................... 0 0
------------- ------------
169,334 159,449
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.............................. 1,201,220 4,143,266
------------- ------------
Net increase (decrease) in equity accounts............... 841,557 4,441,315
Depositors' equity contribution (redemption) ............... 0 25,000
EQUITY ACCOUNTS:
Beginning of period......................................... 4,466,315 0
------------- ------------
End of period...............................................$ 5,307,872 $ 4,466,315
============= ============
</TABLE>
* The inception date of this sub-account was May 1, 1996
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
72
<PAGE>
WRL SERIES LIFE ACCOUNT
C.A.S.E. GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR. 31 DECEMBER 31
-------- -----------
1997 1996(g)
Accumulation unit value, beginning of period $ 10.81 $ 10.00
Income from operations:
Net investment income (loss)........... (.02) .37
Net realized and unrealized
gain (loss) on investments........... (.64) .44
------- -------
Total income (loss) from operations (.66) .81
------- -------
Accumulation unit value, end of period...... $ 10.15 $ 10.81
======= =======
Total return (a)........................... (6.12)% 8.09%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 5,308 $ 4,466
Ratio of net investment income (loss) to
average net assets (b)................ (.90)% 6.11%
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
73
<PAGE>
WRL SERIES LIFE ACCOUNT
VALUE EQUITY SUB-ACCOUNT
(UNAUDITED)
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
Value Equity Portfolio
(1,026,070.259 shares;
cost $11,191,317).....................$ 11,685,201
Accrued transfers from (to) depositor - net (147,896)
---------------
Total assets.......................... 11,537,305
---------------
LIABILITIES:................................. 1,174
---------------
Total net assets......................$ 11,536,131
===============
EQUITY ACCOUNTS:
Policyowners' equity:
Value Equity sub-account
(996,595.958314 units;
$ 11.347803 unit value)..............$ 11,309,175
---------------
Depositor's equity:
Value Equity sub-account
(20,000.000000 units;
$11.347803 unit value................. 226,956
---------------
Total equity..........................$ 11,536,131
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 23,139
---------------
Net investment income (loss).......... (23,139)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 28,736
Unrealized appreciation (depreciation).. (39,460)
---------------
Net gain (loss) on investments........ (10,724)
---------------
Net increase (decrease) in net assets
resulting from operations.........$ (33,863)
===============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED PERIOD ENDED
OPERATIONS: MARCH 31, 1997 DECEMBER 31, 1996*
<S> <C> <C>
Net investment income (loss).................................$ (23,139) $ 18,724
Net gain (loss) on investments............................... (10,724) 603,734
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................. (33,863) 622,458
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)................................ 2,886,104 8,292,350
------------- ------------
Less cost of units redeemed:
Cost of insurance and administrative charges.............. 159,139 152,948
Policy loans.............................................. 6,834 36,190
Surrender benefits........................................ 37,359 38,448
Death benefits............................................ 0 0
------------- ------------
203,332 227,586
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................... 2,682,772 8,064,764
------------- ------------
Net increase (decrease) in equity accounts................ 2,648,909 8,687,222
Depositors' equity contribution (redemption) ................ 0 200,000
EQUITY ACCOUNTS:
Beginning of period.......................................... 8,887,222 0
------------- ------------
End of period................................................$ 11,536,131 $ 8,887,222
============= ============
</TABLE>
* The inception date of this sub-account was May 1, 1996
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
74
<PAGE>
WRL SERIES LIFE ACCOUNT
VALUE EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR.31 DECEMBER 31
------- -----------
1997 1996(g)
------- -------
Accumulation unit value, beginning of period $ 11.25 $ 10.00
Income from operations:
Net investment income (loss)........ (.03) .05
Net realized and unrealized
gain (loss) on investments........ .13 1.20
------- -------
Total income (loss) from operations .10 1.25
------- -------
Accumulation unit value, end of period... $ 11.35 $ 11.25
======= =======
Total return (a)......................... .86% 12.51%
Ratios and supplemental data:
Net assets at end of period (in thousands) $11,536 $ 8,887
Ratio of net investment income to
average net assets (b).............. (.90)% .77%
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
75
<PAGE>
WRL SERIES LIFE ACCOUNT
INTERNATIONAL EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
International Equity Portfolio
(shares 75,751.742;
cost $759,754)........................$ 772,057
Accrued transfers from (to) depositor - net 11,523
---------------
Total assets.......................... 783,580
---------------
LIABILITIES:................................. 76
---------------
Total net assets......................$ 783,504
===============
EQUITY ACCOUNTS:
Policyowners' equity:
International Equity sub-account
(37,043.000744 units;
$10.169696 unit value)................$ 376,716
---------------
Depositor's equity:
International Equity sub-account
(40,000.000000 units;
$ 10.169696 unit value............... 406,788
---------------
Total equity..........................$ 783,504
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 2,012
---------------
Net investment income (loss).......... (2,012)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 7,477
Unrealized appreciation (depreciation).. 12,303
---------------
Net gain (loss) on investments........ 19,780
---------------
Net increase (decrease) in net assets
resulting from operations.........$ 17,768
===============
<PAGE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED
OPERATIONS: MARCH 31, 1997*
Net investment income (loss)................................ $ (2,012)
Net gain (loss) on investments.............................. 19,780
------------
Net increase (decrease) in equity accounts
resulting from operations................................ 17,768
------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions)............................... 372,572
------------
Less cost of units redeemed:
Cost of insurance and administrative charges............. 5,490
Policy loans............................................. 868
Surrender benefits....................................... 478
Death benefits........................................... 0
------------
6,836
Increase (decrease) in equity accounts from
capital unit transactions.............................. 365,736
------------
Net increase (decrease) in equity accounts............... 383,504
Depositor's equity contribution (redemption)................ 400,000
EQUITY ACCOUNTS:
Beginning of period......................................... 0
------------
End of period............................................... $ 783,504
============
* The inception date of this sub-account was January 2, 1997
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
76
<PAGE>
WRL SERIES LIFE ACCOUNT
INTERNATIONAL EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MAR.31
-------
1997(h)
-------
Accumulation unit value, beginning of period $ 10.00
Income from operations:
Net investment income (loss)........ (.00)
Net realized and unrealized
gain (loss) on investments........ .17
-------
Total income (loss) from operations .17
-------
Accumulation unit value, end of period... $ 10.17
=======
Total return (a)......................... 1.70%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 784
Ratio of net investment income to
average net assets (b).............. (.90)%
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
See Notes to Selected Per Unit Data and Ratios on page 79.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
77
<PAGE>
WRL SERIES LIFE ACCOUNT
U.S. EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: MARCH 31, 1997
Investments at net asset value:
WRL Series Fund, Inc.:
U.S. Equity Portfolio
( shares 46,323.982;
cost $470,956)........................$ 454,531
Accrued transfers from (to) depositor - net 1,881
---------------
Total assets.......................... 456,412
---------------
LIABILITIES:................................. 46
---------------
Total net assets......................$ 456,366
===============
EQUITY ACCOUNTS:
Policyowners' equity:
U.S. Equity sub-account
(26,612.741949 units;
$9.790581 unit value)................ $ 260,554
---------------
Depositor's equity:
U.S. Equity sub-account
(20,000.000000 units;
$9.790581 unit value..................$ 195,812
---------------
Total equity..........................$ 456,366
===============
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
INVESTMENT INCOME: MARCH 31, 1997
Dividend income.........................$ 0
Capital gain distributions.............. 0
---------------
0
EXPENSES:
Mortality and expense risk charges...... 712
---------------
Net investment income (loss).......... (712)
----------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
securities transactions............... 502
Unrealized appreciation (depreciation).. (16,425)
---------------
Net gain (loss) on investments........ (15,923)
---------------
Net increase (decrease) in net assets
resulting from operations.........$ (16,635)
===============
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
THREE MONTHS ENDED
OPERATIONS: MARCH 31, 1997*
Net investment income (loss)............................... $ (712)
Net gain (loss) on investments............................. (15,923)
-------------
Net increase (decrease) in equity accounts
resulting from operations............................... (16,635)
-------------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions).............................. 274,715
------------
Less cost of units redeemed:
Cost of insurance and administrative charges............ 1,207
Policy loans............................................ 194
Surrender benefits...................................... 313
Death benefits.......................................... 0
------------
1,714
------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 273,001
------------
Net increase (decrease) in equity accounts.............. 256,366
Depositor's equity contribution (redemption)............... 200,000
EQUITY ACCOUNTS:
Beginning of period........................................ 0
------------
End of period.............................................. $ 456,366
============
* The inception date of this sub-account was January 2, 1997
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
78
<PAGE>
WRL SERIES LIFE ACCOUNT
U.S. EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
MARCH 31
---------
1997(h)
-------
Accumulation unit value, beginning of period $ 10.00
Income from operations:
Net investment income (loss)........ .00
Net realized and unrealized
gain (loss) on investments........ (.21)
-------
Total income (loss) from operations (.21)
-------
Accumulation unit value, end of period... $ 9.79
=======
Total return............................. (2.09)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 456
Ratio of net investment income to
average net assets.................. (.90)%
* The above table illustrates the change for a unit outstanding computed using
average units outstanding through each period.
NOTES TO SELECTED PER UNIT DATA AND RATIOS
(a) For periods less than one year, the total return is not annualized.
(b) For periods less than one year, the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this Sub-Account was December 3, 1992.
(d) The inception date of this Sub-Account was March 1, 1993.
(e) The inception date of this Sub-Account was March 1,1994.
(f) The inception date of this Sub-Account was January 3,1995.
(g) The inception date of this Sub-Account was May 1,1996.
(h) The inception date of this Sub-Account was January 2,1997.
The Notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
79
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account") was established as a
variable life insurance separate account of the Western Reserve Life Assurance
Co. of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under
the Investment Company Act of 1940, as amended. The Life Account contains
fifteen investment options referred to as sub-accounts. Each sub-account invests
in the corresponding portfolio of the WRL Series Fund, Inc. (the "Fund"), a
registered management investment company under the Investment Company Act of
1940, as amended. These portfolios and their respective investment management
organizations are as follows:
PORTFOLIO INVESTMENT MANAGER
Money Market J.P. Morgan Investment
Management, Inc.
Bond Janus Capital Corporation
("JCC")
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc.("AIMI")
Global JCC
Equity-Income Luther King Capital
Management Corporation
Emerging Growth Van Kampen American
Capital Asset
Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AIMI
Utility Federated Investment
Counseling
Tactical Asset Dean Investment
Allocation Associates
C.A.S.E. Growth C.A.S.E. Management, Inc.
Value Equity NWQ InvestmentManagement
Company, Inc.
International Equity ScottishEquitable Investment
Mgmt., Ltd, ("Scottish
Equitable") and GE
Investment Management,
Inc. ("GE")
U.S. Equity GE
WRL and AIMI are indirectly wholly-owned subsidiaries of AEGON USA, Inc.,
which along with Scottish Equitable are indirect wholly-owned subsidiaries of
AEGON nv, a Netherlands corporation.
The Life Account holds assets to support the benefits under flexible premium
variable universal life insurance policies (the "Policies") issued by WRL, which
issued the first of such Policies on October 3, 1986. The Life Account's equity
transactions are accounted for using the appropriate effective date at the
corresponding accumulation unit value.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the report amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently used in preparation of the Trust's financial statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on March 31, 1997.
Investment transactions are accounted for on the trade date, using the Fund
NAV next determined after receipt of sale or redemption order without sales
charges. Dividend income and capital gain distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are
deducted by WRL prior to allocation of policyowner payments to the
sub-accounts. Thereafter, monthly administrative and cost of insurance
charges are deducted from the sub-accounts. Contingent surrender charges
also apply.
- --------------------------------------------------------------------------------
80
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1997
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net
assets of the Life Account is assessed to compensate WRL for assumption of
mortality and expense risks in connection with issuance of the Policies. This
charge (not assessed at the individual policy level) effectively reduces the
value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are typically declared
and reinvested semi-annually, while capital gain distributions are typically
declared and reinvested annually. Dividends and distributions of the Fund are
generally paid to and reinvested by the Life Account the next business day after
declaration.
NOTE 4 - OTHER MATTERS
As of March 31, 1997 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
SUB-ACCOUNT
-----------
Money Market............................$ n/a
Bond.................................... (353,163)
Growth.................................. 64,298,257
Short-to-Intermediate Government........ (20,132)
Global.................................. 12,857,658
Equity-Income........................... 7,891,758
Emerging Growth......................... 12,341,757
Aggressive Growth....................... 2,010,999
Balanced................................ 464,025
Utility................................. 255,626
Tactical Asset Allocation............... 1,234,753
C.A.S.E. Growth......................... (133,486
Value Equity............................ 493,884
International Equity.................... 12,303
U.S. Equity............................. (16,425)
81
<PAGE>
WRL SERIES LIFE ACCOUNT
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Policyholders of the WRL Series Life Account
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of each of the Sub-Accounts
constituting the WRL Series Life Account (a separate account of Western Reserve
Life Assurance Co. of Ohio, hereafter referred to as the "Life Account") at
December 31, 1996, the results of each of their operations, the changes in each
of their equity accounts and the selected per unit data and ratios for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and selected per unit data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Life Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1997
82
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ....................... 12,430,543.580 1,081,304.989 9,980,909.027
============== ============== ================
Cost ......................... $ 12,430,544 $ 11,856,263 $ 268,315,218
============== ============== ================
Investments, at net
asset value ................. $ 12,430,544 $ 11,577,785 $ 349,344,591
Accrued transfers from
(to) depositor - net......... 309,485 6,763 146,685
-------------- -------------- ----------------
Total assets ................. 12,740,029 11,584,548 349,491,276
-------------- -------------- ----------------
LIABILITIES: .................... 0 0 0
-------------- -------------- ----------------
Total net assets ............. $ 12,740,029 $ 11,584,548 $ 349,491,276
============== ============== ================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ........................ 824,579.964824 593,289.952352 7,208,481.980640
============== ============== ================
Unit value ................... $ 15.450326 $ 19.525946 $ 48.483339
============== ============== ================
Policy Owners' equity ........ $ 12,740,029 $ 11,584,548 $ 349,491,276
-------------- -------------- ----------------
Depositor's equity:
Units ........................ N/A N/A N/A
============== ============== ================
Unit value ................... $ N/A $ N/A $ N/A
============== ============== ================
Depositor's equity ........... $ N/A $ N/A $ N/A
-------------- -------------- ----------------
Total equity ................. $ 12,740,029 $ 11,584,548 $ 349,491,276
============== ============== ================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ........................... 166,836.195 4,589,097.306 3,994,063.092
============== ================== ==================
Cost ............................. $ 1,727,550 $ 74,042,621 $ 48,072,935
============== ================== ==================
Investments, at net
asset value ..................... $ 1,709,208 $ 83,132,258 $ 55,805,919
Accrued transfers from
(to) depositor - net ............ 629 26,825 93,808
-------------- ------------------ ------------------
Total assets ..................... 1,709,837 83,159,083 55,899,727
-------------- ------------------ ------------------
LIABILITIES: ........................ 0 0 0
-------------- ------------------ ------------------
Total net assets ................. $ 1,709,837 $ 83,159,083 $ 55,899,727
============== ================== ==================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ............................ 144,300.578938 5,497,026.869725 3,569,906.038362
============== ================== ==================
Unit value ....................... $ 11.849133 $ 15.128011 $ 15.658599
============== ================== ==================
Policy Owners' equity ............ $ 1,709,837 $ 83,159,083 $ 55,899,727
-------------- ------------------ ------------------
Depositor's equity:
Units ............................ N/A N/A N/A
============== ================== ==================
Unit value ....................... $ N/A $ N/A $ N/A
============== ================== ==================
Depositor's equity ............... $ N/A $ N/A $ N/A
-------------- ------------------ ------------------
Total equity ..................... $ 1,709,837 $ 83,159,083 $ 55,899,727
============== ================== ==================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EMERGING AGGRESSIVE
GROWTH GROWTH BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ................. 5,847,526.379 3,834,189.958 560,844.519 467,360.223
================= ================= =============== ===============
Cost ................... $ 85,429,168 $ 50,800,484 $ 5,826,446 $ 5,161,533
================= ================= =============== ===============
Investments, at net
asset value ........... $ 107,952,036 $ 54,361,199 $ 6,390,648 $ 5,497,485
Accrued transfers from
(to) depositor - net .. (26,863) 47,041 27,266 3,225
----------------- ----------------- --------------- ---------------
Total assets ........... 107,925,173 54,408,240 6,417,914 5,500,710
----------------- ----------------- --------------- ---------------
LIABILITIES: .............. 0 0 0 0
----------------- ----------------- --------------- ---------------
Total net assets ....... $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
================= ================= =============== ===============
EQUITY ACCOUNTS:
Policy Owners' equity:
Units .................. 5,531,857.748031 3,702,244.184822 525,703.773282 422,239.257570
================= ================= =============== ===============
Unit value ............. $ 19.509752 $ 14.696016 $ 12.208232 $ 13.027472
================= ================= =============== ===============
Policy Owners' equity .. $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
----------------- ----------------- --------------- ---------------
Depositor's equity:
Units .................. N/A N/A N/A N/A
================= ================= =============== ===============
Unit value ............. $ N/A $ N/A $ N/A $ N/A
================= ================= =============== ===============
Depositor's equity ..... $ N/A $ N/A $ N/A $ N/A
----------------- ----------------- --------------- ---------------
Total equity ........... $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
================= ================= =============== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ............... 1,416,731.210 330,995.828 787,552.975
================== ================== ==================
Cost ................. $ 16,400,180 $ 4,219,207 $ 8,339,630
================== ================== ==================
Investments, at net
asset value .......... $ 17,865,991 $ 4,440,951 $ 8,872,975
Accrued transfers from
(to) depositor - net . 79,843 25,364 14,247
------------------ ------------------ ------------------
Total assets .......... 17,945,834 4,466,315 8,887,222
------------------ ------------------ ------------------
LIABILITIES: ............. 0 0 0
------------------ ------------------ ------------------
Total net assets ...... $ 17,945,834 $ 4,466,315 $ 8,887,222
================== ================== ==================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................. 1,329,562.261984 410,689.701539 769,884.882222
================== ================== ==================
Unit value ............ $ 13.497551 $ 10.809358 $ 11.251288
================== ================== ==================
Policy Owners' equity . $ 17,945,834 $ 4,439,292 $ 8,662,196
------------------ ------------------ ------------------
Depositor's equity:
Units ................. N/A 2,500.000000 20,000.000000
================== ================== ==================
Unit value ............ $ N/A $ 10.809358 $ 11.251288
================== ================== ==================
Depositor's equity .... $ N/A $ 27,023 $ 225,026
------------------ ------------------ ------------------
Total equity .......... $ 17,945,834 $ 4,466,315 $ 8,887,222
================== ================== ==================
</TABLE>
83
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
For the year or period ended December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 599,024 $ 648,087 $ 3,365,272
Capital gain distributions ......... 0 0 18,714,436
----------- ----------- -----------
599,024 648,087 22,079,708
EXPENSES:
Mortality and expense risk ......... 107,839 95,075 2,769,209
----------- ----------- -----------
Net investment income
(loss) .......................... 491,185 553,012 19,310,499
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 0 (182,715) 5,591,331
Change in unrealized
appreciation
(depreciation) .................. 0 (431,243) 21,327,329
----------- ----------- -----------
Net gain (loss) on
investments .................... 0 (613,958) 26,918,660
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 491,185 $ (60,946) $46,229,159
=========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 81,747 $ 847,718 $ 1,181,014
Capital gain distributions ......... 0 6,217,741 1,886,627
----------- ----------- -----------
81,747 7,065,459 3,067,641
EXPENSES:
Mortality and expense risk ......... 13,774 541,245 421,973
----------- ----------- -----------
Net investment income
(loss) .......................... 67,973 6,524,214 2,645,668
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 27,823 885,817 353,541
Change in unrealized
appreciation
(depreciation) .................. (56,871) 5,488,447 3,281,994
----------- ----------- -----------
Net gain (loss) on
investments .................... (29,048) 6,374,264 3,635,535
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 38,925 $12,898,478 $ 6,281,203
=========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EMERGING AGGRESSIVE
GROWTH GROWTH BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 3,998 $ 614,817 $ 143,613 $ 139,429
Capital gain distributions ......... 4,733,022 918,863 54,644 141,611
----------- ----------- ----------- -----------
4,737,020 1,533,680 198,257 281,040
EXPENSES:
Mortality and expense risk ......... 802,068 394,888 44,467 35,416
----------- ----------- ----------- -----------
Net investment income
(loss) .......................... 3,934,952 1,138,792 153,790 245,624
----------- ----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 1,314,430 2,253,657 89,518 119,018
Change in unrealized
appreciation
(depreciation) .................. 7,969,623 543,490 251,603 90,989
----------- ----------- ----------- -----------
Net gain (loss) on
investments .................... 9,284,053 2,797,147 341,121 210,007
----------- ----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $13,219,005 $ 3,935,939 $ 494,911 $ 455,631
=========== =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT(a) SUB-ACCOUNT(a)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 385,057 $ 14,793 $ 29,100
Capital gain distributions ......... 322,411 66,911 12,295
----------- ----------- -----------
707,468 81,704 41,395
EXPENSES:
Mortality and expense risk ......... 123,426 11,458 22,671
----------- ----------- -----------
Net investment income
(loss) .......................... 584,042 70,246 18,724
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 328,835 6,058 70,390
Change in unrealized
appreciation
(depreciation) .................. 850,092 221,745 533,344
----------- ----------- -----------
Net gain (loss) on
investments .................... 1,178,927 227,803 603,734
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 1,762,969 $ 298,049 $ 622,458
=========== =========== ===========
(a) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
</TABLE>
84
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN EQUITY ACCOUNTS
For the year or period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....... $ 491,185 $ 397,410 $ 553,012 $ 459,977
Net gain (loss) on investments ..... 0 0 (613,958) 1,080,157
----------- ----------- ------------ -----------
Net increase (decrease) in equity
accounts resulting from operations 491,185 397,410 (60,946) 1,540,134
----------- ----------- ------------ -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) 5,217,298 3,139,280 3,451,573 3,749,029
----------- ----------- ------------ -----------
Less cost of units redeemed:
Administrative charges ............ 2,639,279 1,356,484 1,314,254 916,494
Policy loans ...................... 285,757 219,767 191,268 197,829
Surrender benefits ................ 776,305 899,893 338,599 357,384
Death benefits .................... 25,737 7,670 28,090 10,202
----------- ----------- ------------ -----------
3,727,078 2,483,814 1,872,211 1,481,909
----------- ----------- ------------ -----------
Increase (decrease) in equity
accounts from capital unit
transactions .................... 1,490,220 655,466 1,579,362 2,267,120
----------- ----------- ------------ -----------
Net increase (decrease) in
equity accounts ................. 1,981,405 1,052,876 1,518,416 3,807,254
Depositors' equity contribution
(redemption) ..................... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period ................ 10,758,624 9,705,748 10,066,132 6,258,878
----------- ----------- ------------ -----------
End of period ...................... $12,740,029 $10,758,624 $ 11,584,548 $10,066,132
=========== =========== ============ ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............... $ 19,310,499 $ 23,250,380
Net gain (loss) on investments ............. 26,918,660 54,801,782
------------ ------------
Net increase (decrease) in equity
accounts resulting from operations ....... 46,229,159 78,052,162
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ........ 91,555,979 61,850,933
------------ ------------
Less cost of units redeemed:
Administrative charges .................... 29,331,415 23,714,204
Policy loans .............................. 8,442,970 5,518,596
Surrender benefits ........................ 12,385,662 8,982,170
Death benefits ............................ 600,920 711,078
------------ ------------
50,760,967 38,926,048
------------ ------------
Increase (decrease) in equity
accounts from capital unit
transactions ............................ 40,795,012 22,924,885
------------ ------------
Net increase (decrease) in
equity accounts ......................... 87,024,171 100,977,047
Depositors' equity contribution
(redemption) ............................. 0 0
EQUITY ACCOUNTS:
Beginning of period ........................ 262,467,105 161,490,058
------------ ------------
End of period .............................. $349,491,276 $262,467,105
============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------------------ -------------------------- -------------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....... $ 67,973 $ 62,086 $ 6,524,214 $ 1,187,745 $ 2,645,668 $ 1,756,089
Net gain (loss) on investments ..... (29,048) 68,387 6,374,264 4,626,003 3,635,535 4,992,475
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in equity
accounts resulting from operations 38,925 130,473 12,898,478 5,813,748 6,281,203 6,748,564
---------- ---------- ----------- ----------- ----------- -----------
QUITY TRANSACTIONS:
Proceeds from units sold (redeemed) 442,872 679,242 43,696,555 15,012,786 16,832,424 14,236,727
---------- ---------- ----------- ----------- ----------- -----------
Less cost of units redeemed:
Administrative charges ............ 178,533 141,954 6,463,101 4,017,781 4,528,541 3,380,854
Policy loans ...................... 33,708 52,521 1,465,510 666,264 920,628 657,750
Surrender benefits ................ 77,704 41,967 2,225,874 721,584 1,300,527 918,863
Death benefits .................... 0 144 62,009 44,234 112,479 28,153
---------- ---------- ----------- ----------- ----------- -----------
289,945 236,586 10,216,494 5,449,863 6,862,175 4,985,620
---------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in equity
accounts from capital unit
transactions .................... 152,927 442,656 33,480,061 9,562,923 9,970,249 9,251,107
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
equity accounts ................. 191,852 573,129 46,378,539 15,376,671 16,251,452 15,999,671
Depositors' equity contribution
(redemption) ..................... 0 0 (268,153) 0 0 0
QUITY ACCOUNTS:
Beginning of period ................ 1,517,985 944,856 37,048,697 21,672,026 39,648,275 23,648,604
---------- ---------- ----------- ----------- ----------- -----------
End of period ...................... $1,709,837 $1,517,985 $83,159,083 $37,048,697 $55,899,727 $39,648,275
========== ========== =========== =========== =========== ===========
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
-------------------------- -------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........... $ 3,934,952 $ 2,356,904 $ 1,138,792 $ 663,994
Net gain (loss) on investments ......... 9,284,053 16,180,870 2,797,147 4,424,350
------------ ----------- ----------- -----------
Net increase (decrease) in equity
accounts resulting from operations ... 13,219,005 18,537,774 3,935,939 5,088,344
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .... 40,944,477 21,556,186 26,224,213 23,169,917
------------ ----------- ----------- -----------
Less cost of units redeemed:
Administrative charges ................ 9,201,102 5,846,452 6,412,799 2,568,298
Policy loans .......................... 2,095,860 1,387,434 863,340 627,821
Surrender benefits .................... 2,754,328 1,602,690 1,349,932 712,307
Death benefits ........................ 91,972 38,971 29,810 80,922
------------ ----------- ----------- -----------
14,143,262 8,875,547 8,655,881 3,989,348
------------ ----------- ----------- -----------
Increase (decrease) in equity
accounts from capital unit
transactions ........................ 26,801,215 12,680,639 17,568,332 19,180,569
------------ ----------- ----------- -----------
Net increase (decrease) in
equity accounts ..................... 40,020,220 31,218,413 21,504,271 24,268,913
Depositors' equity contribution
(redemption) ......................... 0 0 0 (274,290)
EQUITY ACCOUNTS:
Beginning of period .................... 67,904,953 36,686,540 32,903,969 8,909,346
------------ ----------- ----------- -----------
End of period .......................... $107,925,173 $67,904,953 $54,408,240 $32,903,969
============ =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BALANCED
SUB-ACCOUNT
DECEMBER 31
------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 153,790 $ 102,635
Net gain (loss) on investments .................... 341,121 401,549
---------- ----------
Net increase (decrease) in equity
accounts resulting from operations ............... 494,911 504,184
---------- ----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ............... 3,089,782 1,545,514
---------- ----------
Less cost of units redeemed:
Administrative charges ........................... 575,594 327,290
Policy loans ..................................... 77,586 29,025
Surrender benefits ............................... 84,857 27,726
Death benefits ................................... 3,961 14,811
---------- ----------
741,998 398,852
---------- ----------
Increase (decrease) in equity
accounts from capital unit
transactions .................................... 2,347,784 1,146,662
---------- ----------
Net increase (decrease) in
equity accounts ................................. 2,842,695 1,650,846
Depositors' equity contribution
(redemption) ..................................... (220,175) 0
EQUITY ACCOUNTS:
Beginning of period ............................... 3,795,394 2,144,548
---------- ----------
End of period ..................................... $6,417,914 $3,795,394
========== ==========
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. VALUE
UTILITY TACTICAL ASSET ALLOCATION GROWTH EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------- --------------------------- ----------- -----------
1996 1995 1996 1995(a) 1996(b) 1996(b)
---------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........ $ 245,624 $ 88,634 $ 584,042 $ 314,171 $ 70,246 $ 18,724
Net gain (loss) on investments ...... 210,007 336,528 1,178,927 733,874 227,803 603,734
---------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in equity
accounts resulting from operations . 455,631 425,162 1,762,969 1,048,045 298,049 622,458
---------- ---------- ----------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) . 3,245,136 1,368,262 9,061,824 9,081,189 4,302,715 8,292,350
---------- ---------- ----------- ---------- ---------- ----------
Less cost of units redeemed:
Administrative charges ............. 439,973 221,419 1,134,737 434,848 140,145 152,948
Policy loans ....................... 72,641 26,862 306,304 145,685 7,028 36,190
Surrender benefits ................. 82,531 126,576 865,689 70,630 12,276 38,448
Death benefits ..................... 3,350 2,896 18,086 22,440 0 0
---------- ---------- ----------- ---------- ---------- ----------
598,495 377,753 2,324,816 673,603 159,449 227,586
---------- ---------- ----------- ---------- ---------- ----------
Increase (decrease) in equity
accounts from capital unit
transactions ...................... 2,646,641 990,509 6,737,008 8,407,586 4,143,266 8,064,764
---------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in
equity accounts ................... 3,102,272 1,415,671 8,499,977 9,455,631 4,441,315 8,687,222
Depositors' equity contribution
(redemption) ....................... (232,644) 0 0 (9,774) 25,000 200,000
EQUITY ACCOUNTS:
Beginning of period ................. 2,631,082 1,215,411 9,445,857 0 0 0
---------- ---------- ----------- ---------- ---------- ----------
End of period ....................... $5,500,710 $2,631,082 $17,945,834 $9,445,857 $4,466,315 $8,887,222
========== ========== =========== ========== ========== ==========
<FN>
(a) The inception date of this sub-account was January 3, 1995.
(b) The inception date of this sub-account was May 1, 1996.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
86
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
DECEMBER 31
------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .......................... $ 14.83 $ 14.19 $13.84 $13.63 $13.33
Income from operations:
Net investment income (loss) ....... 0.62 0.64 0.35 0.21 0.30
Net realized and unrealized gain
(loss) on investments ........... 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------
Total income (loss) from
operations ..................... 0.62 0.64 0.35 0.21 0.30
------- ------- ------ ------ ------
Accumulation unit value,
end of period ...................... $ 15.45 $ 14.83 $14.19 $13.84 $13.63
======= ======= ====== ====== ======
Total return (a) ..................... 4.17% 4.49% 2.58% 1.52% 2.24%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $12,740 $10,759 $9,706 $4,985 $4,619
Ratio of net investment income (loss)
to average net assets (b) ......... 4.07% 4.37% 2.66% 1.51% 2.12%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BOND
SUB-ACCOUNT
DECEMBER 31
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .......................... $ 19.67 $ 16.14 $17.50 $15.57 $14.68
Income from operations:
Net investment income (loss) ....... 0.99 1.05 0.89 2.11 1.00
Net realized and unrealized gain
(loss) on investments ............ (1.13) 2.48 (2.25) (0.18) (0.11)
-------- -------- ------ ------ ------
Total income (loss) from
operations ..................... (0.14) 3.53 (1.36) 1.93 0.89
-------- -------- ------ ------ ------
Accumulation unit value,
end of period ...................... $ 19.53 $ 19.67 $16.14 $17.50 $15.57
======== ======== ====== ====== ======
Total return (a) ..................... (0.75%) 21.89% (7.77%) 12.40% 6.08%
Ratios and supplemental data:
Net assets at end of period
(in thousands) .................... $ 11,585 $ 10,066 $6,259 $6,985 $4,558
Ratio of net investment income (loss)
to average net assets (b) ......... 5.34% 5.80% 5.57% 12.92% 6.69%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 41.47 $ 28.44 $ 31.30 $ 30.37 $ 29.95
Income from operations:
Net investment income (loss) ...... 2.88 3.89 0.04 0.46 1.09
Net realized and unrealized gain
(loss) on investments ........... 4.13 9.14 (2.90) 0.47 (0.67)
-------- -------- -------- -------- --------
Total income (loss) from
operations .................... 7.01 13.03 (2.86) 0.93 0.42
-------- -------- -------- -------- --------
Accumulation unit value,
end of period ..................... $ 48.48 $ 41.47 $ 28.44 $ 31.30 $ 30.37
======== ======== ======== ======== ========
Total return (a) .................... 16.91% 45.81% (9.13%) 3.06% 1.41%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $349,491 $262,467 $161,490 $169,757 $146,053
Ratio of net investment income (loss)
to average bet assets (b) ........ 6.41% 11.05% 0.16% 1.56% 3.84%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE GOVERNMENT
SUB-ACCOUNT
DECEMBER 31
-------------------------------------------------
1996 1995 1994 1993 1992(C)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $11.55 $10.27 $10.40 $10.04 $10.00
Income from operations:
Net investment income (loss) ...... 0.51 0.61 0.40 0.14 0.01
Net realized and unrealized gain
(loss) on investments ........... (0.21) 0.67 (0.53) 0.22 0.03
------ ------ ------ ------ ------
Total income (loss) from
operations .................... 0.30 1.28 (0.13) 0.36 0.04
------ ------ ------ ------ ------
Accumulation unit value,
end of period ..................... $11.85 $11.55 $10.27 $10.40 $10.04
====== ====== ====== ====== ======
Total return (a) .................... 2.56% 12.53% (1.32%) 3.64% 0.38%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $1,710 $1,517 $ 945 $1,408 $ 803
Ratio of net investment income (loss)
to average bet assets (b) ........ 4.53% 5.53% 4.06% 1.39% 1.92%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
-------------------------------- -----------------------------------------
1996 1995 1994(E) 1996 1995 1994 1993(D)
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ................................. $ 11.95 $ 9.80 $ 10.00 $ 13.74 $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss) .............. 1.50 0.45 0.71 0.82 0.68 0.18 0.19
Net realized and unrealized gain
(loss) on investments ..................... 1.68 1.70 (0.91) 1.10 1.94 (0.34) 1.09
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations ................................ 3.18 2.15 (0.20) 1.92 2.62 (0.16) 1.28
------- ------- ------- ------- ------- ------- -------
Accumulation unit value,
end of period ............................. $ 15.13 $ 11.95 $ 9.80 $ 15.66 $ 13.74 $ 11.12 $ 11.28
======= ======= ======= ======= ======= ======= =======
Total return (a) .......................... 26.60% 21.96% (2.02%) 13.97% 23.55% (1.42%) 12.81%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ............................ $83,159 $37,049 $21,672 $55,900 $39,648 $23,649 $13,343
Ratio of net investment income (loss)
to average net assets (b) ................. 11.09% 4.25% 8.86% 5.76% 5.47% 1.93% 2.27%
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
DECEMBER 31
------------------------------------------
1996 1995 1994 1993(D)
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 16.56 $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss) ...... 0.82 0.65 (0.09) (0.09)
Net realized and unrealized gain
(loss) on investments ........... 2.13 4.53 (0.93) 2.49
-------- ------- ------- -------
Total income (loss) from
operations .................... 2.95 5.18 (1.02) 2.40
-------- ------- ------- -------
Accumulation unit value,
end of period ..................... $ 19.51 $ 16.56 $ 11.38 $ 12.40
======== ======= ======= =======
Total return (a) .................... 17.82% 45.49% (8.18%) 23.96%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $107,925 $67,905 $36,687 $18,620
Ratio of net investment income (loss)
to average net assets (b) ........ 4.51% 4.66% (0.86%) (0.92%)
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
----------------------------- ---------------------------
1996 1995 1994(E) 1996 1995 1994(E)
------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 13.43 $ 9.82 $10.00 $11.13 $ 9.37 $10.00
Income from operations:
Net investment income (loss) ...... 0.36 0.37 (0.06) 0.36 0.37 0.22
Net realized and unrealized gain
(loss) on investments ........... 0.91 3.24 (0.12) 0.72 1.39 (0.85)
------- ------- ------ ------ ------ ------
Total income (loss) from
operations .................... 1.27 3.61 (0.18) 1.08 1.76 (0.63)
------- ------- ------ ------ ------ ------
Accumulation unit value,
end of period ..................... $ 14.70 $ 13.43 $ 9.82 $12.21 $11.13 $ 9.37
======= ======= ====== ====== ====== ======
Total return (a) .................... 9.46% 36.79% (1.85%) 9.73% 18.73% (6.29%)
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $54,408 $32,904 $8,909 $6,418 $3,795 $2,145
Ratio of net investment income (loss)
to average net assets (b) ........ 2.65% 2.93% (0.72%) 3.18% 3.59% 3.06%
<FN>
- ------------
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios on page 8.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
88
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
<TABLE>
<CAPTION>
TACTICAL ASSET
UTILITY ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
--------------------------- ------------------
1996 1995 1994(E) 1996 1995(F)
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $11.77 $ 9.49 $10.00 $ 11.90 $10.00
Income from operations:
Net investment income (loss) ... 0.76 0.49 0.29 0.53 0.61
Net realized and unrealized gain
(loss) on investments .......... 0.50 1.79 (0.80) 1.07 1.29
------ ------ ------ ------- ------
Total income (loss) from
operations .................... 1.26 2.28 (0.51) 1.60 1.90
------ ------ ------ ------- ------
Accumulation unit value,
end of period ..................... $13.03 $11.77 $ 9.49 $ 13.50 $11.90
====== ====== ====== ======= ======
Total return (a) .................... 10.64% 24.14% (5.15%) 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................. $5,501 $2,631 $1,215 $17,946 $9,446
Ratio of net investment income (loss)
to average net assets (b) ........ 6.38% 4.57% 3.71% 4.35% 5.47%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
C.A.S.E.
GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
----------- ------------
1996(G) 1996(G)
----------- ------------
<S> <C> <C>
Accumulation unit value, beginning
of period ............................ $10.00 $10.00
Income from operations:
Net investment income (loss) ...... 0.37 0.05
Net realized and unrealized gain
(loss) on investments .............. 0.44 1.20
------ ------
Total income (loss) from
operations ....................... 0.81 1.25
------ ------
Accumulation unit value,
end of period ....................... $10.81 $11.25
====== ======
Total return (a) ....................... 8.09% 12.51%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ..................... $4,466 $8,887
Ratio of net investment income (loss)
to average net assets (b) ........... 6.11% 0.77%
</TABLE>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios below.
NOTES TO SELECTED PER UNIT DATA AND RATIOS
- ------------------------------------------
(a) For periods less than one year the total return is not annualized.
(b) For periods less than one year the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was December 3, 1992.
(d) The inception date of this sub-account was March 1, 1993.
(e) The inception date of this sub-account was March 1, 1994.
(f) The inception date of this sub-account was January 3, 1995.
(g) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
89
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
WRL Series Life Account (the "Life Account") was established as a variable
life insurance separate account of Western Reserve Life Assurance Co. of Ohio
("WRL") and is registered as a unit investment trust ("Trust") under the
Investment Company Act of 1940, as amended. The Life Account contains thirteen
investment options referred to as sub-accounts. Each sub-account invests in the
corresponding portfolio of the WRL Series Fund, Inc. (the "Fund"), a registered
management company under the Investment Company Act of 1940, as amended. These
portfolios and their respective investment management organizations are as
follows:
PORTFOLIO INVESTMENT MANAGER
- --------- ------------------
Money Market J.P. Morgan Investment
Management Inc.
Bond Janus Capital Corporation
("JCC")
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc. ("AEGON
Management")
Global JCC
Equity-Income Luther King Capital Management
Corporation
Emerging Growth Van Kampen American Capital
Asset Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AEGON Management
Utility Federated Investment Counseling
Tactical Asset Allocation Dean Investment Associates
C.A.S.E. Growth C.A.S.E. Management, Inc.
Value Equity NWQ Investment Management
Company, Inc.
WRL and AEGON Management are indirect wholly-owned subsidiaries of AEGON
USA, Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a
Netherlands Corporation.
On May 1, 1996 WRL made an initial contribution to the Life Account. The
amount of the contribution and units received from the corresponding
sub-accounts are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
- ----------- ------------ -----
C.A.S.E. Growth $ 25,000 2,500.000000
Value Equity $200,000 20,000.000000
The Life Account holds assets to support the benefits under flexible
premium variable universal life insurance policies (the "Policies") issued by
WRL, which issued the first of such Policies on October 3, 1986. The Life
Account's equity transactions are accounted for using the appropriate
effective date at the corresponding accumulation unit value.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles for unit investment trusts,
have been consistently used in preparation of the Trust's financial
statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on December 31, 1996.
Investment transactions are accounted for on the trade date, using the
Fund NAV next determined after receipt of sale or redemption orders
without sales charges. Dividend income and capital gain distributions are
recorded on the ex-dividend date. The cost of investments sold is
determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has
been made.
90
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, sales and other administrative charges
are deducted by WRL prior to allocation of policyowner payments to the
sub-accounts. Thereafter, monthly administrative charges are deducted from
the sub-accounts, some of which continue only during the first policy
year. Contingent surrender charges may also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial
premium payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE-ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net assets
of the Life Account is assessed to compensate WRL for assumption of mortality
and expense risks in connection with issuance and administration of the
Policies. This charge (not assessed at the individual policy level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are typically
declared and reinvested semi-annually, while capital gain distributions are
typically declared and reinvested annually. Dividends and distributions of
the Fund are generally paid to and reinvested by the Life Account the next
business day after declaration.
NOTE 4 - OTHER MATTERS
As of December 31, 1996 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
SUB-ACCOUNT
- -----------
Money Market $ N/A
Bond (278,478)
Growth 81,029,373
Short-to-Intermediate Government (18,342)
Global 9,089,637
Equity-Income 7,732,984
Emerging Growth 22,522,868
Aggressive Growth 3,560,715
Balanced 564,202
Utility 335,952
Tactical Asset Allocation 1,465,811
C.A.S.E Growth 221,744
Value Equity 533,345
91
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEET - STATUTORY BASIS
AS OF MARCH 31, 1997
(IN THOUSANDS) (UNAUDITED)
ASSETS
Bonds 338,007
Common Stocks and mutual funds 635
Mortgage loans on real estate 6,010
Real estate 8,780
Policy loans 56,509
Cash and Short-term investments (7,919)
Transfers from separate accounts 223,133
Separate account assets 3,611,612
Other assets 23,204
----------
Total assets $4,259,971
==========
LIABILITIES AND CAPITAL AND SURPLUS
Policy reserves 488,131
Other policy liabilities 30,524
Amounts due or accrued 11,726
Separate account liabilities 3,604,941
Borrowed money 22,500
Asset valuation reserve 5,321
----------
Total liabilities 4,163,143
Total capital and surplus 96,828
----------
Total liabilities, capital and surplus $4,259,971
==========
See note to financial statements.
92
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF OPERATIONS - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS) (UNAUDITED)
Premium income $ 296,695
Net investment income 11,778
Net realized capital gains (losses) 580
Other income 441
Benefit payments incurred (119,486)
Decrease in policy
and contract reserves 815
Net transfers to separate accounts (136,634)
Operating costs (58,046)
---------
Income before income taxes (3,857)
Federal income taxes 803
---------
Net income (loss) $ (3,054)
=========
See note to financial statements.
93
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CASH FLOWS - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS) (UNAUDITED)
OPERATIONS:
Cash from insurance operations $(36,344)
Investment income received 11,583
Federal income taxes (1,266)
--------
Cash provided (used) by operations (26,027)
INVESTMENT ACTIVITIES:
Proceeds from sale or maturity of
long-term invested assets 35,409
Cost of long-term investments acquired (14,818)
Other, net (27,463)
--------
Cash provided (used) by
investment activites (6,872)
FINANCING ACTIVITIES:
Increase (decrease) in borrowed money 22,500
--------
Cash provided by (used in)
financing activities 22,500
--------
Net increase (decrease) in cash
and short-term investments (10,399)
Cash and short-term investments:
Beginning of year 2,480
--------
End of period $ (7,919)
========
See note to financial statements.
94
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS) (UNAUDITED)
ADDITONAL TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK CAPITAL SURPLUS SURPLUS
------ --------- ---------- -----------
Balance at December 31, 1996 $1,500 $68,015 $26,041 $95,556
Net Income 0 0 (3,054) (3,054)
Change in reserve valuation basis 0 0 0 0
Change in unrealized gains (losses) 0 0 (112) (112)
Change in non-admitted assets 0 0 247 247
Change in asset valuation reserves 0 0 390 390
Change in separate accounts surplus 0 0 3,801 3,801
------ ------- ------- -------
Balance at March 31, 1997 $1,500 $68,015 $27,313 $96,828
====== ======= ======= =======
See note to financial statements.
95
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTE TO FINANCIAL STATEMENTS - STATUTORY BASIS
AS OF MARCH 31, 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1996.
96
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1996 and 1995, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Western Reserve Life Assurance Co. of Ohio at December 31, 1996 and 1995, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1996.
97
<PAGE>
Also, in our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic statutory-basis financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
February 21, 1997
98
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
---------- ----------
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 2,480 $ 4,999
Bonds 359,579 452,474
Common stocks at market (cost:
$302 in 1996 and $473 in 1995) 597 834
Mortgage loans on real estate 6,049 6,181
Home office properties, at cost
less accumulated depreciation
($0 in 1996 and $1,505 in 1995) 7,962 5,121
Policy loans 52,604 37,125
---------- ----------
Total cash and invested assets 429,271 506,734
Premiums deferred and uncollected 1,943 1,787
Accrued investment income 5,940 7,565
Receivable from affiliates 1,165 4,337
Transfers from separate accounts 204,181 --
Other assets 3,962 4,264
Separate account assets 3,527,145 2,419,205
---------- ----------
Total admitted assets $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
99
<PAGE>
DECEMBER 31
1996 1995
---------- ----------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 155,166 $ 72,032
Annuity 332,230 319,353
Policy and contract claim reserves 8,584 6,612
Other policyholders' funds 3,104 2,633
Remittances and items not allocated 9,107 5,136
Federal income taxes payable 1,266 1,417
Asset valuation reserve 5,710 5,590
Interest maintenance reserve 7,451 6,392
Payable to affiliate 20,463 --
Other liabilities 13,082 10,984
Separate account liabilities 3,521,888 2,415,804
---------- ----------
Total liabilities 4,078,051 2,845,953
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 26,041 28,424
---------- ----------
Total capital and surplus 95,556 97,939
---------- ----------
Total liabilities and capital and surplus $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
100
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations,
net of reinsurance:
Life $ 293,590 $191,508 $150,991
Annuity 740,125 378,390 449,141
Net investment income 36,067 40,891 40,139
Amortization of interest maintenance reserve 1,335 882 726
Commissions and expense allowances on
reinsurance ceded
11 11 12
Other income 13,398 8,237 6,354
---------- -------- --------
1,084,526 619,919 647,363
Benefits and expenses:
Benefits paid or provided for:
Life 21,256 17,844 15,921
Surrender benefits 286,406 206,250 196,169
Other benefits 23,270 19,530 18,403
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 80,139 (15,132) (11,618)
Annuity 12,877 5,229 (78,590)
Other 422 109 286
---------- -------- --------
424,370 233,830 140,571
Insurance expenses:
Commissions 140,261 82,903 78,168
General insurance expenses 47,406 37,246 33,100
Taxes, licenses and fees 10,848 8,919 5,931
Transfer to separate accounts 452,471 242,427 386,174
Other expenses 60 34 18
---------- -------- --------
651,046 371,529 503,391
---------- -------- --------
1,075,416 605,359 643,962
---------- -------- --------
Gain from operations before federal
income taxes and realized capital
losses on investments 9,110 14,560 3,401
Federal income tax expense 9,297 8,917 3,406
---------- -------- --------
Gain (loss) from operations before
realized capital losses on investments (187) 5,643 (5)
Netrealized capital losses on investments
(net of related federal income taxes
and amounts transferred to interest
maintenance reserve) (811) (1,678) (1,133)
---------- -------- --------
Net income (loss) $ (998) $ 3,965 $ (1,138)
========== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
101
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $1,500 $23,015 $24,894 $49,409
Capital contribution -- 45,000 -- 45,000
Net loss for 1994 -- -- (1,138) (1,138)
Net unrealized capital losses -- -- (9) (9)
Decrease in non-admitted assets -- -- 368 368
Decrease in asset valuation reserves
-- -- 4,321 4,321
Decrease in surplus in separate accounts
-- -- (748) (748)
Other adjustments -- -- (2,183) (2,183)
------ ------- ------- -------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 -- -- 3,965 3,965
Net unrealized capital losses -- -- (500) (500)
Decrease in non-admitted assets -- -- 903 903
Decrease in asset valuation reserve -- -- 2,901 2,901
Increase in surplus in separate accounts
-- -- 541 541
Change in reserve valuation -- -- (3,496) (3,496)
Other adjustments -- -- (1,395) (1,395)
------ ------- ------- -------
Balance at December 31, 1995 1,500 68,015 28,424 97,939
Net loss for 1996 -- -- (998) (998)
Net unrealized capital gains -- -- 1,294 1,294
Decrease in non-admitted assets -- -- 199 199
Increase in asset valuation reserve -- -- (120) (120)
Increase in surplus in separate accounts
-- -- 237 237
Change in reserve valuation -- -- (2,995) (2,995)
------ ------- ------- -------
Balance at December 31, 1996 $1,500 $68,015 $26,041 $95,556
====== ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
102
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations,
net of reinsurance $1,033,565 $569,934 $ 600,405
Net investment income 38,666 42,359 41,977
Other income 12,983 8,052 6,311
---------- -------- ---------
1,085,214 620,345 648,693
Life claims (20,655) (16,759) (14,660)
Surrender benefits and other
fund withdrawals (286,406) (206,250) (196,169)
Other benefits to policyholders (22,129) (19,041) (18,251)
Commissions, other expenses and taxes (196,329) (128,314) (119,755)
Net transfers to separate accounts (658,326) (242,427) (386,174)
Dividends to policyholders (44) (26) (22)
Federal income taxes (9,449) (7,531) (3,378)
---------- -------- ---------
Net cash used in operations (108,124) (3) (89,716)
Proceeds from investments sold,
matured or repaid:
Bonds and redeemable preferred stock 122,820 108,554 99,241
Common stocks 175 2,108 80,066
Mortgage loans on real estate 132 1,954 132
Real estate 4,304 -- --
Miscellaneous proceeds -- -- (28)
---------- -------- ---------
Total cash from investments 127,431 112,616 179,411
Capital contribution -- -- 45,000
Other sources 31,546 2,830 6,135
---------- -------- ---------
Total sources of cash 50,853 115,443 140,830
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 26,826 139,402 47,214
Common stocks 4 589 65,911
Mortgage loans on real estate -- 6 1,004
Real estate 7,837 449 37
Net increase in policy loans 15,479 9,605 4,496
Miscellaneous applications 5 -- --
---------- -------- ---------
Total investments acquired 50,151 150,051 118,662
Other applications, net 3,221 7,115 6,086
---------- -------- ---------
Total applications of cash 53,372 157,166 124,748
---------- -------- ---------
Net change in cash and
short-term investments (2,519) (41,723) 16,082
Cash and short-term investments
at beginning of year 4,999 46,722 30,640
---------- -------- ---------
Cash and short-term investments
at end of year $ 2,480 $ 4,999 $ 46,722
========== ======== =========
</TABLE>
SEE ACCOMPANYING NOTES.
103
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (carried at amortized cost), available-for-sale (carried
at fair value), and trading (carried at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding receivable or payable rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for the
difference between the financial statement amounts and income tax bases of
assets and liabilities; (g) net realized gains or
104
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
losses attributed to changes in the level of interest rates in the market are
deferred and amortized over the remaining life of the bond or mortgage loan,
rather than recognized as gains or losses in the statement of operations when
the sale is completed; (h) declines in the estimated realizable value of
investments are provided for through the establishment of a formula-determined
statutory investment reserve (carried as a liability) changes to which are
charged directly to surplus, rather than through recognition in the statement of
operations for declines in value, when such declines are judged to be other than
temporary; (i) certain assets designated as "non-admitted assets" have been
charged to surplus rather than being reported as assets; (j) revenues for
universal life and investment products consist of the entire premiums received
rather than policy charges for the cost of insurance, policy administration
charges, amortization of policy initiation fees and surrender charges assessed;
and (k) pension expense is recorded as amounts are paid rather than accrued and
expensed during the periods in which the employers provide service. The effects
of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The impact of any such changes
on the Company's statutory surplus cannot be determined at this time and could
be material.
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount included $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and
105
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other asset backed securities at regular intervals and adjusts amortization
rates prospectively when such assumptions are changed due to experience and/or
expected future patterns. Investments in preferred stocks in good standing are
reported at cost. Investments in preferred stocks not in good standing are
reported at the lower of cost or market. Common stocks are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without any
adjustment for federal income taxes. Real estate is reported at cost less
allowances for depreciation. Depreciation is computed principally by the
straight-line method. Policy loans are reported at unpaid principal. Other
"admitted assets" are valued, principally at cost, as required or permitted by
Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1996, 1995 and 1994, net realized capital gains of $2,394, $554 and $436,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$1,335, $882 and $726 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1996, 1995 and 1994, the
Company excluded investment income due and accrued of $0, $1 and $237,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by the laws of the State of Ohio.
106
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using interest
rates ranging from 2.25 to 5.50 percent and are computed principally on the Net
Level Premium Valuation and the Commissioners' Reserve Valuation Methods.
Reserves for universal life policies are based on account balances adjusted for
the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 9.25 percent and mortality rates, where appropriate, from a variety
of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $997,513, $466,822 and $534,372
in 1996, 1995 and 1994, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge. Separate account
contractholders have no claim against the assets of the general account.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
107
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparisons to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
108
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 359,579 $ 372,319 $ 452,474 $ 479,656
Common stocks 597 597 834 834
Mortgage loans on real estate 6,049 6,134 6,181 6,536
Policy loans 52,604 52,604 37,125 37,125
Cash and short-term investments 2,480 2,480 4,999 4,999
Separate account assets 3,527,145 3,527,145 2,419,205 2,419,205
LIABILITIES
Investment contract liabilities 321,293 314,748 309,556 279,347
Separate account annuities 2,692,614 2,647,266 1,930,590 1,930,590
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies $ 11,422 $ 13 $ 292 $ 11,143
State, municipal and other
government 5,504 274 -- 5,778
Public utilities 14,808 848 80 15,576
Industrial and miscellaneous 173,097 8,889 910 181,076
Mortgage-backed securities 154,748 4,617 619 158,746
-------- ------- ------ --------
Total bonds $359,579 $14,641 $1,901 $372,319
======== ======= ====== ========
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government
Public utilities 15,079 940 - 16,019
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
-------- ------- ---- --------
Total bonds $452,474 $28,101 $919 $479,656
======== ======= ==== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1996 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
Due in one year or less $ 25,420 $ 25,667
Due one through five years 91,070 94,377
Due five through ten years 53,798 57,060
Due after ten years 34,543 36,468
-------- --------
204,831 213,572
Mortgage and other asset backed securities 154,748 158,747
-------- --------
$359,579 $372,319
========= ========
110
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Interest on bonds $33,969 $38,624 $37,495
Dividends on equity investments - 30 700
Interest on mortgage loans 559 573 616
Rental income on real estate 919 1,014 1,014
Interest on policy loans 3,339 2,353 1,830
Other investment income 9 328 611
------- ------- -------
Gross investment income 38,795 42,922 42,266
Investment expenses (2,728) (2,031) (2,127)
------- ------- --------
Net investment income $36,067 $40,891 $40,139
======= ======== =======
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- -------- -------
Proceeds $122,820 $108,554 $99,241
======= ======== =======
Gross realized gains $ 2,984 $ 1,631 $ 2,019
Gross realized losses 791 1,346 1,362
------- -------- -------
Net realized gains $ 2,193 $ 285 $ 657
======= ======== =======
At December 31, 1996, bonds with an aggregate carrying value of $5,409 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
111
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
REALIZED
--------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Debt securities $ 2,193 $ 285 $ 657
Equity securities -- -- (1,579)
Mortgage loans -- (1,409) --
Real estate (606) -- --
Other invested assets (4) -- --
------- ------- -------
1,583 (1,124) (922)
Tax effect -- -- 225
Transfer to interest maintenance
reserve (2,394) (554) (436)
------- ------- -------
Net realized losses $ (811) $(1,678) $(1,133)
======= ======= =======
UNREALIZED
----------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
Debt securities $(14,442) $ 36,399 $ 43,354
Common stock (66) (236) 1,009
-------- -------- --------
Change in unrealized appreciation
(depreciation) $(14,508) $ 36,163 $(42,345)
======== ======== ========
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED
----------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
Unrealized gains $ 295 $ 361 $ 597
Unrealized losses -- -- --
------- -------- --------
Net unrealized gains $ 295 $ 361 $ 597
======== ======== ========
The Company issued no mortgage loans during 1996. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
112
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
During 1996, 1995 and 1994, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1996, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
1996 1995 1994
----------- ----------- -----------
Direct premiums $ 1,034,757 $ 570,413 $ 600,608
Reinsurance assumed 2,063 1,569 1,232
Reinsurance ceded (3,105) (2,084) (1,708)
----------- ----------- -----------
Net premiums earned $ 1,033,715 $ 569,898 $ 600,132
=========== =========== ===========
The Company received reinsurance recoveries in the amount of $2,156, $512 and
$1,146 during 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $974 and $601, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1996 and 1995 of $1,140 and $848,
respectively.
113
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES
The Company files a separate federal income tax return.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
1996 1995 1994
------- ------- -------
Computed tax at federal statutory rate (35%) $ 3,189 $ 5,096 $ 1,190
Deferred acquisition costs - tax basis 7,172 4,241 4,043
Tax reserve valuation (696) (34) (1,353)
Excess tax depreciation (65) (49) (258)
Amortization of IMR (467) (309) (254)
Other, net 164 (28) 38
------- ------- -------
Federal income tax expense $ 9,297 $ 8,917 $ 3,406
======= ======= =======
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1996). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment. An examination is currently underway for years 1994 through 1995.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service, which resulted in a charge to surplus of $1.8 million as a
prior period adjustment.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $11,101 which expire through 2001.
114
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately .04% and 7.7% of life
insurance in force at December 31, 1996 and 1995, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products, primarily
separate accounts, that are not subject to significant mortality or morbidity
risk; however, there may be certain restrictions placed upon the amount of funds
that can be withdrawn without penalty. The amount of reserves on these products,
by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 14,881 1% $ 13,422 1%
Subject to discretionary withdrawal at
book value less surrender charge 63,619 2 60,970 3
Subject to discretionary withdrawal at
market value 2,692,614 89 1,930,590 85
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 239,204 7 227,549 10
Not subject to discretionary withdrawal
provision 17,603 1 20,034 1
---------- -------- ---------- --------
3,027,921 100% 2,252,565 100%
======== ========
Less reinsurance ceded - -
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities $3,027,921 $2,252,565
========== ==========
</TABLE>
115
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts $ 997,513 $ 466,882 $ 534,372
Transfers from separate accounts 339,523 224,416 148,582
--------- --------- ---------
Net transfers to separate accounts 657,990 242,466 385,790
Reconciling adjustments - change in accruals for
investment management, administration fees
and contract guarantees (205,519) (39) 384
========= ========= =========
Transfers as reported in the summary of
operations of the life, accident and health
annual statement $ 452,471 $ 242,427 $ 386,174
========= ========= =========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1996 and 1995, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
GROSS LOADING NET
------- ------- -------
DECEMBER 31, 1996
Ordinary direct first year business $ 40 $ 9 $ 31
Ordinary direct renewal business 1,431 225 1,206
Group life direct business 622 -- 622
Annuity renewal business 94 10 84
------- ------- -------
$ 2,187 $ 244 $ 1,943
======= ======= =======
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 -- 379
Reinsurance ceded (100) -- (100)
------- ------- -------
$ 2,033 $ 246 $ 1,787
======= ======= =======
116
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
At December 31, 1996 and 1995, the Company had insurance in force aggregating
$1,904 and $2,374, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $27 and $32 to cover these deficiencies at December 31, 1996 and
1995, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $2,995 and $3,496
was made for the years ended December 31, 1996 and 1995, respectively, related
to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $581, $505 and $397 for the years ended
December 31, 1996, 1995 and 1994, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $184, $305 and $250 for the years ended
December 31, 1996, 1995 and 1994, respectively.
117
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $98, $86 and
$70 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996, 1995
and 1994, the Company paid $10,038, $8,825 and $7,497, respectively, for such
services, which approximates their costs to the affiliates. The Company provides
office space, marketing and administrative services to certain affiliates.
During 1996, 1995 and 1994, the Company received $3,271, $4,545 and $3,261,
respectively, for such services, which approximates their cost. The Company had
a net receivable (payable) with affiliates of $(19,298) and $4,337 at December
31, 1996 and 1995, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.48% at December 31, 1996. During 1996,
1995 and 1994, the Company paid (received) net interest of $138, $(294) and $49,
respectively, to affiliates.
118
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company received capital contributions of $45,000 from its immediate parent,
First AUSA Life Insurance Company, in 1994.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,344 and $4,445 and an offsetting premium tax benefit of $1,218 and
$1,319 at December 31, 1996 and 1995, respectively, for its estimated share of
future guaranty fund assessments related to several major insurer insolvencies.
The guaranty fund expense was $212, $1,950 and $618 at December 31, 1996, 1995
and 1994, respectively.
119
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
SCHEDULE I
AMOUNT AT
WHICH SHOWN
MARKET IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
------------------- --------- -------- -------------
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 91,807 $ 93,675 $ 91,581
State, municipalities and political
subdivisions 1,498 1,533 1,497
Foreign governments 4,006 4,245 4,006
Public utilities 14,852 15,576 14,808
All other corporate bonds 249,093 257,290 247,687
-------- -------- --------
Total fixed maturities 361,256 372,319 359,579
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 302 597 597
-------- -------- --------
Total equity securities 302 597 597
Mortgage loans on real estate 6,049 6,049
Real estate 7,962 7,962
Policy loans 52,604 52,604
Cash and short-term investments 2,480 2,480
-------- --------
Total investments $430,653 $429,271
======== ========
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
120
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
FUTURE POLICY POLICY AND NET BENEFITS OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT AND CLAIMS OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
------------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Individual life $145,964 $7,017 $ 289,375 $ 8,228 $ 47,051 $124,181
Group life and 9,202 713 4,215 3,940 2,529 2,818
health
Annuity 332,230 854 740,125 23,899 281,352 71,576
----------- ------ ---------- ------- -------- --------
$487,396 $8,584 $1,033,715 $36,067 $330,932 $198,575
=========== ====== ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1995
Individual life $ 64,128 $5,811 $ 188,143 $ 9,470 $ 36,032 $ 83,709
Group life 7,904 701 3,365 1,054 2,217 946
Annuity 319,353 100 378,390 30,367 205,375 44,447
----------- ------ ---------- -------- -------- --------
$391,385 $6,612 $ 569,898 $40,891 $243,624 $129,102
=========== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1994
Individual life $ 76,345 $4,501 $ 147,282 $10,146 $ 29,254 $ 71,825
Group life 7,323 481 3,709 372 1,754 1,329
Annuity 314,124 137 449,141 29,621 199,485 44,063
----------- ------ ---------- ------- -------- --------
$397,792 $5,119 $ 600,132 $40,139 $230,493 $117,217
=========== ======= ========== ======= ======== ========
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
121
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Life insurance in force $28,168,880 $ 4,463,986 $ 2,210,601 $25,915,495 8.5%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 292,239 $ 2,863 $ -- $ 289,376 0.0%
Group life and health 2,393 242 2,063 4,214 49.0
Annuity 740,125 -- -- 740,125 0.0
----------- ----------- ----------- ----------- ----------
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1995
Life insurance in force $19,438,203 $ 1,365,119 $ 1,619,378 $19,692,462 8.2%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 189,870 $ 1,727 $ -- $ 188,143 0.0%
Group life 2,153 357 1,569 3,365 46.6
Annuity 378,390 -- -- 378,390 0.0
----------- ----------- ----------- ----------- ----------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $ 1,090,845 $ 1,271,402 $14,501,943 8.8%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 148,766 $ 1,484 $ -- $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 -- -- 449,141 0.0
----------- ----------- ----------- ----------- ----------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=========== =========== =========== =========== ==========
</TABLE>
122
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(E) (2) (A)
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second Amended
Articles of Incorporation of Western Reserve and the Amended Code of Regulations
of Western Reserve whereby Western Reserve may indemnify certain persons against
certain payments incurred by such persons. The following excerpts contain the
substance of these provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
II-1
<PAGE>
(a) Any claim, issue, or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless, and only to the extent that the court of common
pleas, or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
II-2
<PAGE>
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee,
II-3
<PAGE>
or agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under sections (1) and (2) of this article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to
II-4
<PAGE>
repay such amount, unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation as authorized in this article. If a
majority vote of a quorum of disinterested directors so directs by resolution,
said written undertaking need not be submitted to the corporation. Such a
determination that a written undertaking need not be submitted to the
corporation shall in no way affect the entitlement of indemnification as
authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any proceeding
against any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such person may also
be an agent of this corporation. The corporation may indemnify such named
fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of any other corporation in which this
Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
II-5
<PAGE>
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of ___ pages
The undertaking to file reports
Representation Pursuant to Section 26(e) (2) (A)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Alan Yaeger
(b) Thomas E. Pierpan, Esq.
(c) Sutherland, Asbill & Brennan, L.L.P.
(d) Ernst & Young LLP
(e) Price Waterhouse LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to the
instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western Reserve
establishing the Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement (4)
(b) (i) Broker/Dealer Supervisory and Service Agreement (3)
(ii) Broker/Dealer Supervisory and Service Agreement (3)
(c) See Exhibit 1.A.(3)(b)(ii)
(4) Not Applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy (8)
(6) (a) Second Amended Articles of Incorporation of Western
Reserve (2)
(b) Amended Code of Regulations (By-Laws) of Western Reserve
(4)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (5)
(b) Sub-Advisory Agreement (5)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy (8)
(11) Memorandum describing issuance, transfer and redemption
procedures
II-6
<PAGE>
2. See Exhibit 1.A.(4)
3. Opinion of Counsel as to the legality of the securities being registered
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to
the securities being registered
7. Consent of Thomas E. Pierpan, Esq.
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9. Consent of Ernst & Young LLP
10. Consent of Price Waterhouse LLP
11. (a) Powers of Attorney (6)
(b) Power of Attorney - James R. Walker (7)
- ----------------------------------------
(1) This exhibit was previously filed on Form S-6 Registration Statement dated
September 27, 1985 (File No. 33-506) and is incorporated herein by
reference.
(2) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form
S-6 Registration Statement dated May 1, 1989 (File No. 33-24856) and is
incorporated herein by reference.
(3) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
S-6 Registration Statement dated December 19, 1989 File No. 33-31140) and
is incorporated herein by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 3 to Form
N-4 Registration Statement dated March 1, 1991 (File No. 33-24856) and is
incorporated herein by reference.
(5) This exhibit was previously filed on ost-Effective Amendment No. 6 to Form
N-1A Registration tatement dated March 1, 1991 (File No. 33-507) and is
incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 10 to
Form S-6 Registration Statement dated April 26, 1995 (File No. 33-31140)
and is incorporated herein by reference.
(7) This exhibit was previously filed on Post-Effective Amendment No. 13 to
Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140)
and is incorporated herein by reference.
(8) This exhibit was previously filed on the Form S-6 Registration Statement
dated March 14, 1997 File No. 333-23359) and is incorporated herein by
reference.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL
Series Life Account has duly caused this Pre-Effective Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
City of Largo, County of Pinellas, Florida on this 3rd day of July , 1997.
(SEAL) WRL SERIES LIFE ACCOUNT
Registrant
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
Depositor
ATTEST:
/s/ THOMAS E. PIERPAN /s/ JOHN R.KENNEDY
_______________________ By:_________________________
Thomas E. Pierpan John R. Kenney
Vice President Chairman of the Board,
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ JOHN R. KENNEDY July 3, 1997
_______________________________
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President
July 3, 1997
/s/ ALLAN J. HAMILTON
________________________________
Allan J. Hamilton, Vice President,
Treasurer and Controller
July 3, 1997
/s/ ALAN M. YAEGER
________________________________
Alan M. Yaeger, Executive Vice
President, Actuary and Chief
Financial Officer*
<PAGE>
July 3, 1997
/s/ KENNETH P. BEIL
________________________________
Kenneth P. Beil
Vice President and Principal
Accounting Officer**
July 3, 1997
/s/ PATRICK S. BAIRD
________________________________
Patrick S. Baird, Director ***/
July 3, 1997
/s/ JAMES R. WALKER
________________________________
James R. Walker, Director ***/
July 3, 1997
/s/ LYMAN H. TREADWAY
_________________________________
Lyman H. Treadway, Director ***/
July 3, 1997
/s/ JACK E. ZIMMERMAN
_________________________________
Jack E. Zimmerman, Director ***/
- ---------
*Principal Financial Officer
**Principal Accounting Officer
/s/ THOMAS E. PIERPAN
***/ _____________________________
Signed by: Thomas E. Pierpan
as Attorney-in-fact
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
3. Opinion of Counsel as to the legality of the securities being
registered.
6. Opinion and consent of Alan Yaeger as to the actuarial matters
pertaining to the securities being registered.
7. Consent of Thomas E. Pierpan, Esq.
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9. Consent of Ernst & Young LLP
10. Consent of Price Waterhouse LLP
11. Memorandum describing issuance, transfer and redemption procedures
Exhibit 3
Opinion of Counsel As To The Legality Of
The Securities Being Registered
<PAGE>
WRL Letterhead
July 7, 1997
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
201 Highland Avenue
Largo, Florida 33770
Gentlemen:
In my capacity as Vice President and Associate General Counsel of Western
Reserve Life Assurance Co. of Ohio ("WRL"), I have participated in the
preparation and review of a Pre-Effective Amendment to the Registration
Statement on Form S-6 filed with the Securities and Exchange Commission (Reg.
No. 333-23359) under the Securities Act of 1933 for the registration of flexible
premium variable life insurance policies (the "Policies") to be issued with
respect to the WRL Series Life Account (the "Account"). The Account was
established on July 16, 1985, by the Board of Directors of WRL as a separate
account for assets applicable to the Policies, pursuant to the provisions of
Section 3907.15 of the Ohio Revised Code.
I am of the following opinion:
1. WRL has been duly organized under the laws of Ohio and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provisions of Ohio law.
3. Section 3907.15 of the Ohio Revised Code provides that the portion of
the assets of the Account equal to the reserves and other liabilities
for variable benefits under the Policies is not chargeable with
liabilities arising out of any other business WRL may conduct. Assets
allocated to the Fixed Account under the Policies, however, are part of
WRL's general account and are subject to WRL's general liabilities from
business operations.
<PAGE>
Western Reserve Life Assurance
Co. of Ohio
July 7, 1997
Page Two
4. The Policies, when issued as contemplated by the Registration Statement,
will be legal and binding obligations of WRL in accordance with their
terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ THOMAS E. PIERPAN
- ---------------------
Thomas E. Pierpan
Vice President and
Associate General Counsel
Exhibit 6
Opinion and Consent of Alan Yaeger As To The
Actuarial Matters Pertaining To The Securities Being Registered
<PAGE>
WRL letterhead
July 7, 1997
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 33770
RE: Registration No. 333-23359
Gentlemen:
This opinion is furnished in connection with the Pre-Effective Amendment No. 1
registration by Western Reserve Life Assurance Co. of Ohio of flexible premium
variable life insurance policies ("Policies") under the Securities Act of 1933.
The Prospectus included in this Registration Statement on Form S-6 describes the
Policies. The forms of Policies were prepared under my direction, and I am
familiar with the Registration and Exhibits thereof.
In my opinion, the illustrations of death benefits, cash values and net
surrender values included in the sections entitled "Death Benefit, Cash Value
and Net Surrender Value Illustrations" and "Illustration of Benefits" (Appendix
A) and the illustrations of death benefits and cash values included in Appendix
B of the Prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the respective forms of the Policies.
I hereby consent to use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Very truly yours,
/s/ ALAN YAEGER
- ------------------------
Alan Yaeger
Executive Vice President
Actuary and Chief
Financial Officer
Exhibit 7
Consent of Thomas E. Pierpan, Esq.
<PAGE>
WRL letterhead
July 7, 1997
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 33770
Gentlemen:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus contained in Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-6 (File No. 333-23359) for the Western Reserve Life
Assurance Co. of Ohio Series Life Account, as filed with the Securities and
Exchange Commission
/s/ THOMAS E. PIERPAN
-------------------------
Thomas E. Pierpan
Vice President and
Associate General Counsel
Exhibit 8
Consent of Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
S.A.B. letterhead
July 3, 1997
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Life Account
201 Highland Avenue
Largo, Florida 33770
RE: WRL Series Life Account
FILE NO. 333-23359
Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters"
in the Prospectus for the WRL Financial Freedom Builder contained in
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File
No. 333-23359) of the WRL Series Life Account filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ STEPHEN E. ROTH
-------------------
Stephen E. Roth
Exhibit 9
Consent of Ernst & Young L.L.P.
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 21, 1997, with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in Pre-Effective Amendment No. 1 to the Registration Statement (Form
S-6 No. 333-23359) and related Prospectus of WRL Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
July 7, 1997
Exhibit 10
Consent of Price Waterhouse, LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 of our
report dated January 31, 1997, relating to the financial statements comprising
the WRL Series Life Account, which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Kansas City, Missouri
July 7, 1997
Exhibit 11
Memorandum describing issuance,
transfer and redemption procedures
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO'S
ISSUANCE, REDEMPTION AND TRANSFER PROCEDURES
This document sets forth, as required by Rule 6e-3(T)(b)(12)(ii), the
administrative procedures that will be followed by Western Reserve Life
Assurance Co. of Ohio ("Western Reserve") in connection with the issuance of the
Individual Flexible Premium Variable Life Insurance Policy ("Policy") described
in this Registration Statement, the transfer of assets held thereunder, and the
redemption by Policyowners of their interest in the Policies.
----------------------------------------
1. "Public Offering Price":
PURCHASE AND RELATED TRANSACTIONS
Set out below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
contractual plans.
(a) PREMIUM SCHEDULES AND UNDERWRITING STANDARDS
Premiums for the Policies will not be the same for all Policyowners.
Western Reserve will require the Policyowner to pay an initial premium that is
at least equal to a minimum monthly first year premium set forth in the Policy.
Policyowners will determine a planned periodic premium payment schedule that
provides for a level premium payable at a fixed interval for a specified period
of time. Payment of premiums in accordance with this schedule is not, however,
mandatory, and failure to make a planned periodic premium payment will not of
itself cause the Policy to lapse. Instead, Policyowners may make premium
payments in any amount at any frequency, subject only to the minimum premium
amount(1), and the maximum premium limitation. If at any time a premium is paid
which would result in total premiums exceeding the current maximum premium
limitation set forth in the Policy, Western Reserve will accept only that
portion of the premium which will make total premiums equal that amount. Any
portion of the premium in excess of that amount will be returned to the
Policyowner and no further premiums will be
- ----------
(1) The minimum premium amount is currently $50.00.
-1-
<PAGE>
accepted until allowed by the current maximum premium limitations set forth in
the Policy. The Policy will remain in force so long as net surrender value is
sufficient to pay certain monthly charges imposed in connection with the Policy.
Thus, the amount of a premium, if any, that must be paid to keep the Policy In
Force depends upon the net surrender value of the Policy, which in turn depends
on such factors as the investment experience and the cost of insurance charge.
However, until the No Lapse Date shown on the Policy Schedule Page, the Policy
will remain in force and no grace period will begin provided (1) the total of
the premiums received (minus any withdrawals, minus any outstanding loans and
any pro rata Decrease Charge deducted from the Cash Value) equals or exceeds the
minimum monthly guarantee premium shown in the Policy times the number of months
since the Policy Date, including the current month.
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the same for each insured. The chief reason is that the
principle of pooling and distribution of mortality risks is based upon the
assumption that the insured incurs an insurance rate commensurate with the
mortality risk which is actuarially determined based upon factors such as
attained age, sex, rate class and length of time a Policy is in force.
Accordingly, while not all insureds will be subject to the same cost of
insurance rate, there will be a single "rate" for all insureds in a given
actuarial category.
The Policies will be offered and sold pursuant to established underwriting
standards and in accordance with state insurance laws. State insurance laws
prohibit unfair discrimination among insureds, but recognize that premiums must
be based upon factors such as age, sex, health and occupation.
(b) APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application, Western Reserve will follow
certain insurance underwriting (I.E., evaluation of risks) procedures designed
to determine whether the proposed insureds are insurable. This process may
involve such verification procedures as medical examinations and may require
that further information be provided by the proposed insured before a
determination can be made. A Policy will not be issued until this underwriting
procedure has been completed.
-2-
<PAGE>
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 sub-accounts of the Series Account on the
first valuation date on or following the record date in accordance with the
directions on the application.
If Western Reserve determines to its satisfaction that on the date the
application is signed and submitted with an initial payment the proposed insured
was insurable and acceptable under Western Reserve's underwriting rules and
standards for insurance for 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 receipt, will by reason of such payment take effect on the
later of the date of the application, or the completion of all medical tests and
examinations, if required.
Under Western Reserve's current rules, the minimum specified amount at
issue for Issue Ages 0-45 is $50,000 declining to $25,000 for Issue Ages 46 to
80. Western Reserve reserves the right to revise its rules from time to time to
specify a different minimum specified amount at issue.
(c) PREMIUM ALLOCATION
In the application for a Policy, the Policyowner can allocate net premiums
(total premiums less any premium expense charges)among the sub-accounts of the
Series Account and the Fixed Account. Notwithstanding the allocation in the
application, if a premium payment of $1,000 or more is paid upon submission of
the application, the net premium will initially be allocated on the Policy Date
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(2) 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
- ----------
(2) A valuation period is the period between two successive valuation
dates, commencing at the close of business of each valuation date and
ending at the close of business of the next succeeding valuation. The net
asset value per share of a portfolio of the Fund will be determined, once
daily, as of the close of the regular session of business on the New York
Stock Exchange (currently 4:00 p.m., New York City time) Monday through
Friday, except on customary national holidays on which the New York
Exchange is closed.
-3-
<PAGE>
Policyowner's instructions in the application. The minimum percentage of each
premium that may be allocated to any account is currently 1%; percentages must
be in whole numbers. The allocation for future net premiums may be changed at
any time by providing Western Reserve with written notification. However,
Western Reserve reserves the right to limit the number of changes of the
allocation of net premiums to one per year.
(d) 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;
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium that, after the deduction of premium expense charges, is
large enough to cover:
(a) one monthly deduction at the time of termination; (b) the next
two monthly deductions which will become due after the time of
reinstatement; and (c) an amount sufficient to cover any surrender
charge (as set forth in the Policy) as of the date of
reinstatement.
Any indebtedness on the date of lapse will not be reinstated. The Cash Value of
the Policy loan on the date of reinstatement will also not be reinstated. The
amount of Cash Value on the date of reinstatement will be equal to the amount of
the cash value on the date of lapse (exclusive of any Policy loan on that date)
increased by the net premiums paid at reinstatement, less the amounts paid in
accordance with (a) above. Upon approval of the application for reinstatement,
the effective date of reinstatement will be the first monthly anniversary on or
next following the date of approval of the application of reinstatement.
(e) REPAYMENT OF INDEBTEDNESS
A loan under the Policy will be subject to an interest rate of 5.2% payable
annually in advance (equivalent to an effective annual rate of 5.5%).
Outstanding indebtedness may be repaid at any time before the maturity date of
the Policy and while the Policy is in force. Payments made by the
-4-
<PAGE>
Policyowner while there is indebtedness will be treated as premium payments
unless the Policyowner indicates that the payment should be treated as a loan
repayment. Under Western Reserve's current procedures, at each Policy
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 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 premiums are allocated.
Western Reserve will allocate the repayment of indebtedness at the end of the
valuation period during which the repayment is received.
(f) CORRECTION OF MISSTATEMENT OF AGE OR SEX
If Western Reserve discovers that the age or sex of any insured has been
misstated, Western Reserve will adjust the death benefits based on what the cost
of insurance charge for the most recent monthly deduction would have purchased
based on the correct age or sex.
2. "REDEMPTION PROCEDURES":
SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and contractual plans.
(a) CASH VALUES
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
-5-
<PAGE>
end of the valuation period during which the surrender request is received at
Western Reserve's office. The net surrender value as of any date is equal to:
(1) the cash value as of such date; minus
(2) any surrender charge as of such date; minus
(3) any outstanding Policy loan; plus
(4) any unearned interest.
A surrender charge as described in appendix A will be deducted if the
Policy is surrendered during the first 15 Policy years. 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(3).
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.
For a cash withdrawal, the amount available may be limited to no less than
$500 and to no more than 10% of the net surrender value. The amount paid plus a
processing fee equal to the lesser of $25 or 2% of the amount withdrawn will be
deducted from the Policy's cash value at the end of the valuation period during
which the request is received. The amount will be deducted from the accounts in
the same manner as the current allocation instructions unless the Policyowner
directs otherwise. Cash withdrawals are allowed only once each Policy year.
In addition, when death benefit Option A is in effect, the specified amount
will be reduced by the cash withdrawal. No cash withdrawal will be permitted
which would result in a specified amount lower than the minimum specified amount
set forth in the Policy or would deny the Policy status as life insurance under
the Internal Revenue Code and applicable regulations.
- ----------
(3) 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 week-end and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by 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 in 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. Western
Reserve further reserves the right to defer payment of transfer, cash
withdrawals or surrenders from the Fixed Account for up to six months.
Payments under the Policy of any amount paid by check may be postponed
until such time as the check has cleared the Policyowner's bank.
-6-
<PAGE>
(b) BENEFIT CLAIMS
As long as the Policy remains In Force, Western Reserve will generally pay
a death benefit to the named beneficiary in accordance with the designated death
benefit option within seven days after Western Reserve receives due proof of
death of the insured, and Western Reserve receives proof that the insured died
while the Policy was in force, and verifies the validity of the claim. Payment
of death benefits may, however, be postponed under certain circumstances(4). In
particular, during the first two Policy years, and during the first two years
after a Policy is reinstated, and in other circumstances in which Western
Reserve may have a basis for contesting the claim, there can be a delay beyond
the seven day period. The amount of the death benefit is determined at the end
of the valuation period during which the insured dies. The death benefit
proceeds payable under the designated death benefit option will be reduced by
any outstanding indebtedness and any due and unpaid charges. The proceeds will
be increased by any additional insurance provided by rider and any unearned loan
interest.
The amount of the death benefit is guaranteed not to be less than the
specified amount of the Policy. These proceeds may be reduced by any outstanding
indebtedness and any due and unpaid charges. The death benefit may, however,
exceed the specified amount of the Policy. The amount by which the death benefit
exceeds the specified amount depends upon the death benefit option in effect and
the cash value of the Policy. Under Death Benefit Option A, the death benefit
will only vary when the limitation percentage of cash value set forth in the
Policy exceeds the specified amount of the Policy. Under Death Benefit Option B,
the death benefit will always vary with the cash value because the death benefit
will at least equal the specified amount plus the cash value. Under Death
Benefit Option C, the death benefit will vary as the Cash Value and the
Insured's Attained Age varies.
The amount of the benefit payable at maturity is the net surrender value of
the Policy on the maturity date. These proceeds will be reduced by any
outstanding indebtedness. This benefit will only be paid if the insured is
living on the Policy's maturity date. The Policy will mature on the anniversary
nearest the insured's 95th birthday, if the insured is living and the Policy is
in force.
- ----------
(4) SEE note 3, SUPRA.
-7-
<PAGE>
(c) POLICY LOANS
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 an amount
which, together with any loans already outstanding and any surrender charge, is
90% of the cash value. Indebtedness equals the total of all Policy loans less
any unearned loan interest on the loans. The loan value will be determined at
the end of the valuation period during which the loan request is received. Loans
have priority over the claims of any assignee or other person. The loan may be
repaid all or in part at any time before that maturity date and while the Policy
is in force. Payments made by the Policyowner while there is indebtedness will
be treated as premium payments unless the Policyowner indicates that the payment
should be treated as a loan repayment. The interest rate charged on Policy loans
accrues daily. Interest payments are 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.
A Policyowner may allocate a Policy loan among the accounts. If no such
allocation is made, Western Reserve will allocate the loan in accordance with
the Policyowner's current allocation instructions. The loan amount will normally
be paid within seven days after receipt of a written request. Postponement of
loans may take place under certain circumstances(5).
Cash Value equal to the portion of the Policy loan plus interest in advance
until the next Policy anniversary allocated to each account will be transferred
from the account to the loan reserve, reducing the Policy's Cash Value in that
account. The loan reserve is a portion of the Fixed Account to which amounts are
transferred as collateral for Policy loans. As noted above, under Western
Reserve's current procedures, at each Policy 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 and transfer it to the loan
- ----------
(5) SEE note 3, SUPRA.
-8-
<PAGE>
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 premiums are allocated. Cash Value in the loan reserve will
be credited with guaranteed interest at 4% per year. Additional interest may be
credited to this Cash Value.
(d) POLICY 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 on any Monthly Anniversary is insufficient to cover the
monthly deduction on such day, the Policyowner must, except as noted below, pay
during the grace period a payment at least sufficient to provide a net premium
to cover the sum of the monthly deductions due within the grace period. However,
until the No Lapse Date shown on the Policy Schedule Page, the Policy will
remain in force and no grace period will begin provided (1) the total premiums
received (minus any withdrawals and minus any outstanding loans and any pro rata
Decrease Charge deducted from the Cash Value) equals or exceeds the minimum
monthly guarantee premium shown in the Policy times the number of months since
the Policy date, including the current month, and (2) no riders have been added
since the Policy Date, including the current month. Should the Policyowner
request the addition of any rider after the Policy Date but prior to the No
Lapse Date, the Policyowner will be notified as to the effect on grace period
processing prior to the date the rider is effective.
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, to make sufficient payment. 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 in accordance with the
Policyowner's then current instructions. If the insured dies during the grace
period, the death benefit proceeds will equal the amount of death benefit
-9-
<PAGE>
proceeds immediately prior to the commencement of the grace period, reduced by
any due and unpaid charges. SEE Reinstatement, p. 4.
3. TRANSFERS
The Series Account currently has fourteen sub-accounts. Each sub-account
invests exclusively in the shares of a corresponding portfolio of WRL Series
Fund, Inc., an open-end diversified management company registered with the
Commission. Policyowners may transfer Cash Value among the sub-accounts of the
Series Account or from the sub-accounts to the Fixed Account, which is part of
Western Reserve's general account. 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 administrative office
within thirty days after a Policy anniversary. Under the Policy, the amount that
may be transferred is limited to the greater of (a) 25% of the amount in the
Fixed Account, or (b) the amount transferred in the prior Policy year from the
Fixed Account, unless Western Reserve consents otherwise. The transfer will take
place on the day Western Reserve receives the request. No transfer charge will
apply to transfers from the Fixed Account to a Sub-Account. Amounts may be
withdrawn from the Fixed Account for cash withdrawals and surrenders only upon
written request of the Policyowner, and are subject to any applicable
requirements for a signature guarantee. 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. Policyowners may make transfer requests in
writing or by telephone. Written requests must be in a form acceptable to
Western Reserve. Telephonic requests are permissible if the Policyowner has
previously authorized telephone transfers in writing. Western Reserve may, at
any time, revoke or modify the transfer privilege. Cash value transferred from
one sub-account into more than one sub-account counts as one transfer. Western
Reserve will effectuate transfers and determine all values in connection with
transfers at the end of the valuation period during which the transfer request
is received. Postponement of transfers may take place
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<PAGE>
under certain circumstances(6). Western Reserve reserves the right to impose a
$25 transfer charge for each transfer in excess of one per Policy Month or
twelve per Policy year and will be deducted from each sub-account from which a
transfer is being made in an equal amount. Transfers resulting from policy
loans, the exercise of conversion rights, and the reallocation of cash value
immediately after the record date, will not be subject to a transfer charge. No
transfer charge will apply to transfers from the Fixed Account to a sub-account.
4. CONVERSION PROCEDURE
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.
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(6) SEE note 3, SUPRA.
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<PAGE>
APPENDIX A
SURRENDER CHARGE
During the first fifteen Policy years, a Surrender Charge will be incurred
upon surrender of the Policy. The Surrender Charge consists of the Surrender
Charge Per Thousand multiplied by the applicable Surrender Charge Factor.
(a) Surrender Charge Per Thousand. The surrender Charge Per Thousand
Dollars of initial Specified Amount varies with the Insured's Issue Age, gender
and classification. See the table below indicating the charges per thousand
dollars of initial Specified Amount.
(b) Surrender Charge Factor. As stated above, the factor is applied to
the charge per thousand dollars of initial Specified Amount due upon any
Surrender of a Policy during the first fifteen Policy years. In Policy years 1 -
5 this factor is 1.00 for Insureds at Issue Ages 0 - 39 and then declines at a
rate of 0.10 per year until reaching zero at the end of the fifteenth (15th)
Policy year as shown below. For Insureds at Issue Ages older than 39, this
factor is less than 1.00 at the end of the first (1st) Policy year and declines
to zero at the end of the fifteenth (15th) Policy year. Therefore, application
of the factor to the Surrender Charge Per Thousand in the event of any surrender
during the second through fifteenth Policy years will result in the same or
reduced surrender charges. If a surrender occurs after the fifteenth (15th)
Policy year, there is no Surrender Charge Per Thousand due. See the example
below. Factors for the Builder Plus Program are different than those shown
below.
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
SURRENDER CHARGE FACTOR
END OF POLICY YEAR* FACTOR
------------------- ------
At Issue.................................... 1.00
1-5......................................... 1.00
6........................................... .90
7........................................... .80
8........................................... .70
9........................................... .60
10.......................................... .50
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11.......................................... .40
12.......................................... .30
13.......................................... .20
14.......................................... .10
15.......................................... 0
16+......................................... 0
* THE FACTOR ON ANY DATE OTHER THAN ANNIVERSARY
WILL BE INTERPOLATED BETWEEN THE TWO END OF
YEAR FACTORS.
(C) Example: Assume a male tobacco use, purchases the Policy at Issue
Age 35. The Surrender Charge Per Thousand is $16.48. This is multiplied by the
Surrender Charge Factor resulting in the following Table of Surrender Charges:
TABLE OF SURRENDER CHARGES PER $1,000 OF
SPECIFIED AMOUNT AS OF THE POLICY DATE
SURRENDER SURRENDER
CHARGE CHARGE
PER $1,000 PER $1,000
OF SPECIFIED OF SPECIFIED
END OF AMOUNT ON END OF AMOUNT ON
POLICY POLICY POLICY POLICY
YEAR PAGE 3A YEAR PAGE 3A
-------- ------------ ------ ------------
At Issue $16.48 9 $9.89
1 16.48 10 8.24
2 16.48 11 6.59
3 16.48 12 4.94
4 16.48 13 3.30
5 16.48 14 1.65
6 14.83 15 0.00
7 13.18 16+ 0.00
8 11.54
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR CHARGES.
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