WRL FREEDOM EQUITY PROTECTOR/REGISTERED TRADEMARK/
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 a Policy at issue is
generally $50,000, declining to $25,000 after age 45.
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. The Policyowner may cancel the
Policy within 10 days after the Policyowner receives it, or 10 days after
Western Reserve mails or delivers a written notice of withdrawal right to the
Policyowner, or within 45 days after signing the application, whichever is
latest. Certain states require a free-look period longer than 10 days, either
for all Policyowners or for certain classes of Policyowners.
The assets of each Sub-Account of the Series Account will be invested
solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the
"Fund"). The 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.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
THE PORTFOLIOS OF THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE
AVAILABLE IN ALL STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE WRL
SERIES FUND, INC. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
Prospectus Dated May 1, 1996 as Supplemented January 1, 1997
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TABLE OF CONTENTS
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DEFINITIONS ........................................ 1
INTRODUCTION ....................................... 2
INVESTMENT EXPERIENCE INFORMATION .................. 6
Rates of Return ................................... 6
Death Benefit, Cash Value and Net Surrender Value
Illustrations ................................... 6
Other Performance Data ............................ 10
WESTERN RESERVE AND THE
SERIES ACCOUNT ..................................... 11
Western Reserve Life Assurance Co.
of Ohio ......................................... 11
The Series Account ................................ 11
POLICY BENEFITS .................................... 11
Death Benefit ..................................... 11
When Insurance Coverage Takes Effect .............. 13
Terminal Illness Accelerated Death
Benefit Rider ................................... 14
Cash Value ........................................ 14
INVESTMENTS OF THE SERIES ACCOUNT .................. 15
WRL Series Fund, Inc. ............................. 15
Addition, Deletion, or Substitution
of Investments .................................. 18
PAYMENT AND ALLOCATION OF PREMIUMS ................. 19
Issuance of a Policy .............................. 19
Premiums .......................................... 19
Allocation of Premiums and Cash Value ............. 20
Dollar Cost Averaging ............................. 21
Asset Rebalancing Program ......................... 21
Policy Lapse and Reinstatement .................... 22
CHARGES AND DEDUCTIONS ............................. 22
Premium Expense Charges ........................... 22
Contingent Surrender Charges ...................... 23
Cash Value Charges ................................ 24
Optional Cash Value Charges ....................... 25
Charges Against the Series Account ................ 25
Expenses of the Fund .............................. 25
Group or Sponsored Arrangements ................... 26
Protector Plus Program(sm) ........................ 26
POLICY RIGHTS ...................................... 27
Loan Privileges ................................... 27
Surrender Privileges .............................. 28
Examination of Policy Privilege ("Free-Look") .... 29
Conversion Rights ................................. 29
Benefits at Maturity .............................. 29
Payment of Policy Benefits ........................ 29
GENERAL PROVISIONS ................................. 30
Postponement of Payments .......................... 30
The Contract ...................................... 30
Suicide ........................................... 30
Incontestability .................................. 30
Change of Owner or Beneficiary .................... 30
Assignment ........................................ 30
Misstatement of Age or Sex ........................ 30
Reports and Records ............................... 30
Optional Insurance Benefits ....................... 30
THE FIXED ACCOUNT .................................. 31
Fixed Account Value ............................... 32
Minimum Guaranteed and Current
Interest Rates .................................. 32
Allocations, Transfers and Withdrawals ............ 32
DISTRIBUTION OF THE POLICIES ....................... 32
FEDERAL TAX MATTERS ................................ 33
Introduction ...................................... 33
Tax Charges ....................................... 33
Tax Status of the Policy .......................... 33
Tax Treatment of Policy Benefits .................. 34
Employment-Related Benefit Plans .................. 35
SAFEKEEPING OF THE SERIES
ACCOUNT'S ASSETS ................................... 35
VOTING RIGHTS OF THE SERIES ACCOUNT ................ 35
STATE REGULATION OF WESTERN
RESERVE ............................................ 36
REINSURANCE ........................................ 36
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE ................................. 36
LEGAL MATTERS ...................................... 37
LEGAL PROCEEDINGS .................................. 37
EXPERTS ............................................ 37
ADDITIONAL INFORMATION ............................. 37
INFORMATION ABOUT
WESTERN RESERVE'S
FINANCIAL STATEMENTS ............................... 37
APPENDIX A - ILLUSTRATION
OF BENEFITS ........................................ 38
APPENDIX B - LONG TERM MARKET TRENDS ............... 42
INDEX TO FINANCIAL
STATEMENTS ......................................... 44
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The Policy is not available in the State of New York
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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. For Policies
issued in New Jersey, the Fixed Account is used solely for Policy loans, and
is not available for allocation of Net Premiums or transfers of Cash Value
from the Sub-Accounts.
FUND -- WRL Series Fund, Inc., a registered management investment company
in which the assets of the Series Account are invested.
GENERAL ACCOUNT -- The assets of Western Reserve other than those
allocated to the Series Account or any other separate account.
GUIDELINE PREMIUM -- The level annual premium payment necessary to provide
the benefits selected by the Policyowner under the Policy through its
Maturity Date, based on the particular facts relating to the Insured and
certain assumptions allowed by law. The dollar amount of the Guideline
Premium is shown on the Policy's Schedule Page.
IN FORCE -- Condition under which the coverage is active and 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.
MONTHLY ANNIVERSARY OR MONTHIVERSARY -- The same date in each succeeding
month as the Policy Date. For purposes of the Series Account, whenever the
Monthly Anniversary falls on a date other than a Valuation Date, the Monthly
Anniversary will be deemed to be the next Valuation Date.
NET SURRENDER VALUE -- The amount payable upon surrender of the Policy
equal to the Cash Value less indebtedness and less any surrender charge.
NET PREMIUM -- The portion of the premium available for allocation to
either the Fixed Account or the Sub-Accounts of the Series Account equal to
the premium paid by the Policyowner less any applicable premium expense
charges.
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.
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 -- Any day on which Western Reserve is required by law to
value the assets of the Series Account.
VALUATION PERIOD -- The period commencing at the end of one Valuation Date
and continuing to the end of the next succeeding Valuation Date.
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INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL
FIXED-BENEFIT LIFE INSURANCE POLICY?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a
minimum death benefit to a Beneficiary upon the Insured's death; (2) the
accumulation of Cash Value; and (3) surrender rights and Policy loan
privileges.
The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate Net Premiums to one or more
Sub-Accounts of the Series Account, or to the Fixed Account, or to a
combination of both. (For Policies issued in New Jersey, the Fixed
Account is not available for allocation of Net Premiums.) 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. 20.) Unlike conventional fixed-benefit life insurance, a
Policyowner also has the flexibility, subject to certain restrictions
(see Premiums - Premium Limitations, p. 19), to vary the frequency and
amount of premium payments and to adjust the death benefits payable under
the Policy by increasing or decreasing the Specified Amount. Thus, unlike
conventional fixed-benefit life insurance, the Policy does not require a
Policyowner to adhere to a fixed premium schedule. Moreover, the failure
to pay a scheduled premium ("Planned Periodic Premium") will not itself
cause the Policy to Lapse, although additional premium payments may be
necessary to prevent Lapse if Net Surrender Value is insufficient to pay
certain monthly charges, and a grace period expires without a sufficient
payment. (See Policy Lapse and Reinstatement - Lapse, p. 22.)
2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the
Insured. The Policy contains two death benefit options. Under Death
Benefit Option A, the death benefit is the greater of the Specified
Amount of the Policy or a specified percentage times the Cash Value of
the Policy on the date of death of the Insured. Under Death Benefit
Option B, the death benefit is the greater of the Specified Amount of the
Policy plus the Cash Value of the Policy on the date of death of the
Insured or a specified percentage times the Cash Value of the Policy on
the date of death of the Insured. As long as the Policy remains In Force,
the minimum death benefit payable under either option will be the current
Specified Amount. The amount of death benefit will be reduced by any
outstanding indebtedness and any due and unpaid charges, and increased by
any additional insurance benefits added by rider and any unearned loan
interest. Under Western Reserve's current rules, the minimum Specified
Amount for a Policy at issue is generally $50,000, declining to $25,000
after age 45. The minimum Specified Amount will be set forth in the
Policyowner's Policy. (See Policy Benefits - Death Benefit, p. 11.)
Optional insurance benefits offered under the Policy include a
Children's Insurance Rider; an Other Insured Rider; an Accidental Death
Benefit Rider; an Option to Increase Specified Amount Rider; a Disability
Waiver Rider; a Disability Waiver and Income Rider; and Primary Insured
Riders. (See Optional Cash Value Charges - Optional Insurance Benefits, p.
25.) 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. 24.)
A Terminal Illness Accelerated Death Benefit Rider is automatically
included with every Policy at no additional charge. This rider makes a
"Single Sum Benefit" available prior to 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 Policy Benefits - Terminal Illness Accelerated
Death Benefit Rider, p. 14.)
Benefits under the Policy may be paid in a lump sum or under one of the
settlement options set forth in the Policy. (See Payment of Policy
Benefits - Settlement Options, p. 29.)
3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under either death benefit option, as long as the Policy remains In
Force, the death benefit will not be less than the current Specified
Amount of the Policy. The amount of death benefit will be reduced by any
outstanding indebtedness and any due and unpaid charges. The death
benefit may, however, exceed the Specified Amount under certain
circumstances. The amount by which the death benefit exceeds the
Specified Amount depends upon the option chosen and the Cash Value of the
Policy. (See Policy Benefits - Death Benefit, p. 11.)
The Policy's Cash Value in the Series Account will reflect the amount
and frequency of premium payments, the investment experience of the
chosen Sub-Accounts of the Series Account, any cash withdrawals, and any
charges imposed in connection with the Policy. The entire investment risk
for amounts allocated to the Series Account is borne by the Policyowner;
Western Reserve does not guarantee a minimum Cash Value. (See Policy
Benefits - Cash Value, p. 14.)
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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 type, and by increasing or
decreasing the Specified Amount of the Policy or adding riders to
increase the total death benefit payable. No change in the Death Benefit
Option type may be made during the first three Policy years. The
Policyowner may change the death benefit option only once each Policy
year after the third Policy year. (See Death Benefit - Change in Death
Benefit Option, p. 12.) No increase in the Specified Amount may be
requested during the first Policy year nor on or after the Insured's
Attained Age 75, and no decrease may be requested during the first three
Policy years. Any increase in the Specified Amount will require
additional evidence of insurability satisfactory to Western Reserve (see
Policy Benefits - Death Benefit, p. 11), and will result in additional
charges. (See Cash Value Charges - Cost of Insurance, p. 24.)
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
first year 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. 19.) 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 prescribed in the Policy. The amount and frequency of
Planned Periodic Premium payments may be changed upon written request.
(See Premiums - Planned Periodic Premiums, p. 19.)
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. 24), and a grace period expires without a sufficient payment
by the Policyowner. (See Loan Privileges - Indebtedness, p. 28.) However,
during the first three Policy years, the Policy will remain In Force and
no grace period will begin provided there is no increase in the Specified
Amount or addition of any riders, and the total premiums received (minus
any withdrawals and minus any outstanding loans) equal or exceed the
minimum monthly guarantee premium shown in the Policy times the number of
months since the Policy Date, including the current month. The Policy,
therefore, differs in two important respects from a conventional life
insurance policy. First, the failure to pay a Planned Periodic Premium
will not automatically cause the Policy to Lapse. Second, the Policy can
lapse even if Planned Periodic Premiums or premiums in other amounts have
been paid, if Net Surrender Value is insufficient to pay certain monthly
charges, and a grace period expires without a sufficient payment. Such a
Lapse could happen if the investment experience has been sufficiently
unfavorable to have resulted in a decrease in the Net Surrender Value, or
the Net Surrender Value has decreased because not enough premiums have
been paid to offset the monthly charges. If 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,
unless Western Reserve is willing to extend the Maturity Date and there
are no unfavorable tax consequences. The Net Surrender Value as of the
Maturity Date will be paid to the Policyowner.
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. 22.) 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. (For Policies issued in New Jersey, the Fixed Account is not
available for allocation of Net Premiums.) Each Portfolio has a different
investment objective. (See Investments of the Series Account - WRL Series
Fund, Inc., p. 15.) 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.
Subject to certain restrictions, a Policyowner may transfer Cash Value
among the Sub-Accounts of the Series Account or from the Sub-Accounts to the
Fixed Account. Transfers may also be made from the Fixed Account to the
Sub-Accounts subject to certain restrictions. (For Policies issued in New
Jersey, the Fixed Account is not available for transfers of Cash Value from
the Sub-Accounts.) The transfer will be effective on the first Valuation
Date on or following the day appropriate notice of such transfer is received
at the Office of Western Reserve. (See Allocation of Premiums and Cash Value
- Transfers, p. 20 and The Fixed Account - Allocations, Transfers and
Withdrawals, p. 32.)
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, or 10 days
after Western Reserve mails or delivers a written notice of withdrawal
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right to the Policyowner, or within 45 days after signing the
application, whichever is latest. Certain states require a Free-Look
period longer than 10 days, either for all Policyowners or for certain
classes of Policyowners. In most states, Western Reserve will refund the
value of the amounts allocated to the Accounts plus any charges
previously deducted. (See Policy Rights - Examination of Policy Privilege,
p. 29.)
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. 28.) If Death Benefit
Option A is in effect, cash withdrawals will reduce the Policy's
Specified Amount by the amount of the cash withdrawal.
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, or an annuity contract, under Section
1035(a) of the Internal Revenue Code of 1986, as amended. It should be
noted, however, that a loan taken from, or secured by, a Policy may be
treated as a taxable distribution, and also may be subject to a penalty
tax. (See Federal Tax Matters, p. 33.)
For Policies issued prior to May 1, 1994, the interest rate charged on
Policy loans is at the rate of 7.4% payable annually in advance. For
Policies issued on or after May 1, 1994, the interest rate on a Policy
loan is 5.2% payable annually in advance in all states. For the following
states, the interest rate on a Policy loan is 7.4% for all Policies
issued prior to, and 5.2% for Policies issued on or after, the date
indicated: Idaho - May 24, 1994, Montana - May 20, 1994, Rhode Island - May
19, 1994, Oregon - June 27, 1994, Minnesota - December 28, 1994, Vermont
- February 21, 1996. 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. 27.) Upon repayment of a loan, amounts in the
Loan Reserve in excess of the outstanding value of the loan are currently
transferred to the Accounts in the same manner as Net Premium
allocations; however, Western Reserve may in the future require these
amounts to be transferred to the Fixed Account. (See The Fixed Account,
p. 31.)
There are risks involved in taking a Policy loan, a few of which
include the potential for a Policy to lapse if projected earnings, taking
into account any outstanding loans, are not achieved, as well as adverse
tax consequences which occur if a Policy lapses with loans outstanding.
(See Federal Tax Matters - Tax Treatment of Policy Benefits, p. 34.)
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, $2.00 per premium payment is deducted to
compensate Western Reserve for costs associated with premium collections.
(See Charges and Deductions - Premium Expense Charges, p. 22.)
A "surrender charge" (part of which is a contingent deferred sales
charge) is deducted if the Policy is surrendered during the first 15
Policy years. An additional "surrender charge" is deducted in connection
with any increase in Specified Amount if the Policy is surrendered during
the 15 years after the increase. The surrender charge and the additional
surrender charge both consist of a deferred issue charge of $5.00 per
$1,000 of Specified Amount; the surrender charge also consists of a
deferred sales charge equal to 26.5% of one Guideline Premium and not
more than 4.2% of premiums above that amount. A declining percentage of
the surrender charge is assessed after the tenth year. (See Charges and
Deductions - Contingent Surrender Charges, p. 23.)
Western Reserve charges the Sub-Accounts of the Series Account for the
mortality and expense risks Western Reserve assumes. The charge is made
daily at an effective annual rate of 0.90% of the average daily net
assets of each Sub-Account of the Series Account. (See Charges and
Deductions - Charges Against the Series Account, p. 25.)
An investment advisory charge is imposed on each applicable Portfolio
of the Fund at a current annual rate stated as a percentage of the
aggregate average daily net assets of the Portfolio. Effective January 1,
1997, the Fund has 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
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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-hundreths 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 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. 15.)
Cost of insurance charges and a $5.00 monthly administration charge,
are deducted monthly from the Cash Value of each Policy to compensate
Western Reserve for the cost of insurance and the cost of administering
the Policy. (See Charges and Deductions - Cash Value Charges, p. 24.)
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. 25.)
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. 33.)
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. (For Policies issued in New Jersey, the
Fixed Account is not available for transfers of Cash Value from the
Sub-Accounts.) (See the Fixed Account - Allocations, Transfers and
Withdrawals, p. 32.) Twelve Cash Value transfers are permitted without
charge in a Policy year. Each additional transfer will be subject to a
transfer charge of $10. This charge will not be increased. Certain
restrictions apply to transfers from the Fixed Account. Western Reserve
may at any time revoke or modify the transfer privilege. (See Payment and
Allocation of Premiums - Allocation of Premiums and Cash Value - Transfers,
p. 20.)
13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
At present, there is only limited guidance for determining whether a
Policy meets the requirements prescribed by tax legislation for tax
treatment as a life insurance contract under Section 7702 of the Internal
Revenue Code. With respect to a Policy that is issued on the basis of a
rate class using non-smoker Ultimate Select, non-smoker Select, smoker
Ultimate Standard or smoker Standard guaranteed rates, while there is
some uncertainty due to the limited guidance on Section 7702, Western
Reserve nonetheless believes that such a Policy should meet the Section
7702 definition of a life insurance contract. With respect to a Policy
that is issued on a substandard rate class, there is even less guidance
to determine whether such a Policy meets the Section 7702 definition of a
life insurance contract. Thus, it is not clear whether such a Policy
would satisfy Section 7702, particularly if the Policyowner pays the full
amount of premiums permitted under the Policy. If it is subsequently
determined that a Policy does not qualify as a life insurance contract,
Western Reserve will take whatever steps are appropriate and reasonable
to attempt to have such a Policy comply with Section 7702. For these
reasons, Western Reserve reserves the right to modify the Policy as
necessary to attempt to qualify it as a life insurance contract under
Section 7702. Assuming that a Policy qualifies as a life insurance
contract for Federal income tax purposes, Western Reserve believes that
the death benefit paid under the Policy generally should be fully
excludable from the gross income of the Beneficiary for Federal income
tax purposes. Moreover, the Owner should not be deemed in constructive
receipt of Cash Values under a Policy until there is a distribution from
the Policy.
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. 34.)
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
5
<PAGE>
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. 33.
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 March of 1990. The Series
Account and the Fund commenced operations on October 2, 1986. The rates of
return shown below depict the actual investment experience of each Portfolio
of the Fund for the periods shown. The illustrations of death benefits, Cash
Values and Net Surrender Values shown below depict these Policy features for
a hypothetical Policy as if it had been purchased on January 1, 1987 by an
Insured in the age and risk classes indicated, based on the historical
investment experience of the Portfolio indicated since January 1, 1987. The
actual rate of return in each calendar year was assumed to be uniformly
earned throughout that year.
RATES OF RETURN
The rates of return shown below are based on the 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, 1995. (See Investments of the Series Account - WRL Series Fund, Inc., p.
15.)
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. 22; Contingent Surrender Charges, p. 23; and
Cash Value Charges, p. 24.) Accordingly, these rates of return do not
illustrate how actual investment performance will affect benefits under the
Policies. (See, however, Death Benefit, Cash Value and Net Surrender Value
Illustrations, p. 6.) 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, a widely used measure of stock market
performance.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1995
<TABLE>
<CAPTION>
FUND PORTFOLIO INCEPTION* 5 YEARS 3 YEARS 1 YEAR
- --------------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Growth 17.63% 18.06% 11.94% 47.12%
Global 18.67% N/A 18.55% 23.06%
Bond 8.48% 10.50% 9.08% 22.99%
Short-to-Immediate
Government 5.75% N/A 5.74% 13.54%
Money Market 4.98% 3.91% 3.76% 5.40%
Emerging Growth 20.48% N/A N/A 46.79%
Equity-Income 12.79% N/A N/A 24.66%
Aggressive Growth 18.37% N/A N/A 38.02%
Balanced 6.85% N/A N/A 19.80%
Utility 10.20% N/A N/A 25.25%
Tactical Asset
Allocation 20.09% N/A N/A N/A
C.A.S.E Growth 20.65% N/A N/A N/A
Standard & Poor's
Index of 500
Common Stocks 14.68% 16.59% 15.34% 37.58%
<FN>
* The Growth, Bond and Money Market Portfolios of the Fund commenced
operations on October 2, 1986. The Global and Short-to-Intermediate
Government Portfolios commenced operations on December 3, 1992. The Emerging
Growth and Equity-Income Portfolios commenced operations on March 1, 1993.
The Aggressive Growth, Balanced and Utility Portfolios commenced operations
on March 1, 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 Standard & Poor's Index of 500 Common Stocks
returns are based on an inception date of October 2, 1986.
</FN>
</TABLE>
Because the Value Equity, U.S. Equity and International Equity Portfolios had
not yet commenced operations as of December 31, 1995, 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. These illustrations do not represent what may happen in the
future.
6
<PAGE>
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 non-smoker Ultimate Select underwriting rate
class. (See Cash Value Charges - Cost of Insurance, p. 24.) The illustrations
also assume that the Policy's entire Cash Value is allocated to the
Sub-Account corresponding to the Portfolio shown.
The amounts shown for death benefits, Cash Values and Net Surrender Values
take into account all charges and deductions from the Policy, the Series
Account and the Fund (see Charges and Deductions - Premium Expense Charges, p.
22, Charges Against the Series Account, p. 25, and Investments of the Series
Account - WRL Series Fund, Inc., p. 15).
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 38-41.
The following example shows how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1987. This example assumes that the Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1988 ............................. $ 1,743 $ 1,730 $ 464 $ 450
1989* ............................ 3,826 3,794 2,462 2,431
1990* ............................ 8,027 7,962 6,580 6,515
1991* ............................ 9,265 9,187 7,734 7,656
1992* ............................ 17,291 17,144 15,675 15,529
1993* ............................ 19,055 18,890 17,356 17,191
1994* ............................ 21,031 20,840 19,248 19,057
1995* ............................ 20,410 20,210 18,542 18,342
1996* ............................ 31,990 31,643 30,038 29,692
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
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, Non-Smoker 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 ............................. $ 1,470 $1,458 $ 191 $ 178
1989* ............................ 3,207 3,178 1,843 1,815
1990* ............................ 5,457 5,409 4,009 3,961
1991* ............................ 7,408 7,341 5,877 5,809
1992* ............................ 10,369 10,272 8,753 8,657
1993* ............................ 12,723 12,602 11,023 10,902
1994* ............................ 15,780 15,621 13,997 13,838
1995* ............................ 15,960 15,785 14,092 13,918
1996* ............................ 21,264 20,999 19,313 19,047
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
7
<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, Non-Smoker 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 ............................. $ 1,645 $ 1,632 $ 366 $ 352
1989* ............................ 3,370 3,341 2,007 1,978
1990* ............................ 5,266 5,220 3,818 3,772
1991* ............................ 7,233 7,167 5,701 5,636
1992* ............................ 9,120 9,034 7,504 7,419
1993* ............................ 10,845 10,740 9,145 9,040
1994* ............................ 12,500 12,370 10,716 10,586
1995* ............................ 14,318 14,156 12,451 12,288
1996* ............................ 16,477 16,258 14,525 14,306
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
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, Non-Smoker 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 ............................. $2,132 $2,117 $ 853 $ 837
1995* ............................ 3,667 3,637 2,303 2,274
1996* ............................ 6,379 6,327 4,932 4,879
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
The following example shows how the hypothetical net return of the
Short-to-Intermediate Government Portfolio of the Fund would have affected
benefits for a Policy dated January 1, 1993, if the Short-to-Intermediate
Government Portfolio had been offered through the Policy as of January 1,
1993. This example assumes that net premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1994 ............................. $1,613 $1,599 $ 333 $ 320
1995* ............................ 3,118 3,091 1,755 1,727
1996* ............................ 5,254 5,208 3,806 3,760
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
8
<PAGE>
The following example shows how the hypothetical net return of the
Emerging Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1994. 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, Non-Smoker 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 ............................. $1,423 $1,411 $ 144 $ 131
1996* ............................ 4,396 4,360 3,033 2,997
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
The following example shows how the hypothetical net return of the
Equity-Income Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1994. This example assumes that net premiums and related
Cash Values were in the Sub-Account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each
year.
EQUITY-INCOME PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1995 ............................. $1,541 $1,528 $ 262 $ 249
1996* ............................ 3,853 3,821 2,490 2,458
<FN>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
The following example shows how the hypothetical net return of the
Aggressive Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1995. This example assumes that net premiums and
related Cash Values were in the Sub-Account for the entire period and that
the values were determined on the first Valuation Date following January 1st
of each year.
AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1996 ............................. $2,186 $2,171 $907 $891
</TABLE>
9
<PAGE>
The following example shows how the hypothetical net return of the
Balanced Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1995. This example assumes that net premiums and related
Cash Values were in the Sub-Account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each
year.
BALANCED PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1996 ............................. $1,876 $1,862 $597 $582
</TABLE>
The following example shows how the hypothetical net return of the Utility
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1995. This example assumes that net premiums and related Cash Values were
in the Sub-Account for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
UTILITY PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
-------------------------- ------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- ---------------------------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1996 ............................. $1,969 $1,954 $689 $675
</TABLE>
Because the Tactical Asset Allocation Portfolio commenced operations on
January 3, 1995, the C.A.S.E. Growth Portfolio commenced operations on May 1,
1995 and the Value Equity Portfolio, U.S. Equity Portfolio and International
Equity Portfolio had not yet commenced operations as of December 31, 1995,
there are no hypothetical illustrations for these Portfolios.
OTHER PERFORMANCE DATA
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable life
issuers in general, or to the performance of particular types of variable
life insurance policies investing in mutual funds, or investment series of
mutual funds, with investment objectives similar to each of the Sub-Accounts
whose performance is reported by Lipper Analytical Services, Inc. ("Lipper")
and Morningstar, Inc. ("Morningstar") or reported by other services,
companies, individuals or other industry or financial publications of general
interest, such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, KIPLINGER'S PERSONAL FINANCE AND FORTUNE. Lipper and Morningstar
are widely used independent research services which monitor and rank the
performance of variable life insurance policies in each of the major
categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable annuity contracts as
well as variable life insurance policies. The performance analyses prepared
by Lipper and Morningstar rank such policies and contracts on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate
account level into consideration.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance, or other widely
recognized indices. Unmanaged indices may assume the reinvestment of
dividends, but usually do not reflect any "deduction" for the expense of
operating or managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which
is published by the U.S. Department of Labor and measures the average change
in prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account performance may also be made
with appropriate indices measuring the performance of a defined group of
securities widely recognized by investors as representing a particular
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).
10
<PAGE>
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 fifteen Sub-Accounts. Each
Sub-Account invests exclusively in shares of a single Portfolio of the Fund.
Income and both realized and unrealized gains or losses from the assets of
each Sub-Account of the Series Account are credited to or charged against
that Sub-Account without regard to income, gains or losses from any other
Sub-Account of the Series Account or arising out of any other business
Western Reserve may conduct.
POLICY BENEFITS
DEATH BENEFIT
Policyowners designate in the initial application one of two death benefit
options offered under the Policy: Death Benefit Option A ("Option A") and
Death Benefit Option B ("Option B"). As long as the Policy remains In Force,
(see Policy Lapse and Reinstatement - Lapse, p. 22), Western Reserve will,
upon receiving due proof of the 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 Payments of Policy
Benefits - Settlement Options, p. 29.) Western Reserve guarantees that as long
as the Policy remains In Force (see Policy Lapse and Reinstatement - Lapse, p.
22), the death benefit proceeds under either option will never be less than
the Specified Amount of the Policy, but the proceeds will be reduced by any
outstanding indebtedness and any due and unpaid charges. These proceeds will
be increased by any additional insurance In Force provided by rider and any
unearned loan interest.
OPTION A. The death benefit is the greater of the Specified Amount of the
Policy or the applicable percentage (the "limitation percentage") times the
Cash Value on the date of death. The limitation percentage is 250% for an
Insured age 40 or below on the Policy Anniversary prior to the date of death.
For an Insured with an Attained Age over 40 on a Policy Anniversary, the
percentage declines as shown in the following Limitation Percentage Table.
Accordingly, under Option A the death benefit will remain level unless the
limitation percentage times the Cash Value exceeds the Specified Amount, in
which case the amount of the death benefit will vary as the Cash Value
varies.
ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that
the Insured's Attained Age is under 40 and that there is no outstanding
indebtedness. Under Option A, a Policy with a $50,000 Specified Amount will
generally pay $50,000 in death benefits. However, because the death benefit
must be equal to or be greater than 250% of Cash Value, any time the Cash
Value of the Policy exceeds $20,000, the death benefit will exceed the
$50,000 Specified Amount. Each additional dollar added to Cash Value above
$20,000 will increase the death benefit by $2.50.
Similarly, so long as Cash Value exceeds $20,000, each dollar taken out of
Cash Value will reduce the death benefit by
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$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 the Specified
Amount plus the Cash Value of the Policy or the limitation percentage times
the Cash Value on or prior to the date of death. The applicable percentage is
250% for an Insured age 40 or below on the Policy Anniversary prior to the
date of death. For Insureds with an Attained Age over 40 on a Policy
Anniversary, the percentage declines as shown in the Limitation Percentage
Table above. Accordingly, under Option B the amount of the death benefit will
always vary as the Cash Value varies.
ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that
the Insured is under the age of 40 and that there is no outstanding
indebtedness. Under Option B, a Policy with a Specified Amount of $50,000
will generally pay a death benefit of $50,000 plus Cash Value. Thus, for
example, a Policy with a Cash Value of $10,000 will have a death benefit of
$60,000 ($50,000 + $10,000). The death benefit, however, must be at least
250% of Cash Value. As a result, if the Cash Value of the Policy exceeds
$33,333, the death benefit will be greater than the Specified Amount plus
Cash Value. Each additional dollar of Cash Value above $33,333 will increase
the death benefit by $2.50.
Similarly, any time Cash Value exceeds $33,333, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however,
Cash Value multiplied by the limitation percentage is less than the Specified
Amount plus the Cash Value, then the death benefit will be the Specified
Amount plus the Cash Value of the Policy.
CHOOSING DEATH BENEFIT OPTION A OR OPTION B. As described above and
assuming the death benefit is not determined by reference to the limitation
percentage, Option A will provide a Specified Amount of death benefit which
does not vary with changes in Cash Value. Thus, under Option A, as Cash Value
increases, Western Reserve's net amount at risk under the Policy will
decline. In contrast, Option B involves a constant net amount at risk,
assuming that the death benefit is not determined by reference to the
limitation percentage. Therefore, assuming positive investment experience,
the deduction for cost of insurance under a Policy with an Option A death
benefit will be less than under a corresponding Policy with an Option B death
benefit. Because of this, if investment performance is positive, Cash Value
under Option A will increase faster than under Option B but the total death
benefit under Option B will generally be greater. Thus, Option A could be
considered more suitable for Policyowners whose goal is increasing Cash Value
based upon positive investment experience while Option B could be considered
more suitable for Policyowners whose goal is increasing total death benefit.
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 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. 33.)
Under Western Reserve's current rules, no change may be made if it would
result in a Specified Amount less than the minimum Specified Amount set forth
in the Policy. The effective date of any change will be the Monthly
Anniversary on or following receipt of the request. No charges will be
imposed for making a change in death benefit option.
If the death benefit option is changed from Option B to Option A, the
Specified Amount will be increased by an amount equal to the Policy's Cash
Value on the effective date of change. If the death benefit option is changed
from Option A to Option B, the Specified Amount will be decreased by an
amount equal to the Cash Value on the effective date of the change.
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. 24.)
INSURANCE PROTECTION. A Policyowner may increase or decrease the pure
insurance protection provided by a Policy (i.e., the difference between the
death benefit and the Cash Value) in one of several ways as insurance needs
change. These ways include increasing or decreasing the Specified Amount of
insurance, 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. 11), in general
decrease the insurance protection and the charges under the Policy
without reducing the Cash Value.
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<PAGE>
(b) If Option A is elected, an increased level of premium payments also
will reduce the pure insurance protection, until the limitation
percentage times the Cash Value exceeds the Specified Amount.
Furthermore, increased premiums should increase the amount of funds
available to keep the Policy In Force.
(c) A cash withdrawal will reduce the death benefit. (See Surrender
Privileges - Cash Withdrawals, p. 28.) However, it has no effect on the
amount of pure insurance protection and charges under the Policy,
unless the death benefit payable is governed by the limitation
percentages.
(d) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Cash Value and the
resultant limitation percentage. If the insurance protection is
increased, the Policy charges generally will increase as well.
(e) A reduced level of premium payments also generally increases the
amount of pure insurance protection if Option A is elected, or
maintains the same amount of pure insurance protection if Option B is
elected, again depending on the limitation percentage. Furthermore, it
results in a reduced amount of Cash Value and increases the
possibility that the Policy will Lapse.
HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In
Force, Western Reserve guarantees that the death benefit will never be less
than the Specified Amount of the Policy. These proceeds will be reduced by
any outstanding indebtedness and any due and unpaid charges. The death
benefit may, however, vary with the Policy's Cash Value. Under Option A, the
death benefit will only vary when the Cash Value multiplied by the limitation
percentage exceeds the Specified Amount of the Policy. The death benefit
under Option B will always vary with the Cash Value because the death benefit
equals either the Specified Amount plus the Cash Value or the limitation
percentage times the Cash Value.
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, a Policyowner
may increase or decrease the Specified Amount of a Policy. Western Reserve
reserves the right to limit changes to once each Policy year. A change in
Specified Amount may affect the net amount at risk, which may affect a
Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of
Insurance, p. 24.) A change in Specified Amount could also have Federal
income tax consequences. (See Federal Tax Matters, p. 33.)
DECREASES. Any decrease in the Specified Amount will become effective on
the Monthly Anniversary date on or following receipt of a written request
from the Policyowner by Western Reserve. No requested decrease in the
Specified Amount will be permitted during the first three Policy years. The
Specified Amount remaining In Force after any requested decrease may not be
less than the minimum Specified Amount set forth in the Policy. Western
Reserve reserves the right to limit any decrease to no more than 20% of the
Specified Amount immediately prior to the decrease. If, following the
decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by Federal tax law (see Premiums - Premium
Limitations, p. 19), the decrease may be limited to the extent necessary to
meet these requirements.
INCREASES. For an increase in the Specified Amount, written application
must be submitted. Western Reserve will also require that additional evidence
of insurability be submitted. Western Reserve reserves the right to decline
any increase request. Any increase will become effective on the effective
date shown on an endorsement to the Policy. The effective date of the
increase will be the Monthly Anniversary on or following written approval of
the increase by Western Reserve. No increase in the Specified Amount will be
permitted during the first Policy year or on or after the Insured's Attained
Age of 75. Under Western Reserve's current rules, the increase may not be
less than $10,000. An increase need not be accompanied by an additional
premium, but there must be sufficient Net Surrender Value to cover the next
monthly deduction after the increase becomes effective. (See Charges and
Deductions - Optional Cash Value Charges, p. 25.)
HOW THE DURATION OF THE POLICY MAY VARY. The duration of the Policy
depends upon the Net Surrender Value. The Policy will remain In Force until
maturity so long as the Net Surrender Value is sufficient to pay the monthly
deduction. (See Charges and Deductions - Cash Value Charges, p. 25.) Where,
however, Net Surrender Value is insufficient to pay the monthly deduction,
and a grace period expires without an adequate payment by the Policyowner,
the Policy will Lapse and terminate without value, except during the first
three Policy years in certain circumstances. (See Policy Lapse and
Reinstatement - Lapse, p. 22.)
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 for
payment when presented for payment on first presentation.
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<PAGE>
AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE. If conditional insurance
coverage becomes effective under the terms of the conditional receipt, then
the amount of conditional life insurance coverage on any person proposed for
insurance is the lesser of: (a) the amount of life insurance applied for on
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.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
In states where this rider has been approved by that state's department of
insurance, upon receipt of proof satisfactory to Western Reserve that the
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, p.
31.) "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 creating a Terminal Condition resulting
from self-inflicted bodily injuries occurring within the same period
specified in the Policy's suicide provision. The Rider terminates at the
earliest of (a) the date the Policy terminates, (b) the effective date of a
settlement option elected under the Policy, (c) the date the Single Sum
Benefit is paid, or (d) the date the Policyowner elects to terminate the
Rider.
The tax consequences of adding the Rider to a Policy or receiving a
benefit under that Rider are unclear. A Policyowner should therefore consult
a qualified tax adviser about these consequences before adding this Rider to
a Policy.
There is no additional charge for this rider. As stated above, this rider
may not be available in all states or, if available, the terms of the rider
may vary, in accordance with the requirements of each state's insurance laws.
CASH VALUE
At the end of any Valuation Period, the Cash Value of the Policy is equal
to the sum of the Sub-Account values of the Series Account plus the Fixed
Account Value. There is no guaranteed minimum Cash Value.
NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy
and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender
Privileges, p. 28.) The Net Surrender Value as of any date is equal to:
(1) the Cash Value as of such date; minus
(2) any surrender charge as of such date (as described on p. 30); 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
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<PAGE>
Series Account will equal the portion of any Net Premium allocated to the
Sub-Account, reduced by the portion of the first monthly deduction allocated
to that Sub-Account. (See Payment and Allocation of Premiums - Allocation of
Premiums and Cash Value, p. 20.) Thereafter, on each Valuation Date, the
Policy's value in a Sub-Account of the Series Account will equal:
(1) The Policy's value in the Sub-Account on the preceding Valuation Date,
multiplied by the experience factor for the current Valuation Period;
plus
(2) Any Net Premium payments received during the current Valuation Period
which are allocated to the Sub-Account; plus
(3) All values transferred to the Sub-Account from the Loan Reserve, from
the Fixed Account or from another Sub-Account during the current
Valuation Period; minus
(4) All values transferred from the Sub-Account to the Loan Reserve, to
the Fixed Account or to another Sub-Account during the current
Valuation Period; minus
(5) All cash withdrawals from the Sub-Account during the current Valuation
Period; minus
(6) The portion of the monthly deduction allocated to the Sub-Account
during the current Valuation Period.
The Policy's total value in the Series Account equals the sum of the
Policy's value in each Sub-Account. (For a description of how the values of
the Fixed Account are calculated, see The Fixed Account - Fixed Account Value,
p. 32.) Because the Cash Value is dependent upon a number of variables,
including the investment experience of the chosen Sub-Accounts of the Series
Account, the frequency and amount of premium payments, transfers and
surrenders, and charges assessed in connection with the Policy, a Policy's
Cash Value cannot be predetermined.
THE EXPERIENCE FACTOR. The experience factor measures investment
experience during a Valuation Period. Each Sub-Account has its own distinct
experience factor. In calculating a Sub-Account's experience factor for a
Valuation Period, the net asset value for each share of the corresponding
Portfolio of the Fund at the end of the current Valuation Period is increased
by the amount per Portfolio share of any dividend or capital gain
distribution received by the Portfolio during the current Valuation Period
and decreased by a per Portfolio share charge for any applicable taxes. The
total is then divided by the net asset value per Portfolio share at the end
of the preceding Valuation Period. Western Reserve then deducts a daily
charge equal to 0.90% on an annual basis of the average daily net assets of
each Sub-Account to compensate Western Reserve for certain mortality and
expense risks. (See Charges Against the Series Account - Mortality and Expense
Risk Charge, p. 25.)
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of
shares of the Fund is determined, once daily, as of the close of the regular
session of business on the New York Stock Exchange ("Exchange") (usually 4:00
p.m., Eastern time), on each day the Exchange is open.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of the Fund, a series mutual fund
which is registered with the Securities and Exchange Commission
("Commission") as an open-end diversified management investment company. Such
registration does not involve supervision of the management or investment
practices or policies of the Fund by the Commission.
Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of
the Series Account are: Aggressive Growth Portfolio, Emerging Growth
Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Equity-Income Portfolio, Bond Portfolio, Short-to-Intermediate Government
Portfolio, Utility Portfolio, Money Market Portfolio, Tactical Asset
Allocation Portfolio, C.A.S.E. Growth Portfolio, 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 generally have no
effect on the investment performance of any other Portfolio. Pending any
prior approval by a state insurance regulatory authority, certain
Sub-Accounts and corresponding Portfolios may not be available to residents
of some states.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve its
stated objective. More detailed information, including a description of
risks, can be found in the 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's objective is growth of capital.
GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital, primarily through investments
in common stocks of foreign and domestic issuers.
BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced
volatility, and superior long-term risk adjusted returns by investing
primarily in common stock, convertible securities and fixed-income
securities.
EQUITY-INCOME PORTFOLIO: This Portfolio seeks to provide current income,
long-term growth of income and capital appreciation by investing primarily in
common stocks,
15
<PAGE>
income producing securities convertible into common stocks, and fixed-income
securities.
BOND PORTFOLIO: This Portfolio seeks the highest possible current income
within the confines of the primary goal of insuring the protection of capital
by investing in debt securities issued by the U.S. Government and its
agencies and in medium to high-quality corporate debt securities.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO: This Portfolio seeks as high a
level of current income as is consistent with preservation of capital,
primarily through investments in U.S. Government securities, including
repurchase agreements with respect to U.S. Government securities.
UTILITY PORTFOLIO: This Portfolio's objective is to achieve high current
income and moderate capital appreciation by investing primarily in a
professionally managed and diversified portfolio of equity and debt
securities of utility companies.
MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum
current income consistent with preservation of principal and maintenance of
liquidity.
TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of
capital and competitive investment returns by investing primarily in stocks,
United States Treasury bonds, notes and bills, and money market funds.
C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth
through investments in small to medium-sized companies.
VALUE EQUITY PORTFOLIO: This Portfolio seeks to achieve maximum,
consistent total return with minimum risk to principal by investing primarily
in common stocks with above-average statistical value which, in the
Sub-Adviser's opinion, are in fundamentally attractive industries and are
undervalued at the time of purchase.
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, serves as investment adviser to the Fund and manages its assets in
accordance with policies, programs and guidelines established by the Board of
Directors of the Fund.
Janus Capital Corporation ("Janus") serves as sub-adviser to the Growth,
Bond and Global Portfolios of the Fund. Janus, located at 100 Fillmore
Street, Denver, Colorado 80206, has been engaged in the management of the
Janus funds since 1969. Janus also serves as investment adviser or
sub-adviser to other mutual funds, and individual, corporate, charitable, and
retirement accounts. The aggregate market value of the assets managed by
Janus was over $40 billion as of October 1, 1996. 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. ("AEGON Management") is sub-adviser
to the Short-to-Intermediate Government and the Balanced Portfolios of the
Fund. AEGON Management, located at 4333 Edgewood Road, N.E., Cedar Rapids,
Iowa 52499, is a wholly-owned subsidiary of AEGON and thus is an affiliate of
Western Reserve. AEGON Management also serves as sub-adviser to the two bond
portfolios of IDEX Series Fund. AEGON Management also manages the general
account investment portfolios of the life insurance subsidiaries of AEGON
which had in excess of $22.6 billion under management as of January 1, 1996.
WRL Management and AEGON Management will divide equally monthly compensation
at the current annual rate of 0.60% of the aggregate average daily net assets
of the Short-to-Intermediate Government Portfolio and 0.80% of the aggregate
average daily net assets of the Balanced Portfolio. AEGON Management's
compensation will be reduced by 50% of the amount paid by WRL Management on
behalf of the Short-to-Intermediate Government and the Balanced Portfolios
pursuant to any expense limitation or other reimbursement.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen American
Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van
Kampen American Capital, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, 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"), located at 301
Commerce Street, Suite 1600, Fort Worth, Texas, 76102, is sub-adviser to the
Equity-Income Portfolio of the Fund. Ultimate control of Luther King is
exercised by J. Luther King, Jr. Luther King is a registered investment
adviser and provides investment management services to accounts of individual
investors, mutual funds and other institutional investors. Luther King has
served as an investment adviser for approximately 17 years; as of March 1,
1996, the total assets managed by Luther King exceeded $4.5 billion. 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
Equity-Income Portfolio.
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<PAGE>
Federated Investment Counseling ("Federated") is sub-adviser to the
Utility Portfolio of the Fund. Federated, located at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, is a Delaware business trust
organized on April 11, 1989 and is a registered investment adviser under the
Investment Advisers Act of 1940. It is a wholly-owned subsidiary of Federated
Investors. Federated serves as investment adviser to a number of investment
companies and private accounts. Total assets under management or administered
by Federated and other subsidiaries of Federated Investors is approximately
$70 billion. WRL Management will receive monthly compensation at the current
annual rate of 0.75% of the aggregate average daily net assets of the Utility
Portfolio. From this amount, as compensation for its services, Federated will
receive payment of fees equal to 0.50% of the first $30 million of average
daily net assets, 0.35% of the next $20 million of average daily net assets,
and 0.25% of average daily net assets in excess of $50 million of the Utility
Portfolio.
Fred Alger Management, Inc. ("Fred Alger") is sub-adviser to the
Aggressive Growth Portfolio of the Fund. Fred Alger, located at 75 Maiden
Lane, New York, NY 10038, is a wholly-owned subsidiary of Fred Alger &
Company, Incorporated, which, in turn, is a wholly-owned subsidiary of Alger
Associates, Inc., a financial services holding company controlled by Fred M.
Alger. Fred Alger has been engaged in the business of rendering investment
advisory services since 1964 and has approximately $5.4 billion under
management. 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, located at 2480 Kettering Tower, Dayton, Ohio 45423-2480, is a
registered investment adviser with the Securities and Exchange Commission.
Dean is wholly-owned by C.H. Dean and Associates, Inc. Founded in 1972, Dean
manages portfolios for individuals and institutional clients worldwide. Dean
provides a full range of investment advisory services and currently has
$3.756 billion of assets under management. 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"), located at 522
Fifth Avenue, New York, New York 10036, 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. J.P. Morgan provides investment management and
related services for corporate, public and union employee benefit funds,
foundations, endowments, insurance companies and government agencies. 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."), located at 2255 Glades Road, Boca
Raton, Florida 33431, is sub-adviser to the C.A.S.E. Growth Portfolio of the
Fund. C.A.S.E. is a registered investment advisory firm and a wholly-owned
subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William
Edward Lange, president and chief executive officer of C.A.S.E. C.A.S.E.
provides investment management services to financial institutions, high net
worth individuals, and other professional money managers. 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"), located at 655
South Hope Street, 11th Floor, Los Angeles, California 90017, is sub-adviser
to the Value Equity Portfolio of the Fund. NWQ Investment was founded in 1982
and is a wholly-owned subsidiary of United Asset Management Corporation and
provides investment management services to institutions and high net worth
individuals. As of December 31, 1995, NWQ Investment had approximately $5.6
billion in assets under management. 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, located at Edinburgh Park, Edinburgh EH12 9SE, Scotland, is a
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.
As of December 31, 1995, Scottish Equitable had approximately $15.9 billion
in assets under management. Scottish Equitable has not previously advised a
U.S.-registered mutual fund. Scottish Equitable currently provides investment
advisory and management services to certain of its affiliates and to external
organizations. 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.
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GEIM, located at 3003 Summer Street, Stamford, Connecticut 06905, 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. GE Investments has roughly 70 years of
investment management experience, and has managed mutual funds since 1935. As
of June 30, 1996, GEIM and GEIC together managed assets in excess of $55
billion. GE Investments provides investment management services to external
organizations and to certain of its affiliates. 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, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for the shares
that are held by the Series Account or that the Series Account may purchase.
Western Reserve reserves the right to eliminate the shares of any of the
Portfolios of the Fund and to substitute shares of another Portfolio of the
Fund or of another open-end, registered investment company, if the shares of
a Portfolio are no longer available for investment, or if in its judgement
further investment in any Portfolio should become inappropriate in view of
the purposes of the Series Account. Western Reserve will not substitute any
shares attributable to a Policyowner's interest in a Sub-Account of the
Series Account without notice and prior approval of the Commission, to the
extent required by the Investment Company Act of 1940, as amended (the "1940
Act") or other applicable law. Nothing contained herein shall prevent the
Series Account from purchasing other securities for other Portfolios or
classes of policies, or from permitting a conversion between Portfolios or
classes of policies on the basis of requests made by Policyowners.
Western Reserve also reserves the right to establish additional
Sub-Accounts of the Series Account, each of which would invest in a new
Portfolio of the Fund, or in shares of another investment company, with a
specified investment objective. New Sub-Accounts may be established when, in
the sole discretion of Western Reserve, marketing, tax or investment
conditions warrant, and any new Sub-Accounts will be made available to
existing Policyowners on a basis to be determined by Western Reserve. Western
Reserve may also eliminate one or more Sub-Accounts if, in its sole
discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Western Reserve may by
appropriate endorsement make such changes in this and other policies as may
be necessary or appropriate to reflect such substitution or change. If deemed
by Western Reserve to be in the best interests of persons having voting
rights under the Policies, the Series Account may be operated as a management
company under the 1940 Act, or it may be deregistered under the 1940 Act in
the event such registration is no longer required.
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PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed application
to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068. Under
Western Reserve's current rules, the minimum Specified Amount of a Policy is
generally $50,000, declining to $25,000 after age 45. Policies will generally
be issued only to Insureds 75 years of age or under who supply satisfactory
evidence of insurability sufficient to Western Reserve. Western Reserve may,
however, at its sole discretion, issue a Policy to an individual above the
age of 75. Acceptance is subject to Western Reserve's underwriting rules and
Western Reserve reserves the right to reject an application for any reason
permitted by law.
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. 22.) 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. (See Death Benefit - How the Duration of the
Policy May Vary, p. 13.) 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, during the first three Policy
years, the Policy will remain In Force and no grace period will begin
provided there has been no increase in the Specified Amount or addition of
any riders and the total of the premiums received is equal to or exceeds the
minimum monthly guarantee premium specified in the Policy times the number of
months since the Policy Date, including the current month. (See Policy Lapse
and Reinstatement - Lapse, p.22.)
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
which qualify the Policy as life insurance according to Federal tax laws. If
at any time a premium is paid which would result in total premiums exceeding
the current maximum premium limitation, 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. 22.)
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. 20. An Initial Premium made by wire transfer not accompanied by
a simultaneous FAX, or accompanied by a FAX of an incomplete application,
will be retained for a period up to five business days while Western Reserve
attempts to obtain the FAX or complete the essential information required to
establish the Policy and allocate the Initial Premium at the unit value next
determined after receipt of the FAX or information necessary to complete the
application. If Western Reserve cannot obtain the FAX or essential
information within five business days, Western Reserve will return the
Initial Premium to the applicant, unless the applicant consents to allow
Western Reserve to retain the Initial Premium until the required FAX or
essential information is received.
In the event the application with original signature is later received and
the allocation instructions in that application, for any reason, are
inconsistent with those previously designated on the FAX, the Initial Premium
will be reallocated 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:
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Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1620
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less the premium
expense charges. (See Charges and Deductions - Premium Expense Charges, p.
22.) 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. (For
Policies issued in New Jersey, the Fixed Account is not available for
allocation of Net Premiums.) 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 19, and Policy Benefits
- - When Conditional Life Insurance Coverage Begins, p. 14.)
Net premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions. The minimum percentage of each premium
that may be allocated to any account is 10%; percentages must be in whole
numbers. The allocation of future Net Premiums may be changed without charge
at any time by providing Western Reserve with written notification from the
Policyowner, or by calling Western Reserve's toll-free number,
1-800-851-9777. Western Reserve will employ the same procedures to confirm
that such telephone instructions are genuine as it employs regarding
transfers among Sub-Accounts and the Fixed Account by telephone. Upon
instructions from the Policyowner, the registered representative/agent of
record may also change the allocation of future Net Premiums. Western Reserve
reserves the right to limit the number of changes of the allocation of Net
Premiums to one per year. Investment returns from the amounts allocated to
Sub-Accounts of the Series Account will vary with the investment experience
of these Sub-Accounts and the Policyowner bears the entire investment risk.
TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the
Series Account or from the Sub-Accounts to the Fixed Account. (For Policies
issued in New Jersey, the Fixed Account is not available to receive Cash
Value transferred from the Sub-Accounts.) Transfers may also be made from the
Fixed Account to the Sub-Accounts, subject to certain restrictions. (See The
Fixed Account - Allocations, Transfers and Withdrawals, p. 32.) The amount of
Cash Value available for transfer from any Sub-Account, or the Fixed Account,
is determined at the end of the Valuation Period during which the transfer
request is received at Western Reserve's Office. As previously explained, the
net asset value for each share of the corresponding Portfolio of any
Sub-Account is determined, once daily, as of the close of the regular
business session of the New York Stock Exchange ("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.
15.) Therefore, any transfer request received after the close of the regular
business session of the Exchange, on any day the Exchange is open, will be
processed utilizing the net asset value for each share of the applicable
Portfolio determined as of the close of the regular business session of the
Exchange, on the next day the Exchange is open for business. Cash Value
available for transfer from the Fixed Account will be determined in the same
manner.
Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the Policy may, upon
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 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.
Twelve Cash Value transfers are permitted without charge during any one
Policy year. Western Reserve will impose a charge of $10 for each subsequent
transfer. The transfer charge will not be increased. (See Optional Cash
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Value Charges - Cash Value Transfers, p. 25.) All transfers made in any one
day will be considered a single transfer and any transfer charges will be
deducted in an equal amount from each Sub-Account from which a transfer was
made. Transfers resulting from policy loans, the exercise of conversion
rights, and the reallocation of Cash Value immediately after the Record Date,
will not be treated as a transfer for the purpose of this charge. No transfer
charge will apply to transfers from the Fixed Account to a Sub-Account or to
the exercise of the conversion rights. (See Policy Rights - Conversion Rights,
p. 29.)
DOLLAR COST AVERAGING
The Policyowner may direct Western Reserve to automatically transfer
specified amounts from the Money Market Sub-Account, the Bond Sub-Account,
the Short-to-Intermediate Government Sub-Account, the Fixed Account or any
combination of these Accounts on a monthly basis to a Sub-Account. This
service is intended to allow the Owner to utilize "Dollar Cost Averaging," a
long-term investment method which provides for regular, level investments
over time. Western Reserve makes no guarantees that Dollar Cost Averaging
will result in a profit or protect against loss. To qualify for Dollar Cost
Averaging a minimum of $10,000 must be in each Account from which transfers
will be made and at least $1,000, in the aggregate, must be transferred each
month, unless Western Reserve consents to a smaller amount.
To further qualify for Dollar Cost Averaging from the Fixed Account, no
more than one-tenth (1/10) of the amount in the Fixed Account at the
commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain
other restrictions. (See "The Fixed Account - Allocations, Transfers and
Withdrawals" on p. 32.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Policyowner in order to begin transfers. The first
transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market, Bond, Short-to-Intermediate Government
Sub-Accounts or the Fixed Account will be processed monthly until the entire
value of each Account from which transfers are made is completely depleted or
the Policyowner instructs Western Reserve in writing to cancel the monthly
transfers. For example, if $15,000 was allocated to the Money Market
Sub-Account and $10,000 was allocated to the Bond Sub-Account and transfers
of $500 are made each month from each of these Sub-Accounts to the Growth
Sub-Account, transfers of $500 per month would continue to be made from the
Money Market Sub-Account even though transfers from the Bond Sub-Account had
ceased as a result of depletion of value. There is no charge for Dollar Cost
Averaging. However, each transfer which occurs under the Dollar Cost
Averaging service will be counted towards the twelve free transfers allowed
during each Policy year. (See "Payment and Allocation of Premiums - Allocation
of Premiums and Cash Value - Transfers" on p. 20.) Western Reserve reserves
the right to discontinue offering Dollar Cost Averaging upon 30 days written
notice to Policyowners. Dollar Cost Averaging is not available if the Owner
has elected the Asset Rebalancing Program.
Although Dollar Cost Averaging is not available as of the date of this
Prospectus, Western Reserve anticipates its availability by February 1, 1997.
ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which the Policyowner may
authorize Western Reserve to transfer automatically Cash Value periodically
to maintain a particular percentage allocation among the Sub-Accounts. The
Cash Value allocated to each Sub-Account will grow or decline in value at
different rates. The Asset Rebalancing Program automatically reallocates the
Cash Value in the Sub-Accounts at the end of each period to match the
Contract's currently effective Net Premium allocation schedule. The Asset
Rebalancing Program is intended to transfer Cash Value from those
Sub-Accounts that have increased in value to those Sub-Accounts that have
declined in value. Over time, this method of investing may help an Owner buy
low and sell high. This investment method does not guarantee gains, nor does
it assure that any Sub-Account will not have losses.
To qualify for Asset Rebalancing, a minimum Cash Value of $10,000 for an
existing Policy, or a minimum Initial Premium of $10,000 for a new Policy, is
required. To participate in the Asset Rebalancing Program, a properly
completed Asset Rebalancing Request Form must be received by Western Reserve
at its Administrative Office. An Asset Rebalancing 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. 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. 20.)
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
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scheduled rebalancing. If the Policyowner wishes to resume the Asset
Rebalancing Program after it has been canceled, a new Asset Rebalancing
Request Form must be completed and sent to Western Reserve. The Policyowner
may start and stop participation in the Asset Rebalancing Program at any
time; however, Western Reserve reserves the right to restrict entry into the
Asset Rebalancing Program to once per Policy Year. Cash Value allocated to
the Fixed Account may not be included in the Asset Rebalancing Program.
Western Reserve may discontinue, modify, or suspend, the Asset Rebalancing
Program at any time.
Although the Asset Rebalancing Program is not available as of the date of
this Prospectus, Western Reserve anticipates its availability by February 1,
1997.
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 Net Surrender Value is insufficient to cover the monthly
deduction, 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. (See Charges and
Deductions, p. 22.) (For Policies issued in New Jersey, should the grace
period begin during the first three Policy years, the payment necessary to
keep the Policy In Force is the lesser of the amount necessary to satisfy the
minimum monthly guarantee premium and the amount necessary to increase the
Net Surrender Value to cover the monthly deduction due.) However, during the
first three Policy years, the Policy will not lapse and no grace period will
begin provided there has been no increase in the Specified Amount or addition
of any riders and the total of the premiums received (minus any withdrawals
and outstanding loans) 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. Essentially, the Policy will not lapse during
the first three Policy years, as long as the conditions described in the
preceding sentence have been met, and even though Net Surrender Value at any
point during the first three Policy years 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 to have resulted in a decrease
in the Net Surrender Value, or the Net Surrender Value has decreased because
not enough premiums have been paid to offset the monthly charges.
If Net Surrender Value is insufficient to cover the monthly deduction,
Western Reserve will notify the Policyowner and any assignee of record of the
minimum payment needed to keep the Policy In Force. The Policyowner will then
have a grace period of 61 days, measured from the date notice is sent to the
Policyowner, for Western Reserve to receive sufficient payments. (For
Policies issued in New Jersey, Policyowners will have a grace period of 61
days to mail sufficient payments.) If Western Reserve does not receive a
sufficient payment within the grace period, Lapse of the Policy will result.
If a sufficient payment is received during the grace period, any resulting
Net Premium will be allocated among the Accounts, and any monthly deductions
due will be charged to such Accounts, in accordance with the Policyowner's
then current instructions. (See Allocation of Premiums and Cash Value
- - Allocation of Net Premiums, p. 19, and Charges and Deductions - Cash Value
Charges, p. 24.) If the Insured dies during the grace period, the death
benefit proceeds will equal the amount of the death benefit proceeds
immediately prior to the commencement of the grace period, reduced by any due
and unpaid charges.
REINSTATEMENT. A lapsed Policy may be reinstated any time within 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 on
p. 21) as of the date of reinstatement.
Western Reserve reserves the right to decline a reinstatement request. Any
indebtedness on the date of Lapse will not be reinstated. The Cash Value of
the Loan Reserve on the date of reinstatement will be zero. The amount of Net
Surrender Value on the date of reinstatement will be equal to the Net
Premiums paid at reinstatement, less the amounts paid in accordance with (a)
and (c) above.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Anniversary on or next following the
date Western Reserve approves the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Western Reserve for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering
the Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM EXPENSE CHARGES
Prior to allocation of Net Premiums among the Accounts, premiums paid will
be reduced by a premium
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expense charge 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 distribution expenses incurred in connection with the Policy.
These expenses include agent sales commissions, the cost of printing
prospectuses and sales literature, and any advertising costs. The sales
charge in any Policy year is not necessarily related to actual distribution
expenses incurred in that year. Western Reserve expects to incur the majority
of distribution expenses in the first Policy year and to recover any
deficiency over the life of the Policy and from Western Reserve's General
Account, which may include profits, if any, derived from the mortality and
expense risk charge collected under the Policy.
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 $2.00
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.
CONTINGENT SURRENDER CHARGES
If the Policy is totally surrendered (or the Net Surrender Value is
applied under a settlement option) prior to the end of the fifteenth (15th)
Policy year, a surrender charge for the initial Specified Amount will be
deducted from the Policy's Cash Value. The surrender charge consists of the
sum of:
(a) an administrative component (DEFERRED ISSUE CHARGE), and
(b) a sales component (DEFERRED SALES CHARGE).
The sum of (a) and (b) are multiplied by (c), the applicable SURRENDER
CHARGE PERCENTAGE.
(a) DEFERRED ISSUE CHARGE. The deferred issue charge is a level charge of
$5.00 per thousand of initial Specified Amount. This charge is to assist
Western Reserve in recovering the underwriting, processing and start-up
expenses incurred in connection with the Policy and the Series Account. These
expenses include the cost of processing applications, conducting medical
examinations, determining insurability and the Insured's rate class, and
establishing Policy records. Western Reserve does not anticipate that it will
make any profit on this charge. A surrender charge consisting only of a
deferred issue charge applies prior to the 15th Policy year to the amount of
any increase in the Specified Amount. This surrender charge is also
multiplied by the applicable surrender charge percentage shown in the Policy.
(b) DEFERRED SALES CHARGE. The deferred sales charge is (1) 26.5% of the
sum of all premiums paid up to the Guideline Premium shown in the Policy and,
(2) for the sum of all premiums paid in excess of the first Guideline Premium
("excess premium charge"), a percentage which varies by the Issue Age and sex
of the Insured as follows:
ISSUE AGE RANGE
---------------------------------
EXCESS PREMIUM MALE AND
CHARGE UNISEX FEMALE
- --------------- ----------- ---------
4.2% 0-55 0-62
3.7% 56-63 63-69
3.1% 64-68 70-74
2.5% 69-73 75
2.0% 74-75
The deferred sales charge is designed to assist Western Reserve in
recovering distribution expenses incurred in connection with the Policy,
including agent sales commissions, the cost of printing prospectuses and
sales literature, and any advertising costs. The proceeds of the charge may
not be sufficient to cover these expenses. To the extent they are not,
Western Reserve will cover the shortfall from its General Account assets,
which may include profits from the mortality and expense risk charge under
the Policy.
(c) SURRENDER CHARGE PERCENTAGE. As stated above, the percentage is
applied to the sum of the deferred issue charge and deferred sales charge due
upon any surrender of a Policy during the first fifteen Policy years. In
Policy years 1-10 this percentage is 100% for male Insureds at Issue Ages
0-65 and female Insureds at Issue Ages 0-70, and then declines at the rate of
20% per year until reaching zero at the end of the fifteenth (15th) Policy
year as shown below. For Insureds with older Issue Ages, this percentage is
less than 100% at the end of the tenth (10th) Policy year and declines to 0%
at the end of the fifteenth (15th) Policy year. Therefore, application of the
percentage to the sum of the deferred issue charge and deferred sales charge
in the event of any surrender during the eleventh through fifteenth Policy
years will result in reduced surrender charges. If a surrender occurs after
the fifteenth (15th) Policy year, there are no deferred issue or deferred
sales charges due. See Example (2) below. Percentages for the Protector Plus
Program are different than those shown below. (See "Charges And Deductions
- - Protector Plus Program(sm)," p. 25.)
23
<PAGE>
SURRENDER CHARGE PERCENTAGES
MALES ISSUE AGES 0-65
FEMALES ISSUE AGES 0-70
SURRENDER CHARGE PERCENTAGE
END OF POLICY YEAR* PERCENTAGE
--------------------------- ----------
At Issue 100%
1-10 100%
11 80%
12 60%
13 40%
14 20%
15 0%
16+ 0%
* THE PERCENTAGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE INTERPOLATED
BETWEEN THE TWO END OF YEAR PERCENTAGES.
(d) EXAMPLE (1) Assume a male Insured purchases the Policy when age 35 for
$100,000 of Specified Amount, paying the Guideline Premium of $1,007, and an
additional premium amount of $493 in excess of the Guideline Premium, for a
total premium of $1,500 per year for four years ($6,000 total for four
years), and then surrenders the Policy. The surrender charge would be
calculated as follows:
(i) DEFERRED ISSUE CHARGE - [100 x $5.00]
($5.00/$1,000 of Initial Specified Amount) = $500.00
(ii) DEFERRED SALES CHARGE:
(1) 26.5% of Guideline Premium paid
[26.5% x $1,007], and = $266.86
(2) 4.2% of premiums paid in excess
of Guideline Premium
[4.2% x $4,993] = $209.71
(iii) APPLICABLE SURRENDER CHARGE = 100%
[(a)$500.00 + (b)($266.86 + $209.71)]
x 100%
SURRENDER CHARGE = [$500.00 + $476.57]
x 100% = $976.57
=======
EXAMPLE (2) - Assume the same facts as in Example (1), EXCEPT the Owner
surrenders the Policy on the 14th Policy Anniversary:
(i) DEFERRED ISSUE CHARGE - [100 x $5.00] = $500.00
(ii) DEFERRED SALES CHARGE:
(1) [26.5% x $1,007], and = $266.86
(2) [4.2% x $19,993] = $839.71
(iii) APPLICABLE SURRENDER CHARGE = 20%
[(a)$500.00 + (b)($266.86 + $839.71)]
x 20%
SURRENDER CHARGE = [$500.00 +
$1,106.57] x 20% = $321.31
=======
If the Owner waits until the 15th Policy Anniversary or after, there will
be no surrender charge.
(e) DEFERRED ISSUE CHARGE ON INCREASES. During the 15 Policy years
following each increase in Specified Amount, an additional surrender charge
will be incurred upon surrender of the Policy. This charge is calculated by
multiplying the amount of the increase in Specified Amount, in thousands, by
the $5.00 deferred issue charge. The resulting product is then multiplied by
the applicable surrender charge percentage shown in the Policy, with Policy
years commencing on the date of the increase. Western Reserve does not
anticipate making a profit on this charge.
CASH VALUE CHARGES
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate Western Reserve for certain
administrative costs, the cost of insurance 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. When there is an increase in the Specified Amount of a
Policy which results in a greater net amount at risk, the cost of insurance
deduction will increase.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the Insured, and the length of time a Policy has been In Force. The
actual monthly cost of insurance rates will be based on Western Reserve's
expectations as to future experience. They will not, however, be greater than
the guaranteed cost of insurance rates set forth in the Policy. These
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
(C.S.O.) Mortality 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
24
<PAGE>
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 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: non-smoker Ultimate Select, non-smoker Select, smoker Ultimate
Standard, and smoker Standard; as well as various other sub-standard rate
classes involving a higher mortality risk. In an otherwise identical Policy,
the cost of insurance rate is generally higher for smokers than for
non-smokers and, within these two categories, higher for Insureds not in the
Ultimate category than 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 non-smoker Select or smoker Standard
categories (as appropriate); however, due to the special underwriting
criteria established for these issues, actual rates may be higher or lower
than the current cost of insurance rates charged under otherwise identical
Policies that are underwritten using standard underwriting criteria.
MONTHLY 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 will not be increased.
Western Reserve does not anticipate that it will make any profit from this
charge.
OPTIONAL CASH VALUE CHARGES
The following optional Cash Value charges will be deducted from the Policy
as the result of changes or elections made to the Policy and initiated by the
Policyowner.
OPTIONAL INSURANCE BENEFITS. The monthly deduction will include charges
for any optional insurance benefits added to the Policy by rider.
CASH VALUE TRANSFERS. After twelve (12) free transfers per year, Western
Reserve will impose and deduct from each amount transferred a transfer charge
of $10 to compensate Western Reserve for the costs in effectuating the
transfer. The transfer charge will not be increased in the future. Western
Reserve does not expect to make a profit on the charge.
CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of the
amount withdrawn will be deducted from amounts withdrawn from the Policy and
the balance will then be paid to the Policyowner. This fee will not be
increased. Western Reserve does not anticipate that it will make any profit
from this fee.
CHARGES AGAINST THE SERIES ACCOUNT
Certain expenses will be deducted as a percentage of the value of the net
assets of the Series Account to compensate Western Reserve for certain risks
assumed in connection with the Policy.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily
charge from the Series Account at an annual rate of 0.90% of the average
daily net assets of the Series Account. Under Western Reserve's current
procedures, these amounts are paid to the General Account monthly. Western
Reserve may profit from this charge.
The mortality risk assumed by Western Reserve is that 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. 33.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of
the Series Account will reflect the investment advisory fee and other
expenses incurred by the Fund. (See pp. 16-18 for a discussion of the
investment advisory fees of each Portfolio.)
Effective January 1, 1997, the Fund has 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-hundreths 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
25
<PAGE>
the Fund of distribution expenses 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.
GROUP OR SPONSORED ARRANGEMENTS
Policies may be purchased under group or sponsored arrangements, as well
as on an individual basis. A "group arrangement" includes a program under
which a trustee, employer or similar entity purchases individual Policies
covering a group of individuals on a group basis. Examples of such
arrangements are employer-sponsored benefit plans which are qualified under
Section 401 of the Internal Revenue Code and deferred compensation plans. A
"sponsored arrangement" includes a program under which an employer permits
group solicitation of its employees or an association permits group
solicitation of its members for the purchase of Policies on an individual
basis.
The premium expense charges, contingent surrender charges, minimum premium
and minimum Specified Amount described in "Charges and Deductions" may be
reduced for Policies issued in connection with group or sponsored
arrangements. Western Reserve will reduce these charges in accordance with
its rules in effect as of the date an application for a Policy is approved.
To qualify for such a reduction, a group or sponsored arrangement must
satisfy certain criteria as to, for example, size and number of years in
existence. Generally, the sales contacts and effort, administrative costs and
mortality cost per Policy vary based on such factors as the size of the group
or sponsored arrangement, its stability as indicated by its term of
existence, the purposes for which Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales effort resulting from sales to
qualifying groups and sponsored arrangements.
Western Reserve may, in addition to waiving or reducing the premium
expense charges, contingent surrender charges, minimum premium and minimum
Specified Amount, also waive or reduce the Monthly Administration Charge and
the charge for a cash withdrawal when lower administrative costs are incurred
for: (a) current and retired directors, officers, full-time employees and
agents of Western Reserve and its affiliates; (b) current and retired
directors, officers, full-time employees and registered representatives of
InterSecurities, Inc. and any broker-dealer which has a sales agreement with
InterSecurities, Inc.; (c) any Trust, pension, profit-sharing or other
employee benefit plan of any of the foregoing persons or entities; (d)
current and retired directors, officers and full-time employees of WRL Series
Fund, Inc. and any IDEX mutual fund, and any investment adviser or investment
sub-adviser thereto; and (e) any member of a family of any of the foregoing
(E.G., spouse, child, sibling, parent-in-law). Western Reserve reserves the
right to modify or terminate this arrangement at any time. These reductions
may not be available for Policies issued in certain states.
Western Reserve may modify from time to time on a uniform basis both the
amounts of reductions and the criteria for qualification. In no event,
however, will group or sponsored arrangements established for the sole
purpose of purchasing Policies, or which have been in existence for less than
six months, qualify for such reductions. Reductions in these charges will not
be unfairly discriminatory against any person, including the affected
Policyowners and all other Policyowners of Policies funded by the Series
Account.
In 1983 the United States Supreme Court held that certain insurance
policies, the benefits under which vary based on sex, may not be used to fund
certain employer-sponsored benefit plans and fringe benefit programs. Western
Reserve recommends that any employer proposing to offer the Policies to
employees under a group or sponsored arrangement consult his or her attorney
before doing so. (See Federal Tax Matters - Employment-Related Benefit Plans,
p. 35.)
PROTECTOR PLUS PROGRAM(SM)
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, may
elect to participate in the Protector Plus Program, formerly called the
"Large Initial Premium Program," under which 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 program
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 Policy ("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 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. 34.)
Due to the lower administrative and distribution expenses associated with
the program, 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. 22.) Depending on age of issue and Specified
Amount, certain medical underwriting requirements will be waived.
Additionally, for policies issued on and after May 1, 1996, the length of
time the Surrender Charge Percentage applies is reduced, as follows:
26
<PAGE>
SURRENDER CHARGE PERCENTAGE
END OF POLICY YEAR* PERCENTAGE
--------------------------- ----------
At Issue 100%
1-5 100%
6 80%
7 60%
8 40%
9 0%
* THE PERCENTAGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE INTERPOLATED
BETWEEN THE TWO END OF YEAR PERCENTAGES.
For a full explanation of the Contingent Surrender Charges, to which the
Surrender Charge Percentage is applied, see "Charges and Deductions
- - Contingent Surrender Charges," p. 23.
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 non-smoker
Ultimate Select or smoker Ultimate Standard rate classes) than would be the
case for standard Policies. (See Cash Value Charges - Cost of Insurance, p.
23.)
Under Western Reserve's current rules, the minimum possible Specified
Amount for a 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 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 policy, will generally
limit the ability to make additional premium payments. This limit exists
because the total of all premiums paid under a policy may not exceed the
maximum premium limitation imposed by Federal tax laws. (See Premiums
- - Premium Limitations, p. 19.) Of course, under a policy, there are no Planned
Periodic Premiums.
Most 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. 34.)
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. 33.)
An amount equal to the loan plus interest in advance until the next Policy
Anniversary will be withdrawn from the Account or Accounts specified and
transferred to the Loan Reserve until the loan is repaid. The Sub-Accounts of
the Series Account may be specified. If no Account is specified, the loan
amount will be withdrawn from each Account in the same manner as the current
allocation instructions.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. (See General
Provisions - Postponement of Payments, p. 30.) Under Western Reserve's current
procedures, at each Anniversary, Western Reserve will compare the amount of
the outstanding loan (including loan interest in advance until the next
Policy Anniversary, if not paid) to the amount in the Loan Reserve (including
interest credited to the Loan Reserve during the previous Policy year).
Western Reserve will also make this comparison any time the Policyowner
repays all of the loan, or makes a request to borrow an additional amount. At
each such time, if the amount of the outstanding loan exceeds the amount in
the Loan Reserve, Western Reserve will withdraw the difference from the
Accounts and transfer it to the Loan Reserve in the same manner as when a
loan is made. If the amount in the Loan Reserve exceeds the amount of the
outstanding loan, Western Reserve will withdraw the difference from the Loan
Reserve and transfer it to the Accounts in the same manner as Net Premiums
are allocated. Western Reserve reserves the right to require the transfer of
such amounts to the Fixed Account, where such amounts will be credited at the
applicable rate and subject to the applicable transfer and withdrawal
restrictions. (See The Fixed Account, p. 31.) No charge will be imposed for
these transfers.
INTEREST RATE CHARGED. For Policies issued prior to May 1, 1994, the
interest rate charged on Policy loans is at
27
<PAGE>
the rate of 7.4% payable annually in advance. For Policies issued on or after
May 1, 1994, the interest rate on a Policy loan is 5.2% payable annually in
advance. For the following states, the interest rate on a Policy loan is 7.4%
for all Policies issued prior to, and 5.2% for Policies issued on or after
the date indicated: Idaho - May 24, 1994, Montana - May 20, 1994, Rhode Island
- - May 19, 1994, Oregon - June 27, 1994, Minnesota - December 28, 1994, Vermont
- - February 21, 1996. 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.
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. 32.)
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. 34.)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If indebtedness exceeds the Cash Value
less the then applicable surrender charge, Western Reserve will notify the
Policyowner and any assignee of record. If a sufficient payment equal to
excess indebtedness is not received by Western Reserve within 61 days from
the date notice is sent, the Policy will Lapse and terminate without value.
The Policy, however, may later be reinstated. (See Policy Lapse and
Reinstatement, p. 22.)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Maturity Date of the Policy and while the Policy is In Force. Payments made
by the Policyowner while there is indebtedness will be treated as premium
payments unless the Policyowner indicates that the payment should be treated
as a loan repayment. (See Policy Rights - Benefits at Maturity, p. 29.) If not
repaid, Western Reserve may deduct indebtedness from any amount payable under
the Policy. As indebtedness is repaid, the Policy's value in the Loan Reserve
securing the indebtedness repaid will be transferred from the Loan Reserve to
the Accounts in the same manner as Net Premiums are allocated. However,
Western Reserve reserves the right to require the transfer to the Fixed
Account. Western Reserve will allocate the repayment of indebtedness at the
end of the Valuation Period during which the repayment is received.
SURRENDER PRIVILEGES
At any time before the earlier of the death of the Insured or the Maturity
Date, the Policyowner may totally surrender or, after the first Policy year,
make a cash withdrawal from the Policy by sending a written request to
Western Reserve. The amount available for surrender is the Net Surrender
Value at the end of the Valuation Period during which the surrender request
is received at Western Reserve's Office. The Net Surrender Value is equal to
the Cash Value less indebtedness and less any surrender charge. The surrender
charge has both an administrative (deferred issue charge) and sales (deferred
sales charge) component. (See Charges and Deductions - Contingent Surrender
Charges, p. 23.) Surrenders from the Series Account will generally be paid
within seven days of receipt of the written request. Postponement of payments
may, however, occur in certain circumstances. (See General Provisions
- - Postponement of Payments, p. 30.) Additional restrictions may be applied to
surrenders from the Fixed Account. (See The Fixed Account - Allocations,
Transfers and Withdrawals, p. 32.) For the protection of Policyowners, all
requests for cash withdrawals or total surrenders of more than $100,000, or
where the withdrawal or surrender proceeds are to be sent to an address other
than the address of record will require a signature guarantee. All required
guarantees of signatures must be made by a national or state bank, a member
firm of a national stock exchange or any other institution which is an
eligible guarantor institution as defined by rules and regulations of the
Commission. If the Policyowner is a corporation, partnership, trust or
fiduciary, evidence of the authority of the person seeking redemption is
required before the request for withdrawal is accepted, including withdrawals
under $100,000. For additional information, Policyowners may call Western
Reserve at (800) 851-9777. A cash withdrawal or total surrender may have
Federal income tax consequences. (See Federal Tax Matters, p. 33.)
TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy
itself must be returned to Western Reserve along with the request. A
Policyowner may elect to have the amount paid in a lump sum or under a
settlement option. (See Payment of Policy Benefits - Settlement Options, p.
29.)
CASH WITHDRAWALS. For a cash withdrawal, the amount available may be
limited to no less than $500 and to no more than 10% of the Net Surrender
Value. The amount paid plus a processing fee equal to the lesser of $25 or 2%
of the amount withdrawn will be deducted from the Policy's Cash Value at the
end of the Valuation Period during which the request is received. The amount
will be deducted from the Accounts in the same manner as the current
allocation instructions unless the Policyowner directs otherwise. Cash
withdrawals are allowed only once each Policy year.
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Cash withdrawals will affect both the Policy's Cash Value and the death
benefit payable under the Policy. The Policy's Cash Value will be reduced by
the amount of the cash withdrawal. Moreover, the death benefit proceeds
payable under a Policy will generally be reduced by at least the amount of
the cash withdrawal.
In addition, when death benefit Option A is in effect, the Specified
Amount will be reduced by the cash withdrawal. No cash withdrawal will be
permitted which would 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. 24; Death Benefit - Insurance
Protection, p. 12; and Federal Tax Matters - Tax Treatment of Policy Benefits,
p. 34.)
EXAMINATION OF POLICY PRIVILEGE ("FREE-LOOK")
The Policyowner may cancel the Policy within 10 days after the Policyowner
receives it, or 10 days after Western Reserve mails or delivers a written
notice of withdrawal right to the Policyowner or within 45 days after signing
the application, whichever is latest. Certain states require a Free-Look
period longer than 10 days, either for all Policyowners or for certain
classes of Policyowners. In such states, Western Reserve will comply with the
specific requirements of those states. The Policyowner should mail or deliver
the Policy to either Western Reserve or the agent who sold it. If the Policy
is cancelled in a timely fashion, a refund will be made to the Policyowner.
The refund will equal the sum of: (i) the difference between the premiums
paid and the amounts allocated to any Accounts under the Policy; (ii) the
total amount of monthly deductions made and any other charges imposed on
amounts allocated to the Accounts; and (iii) the value of amounts allocated
to the Accounts on the date Western Reserve or its agent receives the
returned Policy. If state law prohibits the calculation above, the refund
will equal the total of all premiums paid for the Policy.
CONVERSION RIGHTS
At any time upon written request within 24 months of the Policy Date, the
Policyowner may elect to transfer all Sub-Account values to the Fixed
Account. No transfer charge will be assessed.
BENEFITS AT MATURITY
If the Insured is living and the Policy is In Force, Western Reserve will
pay the Net Surrender Value of the Policy on the Maturity Date. (See Cash
Value - Net Surrender Value, p. 14.) The Policy will mature on the Anniversary
nearest the Insured's 95th birthday, if the Insured is living and the Policy
is In Force. Western Reserve is willing to extend the Maturity Date provided
the Policy is still In Force on the Maturity Date and there are no
unfavorable tax consequences. Extension of the Maturity Date will be made
upon mutual agreement between Western Reserve and the Policyowner, provided
the Policyowner submits a written request to Western Reserve between 90 and
180 days prior to the Maturity Date, and provided the Policy may be extended
with no unfavorable tax consequences to the Policyowner.
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven days
after Western Reserve receives due proof of death, and verifies the validity
of the claim. Other benefits will ordinarily be paid within seven days of
receipt of proper written request (including an election as to tax
withholding). Payments may be postponed in certain circumstances. (See
General Provisions - Postponement of Payments, p. 30 and The Fixed Account
- - Allocations, Transfers and Withdrawals, p. 32.) The Policyowner may decide
the form in which the benefits will be paid. During the 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.
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GENERAL PROVISIONS
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount from the Series Account upon complete
surrender, cash withdrawal, Policy loan, or benefits payable at death or
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners;
or (iii) an emergency exists, as determined by the Commission, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Series Account's net
assets. Transfers may also be postponed under these circumstances. For
restrictions applicable to payments from the Fixed Account, see The Fixed
Account - Allocations, Transfers and Withdrawals, p. 32.
PAYMENT BY CHECK. Payments under the Policy of any amounts derived from
premiums paid by check or bank draft may be delayed until such time as the
check or bank draft has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application and any supplemental
applications are the entire contract. Only statements in the application and
any supplemental applications can be used to void the Policy or defend a
claim. The statements are considered representations and not warranties. No
Policy provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provisions of the Policy.
SUICIDE
If the Insured, while sane or insane, commits suicide within two years
after the Policy Date, Western Reserve will pay only the premiums received,
less any cash withdrawals and outstanding indebtedness. In the event of Lapse
of the Policy, the suicide period will be measured from the effective date of
reinstatement. If the Insured, while sane or insane, commits suicide within
two years after the effective date of any increase in insurance or any
reinstatement, Western Reserve's total liability with respect to such
increase or reinstatement will be the cost of insurance charges deducted for
such increase or reinstatement.
INCONTESTABILITY
Western Reserve cannot contest the Policy as to the initial Specified
Amount after it has been In Force during the lifetime of the Insured for two
years from the Policy Date. A new two year contestability period will apply
to each increase in Specified Amount beginning on the effective date of each
such increase and will apply to statements made in the application for the
increase. If the Policy is reinstated, a new two year contestability period
(apart from any remaining contestability period) will apply from the date of
the application for reinstatement and will apply only to statements made in
the application for reinstatement.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently
changed, will receive the Policy benefits at the Insured's death. If the
named Beneficiary dies before the Insured, the contingent Beneficiary, if
named, becomes the Beneficiary. If no Beneficiary survives the Insured, the
benefits payable at the Insured's death will be paid to the Policyowner or
the Policyowner's estate. As long as the Policy is In Force, the Policyowner
or Beneficiary may be changed by written request from the Policyowner in a
form acceptable to Western Reserve. The Policy need not be returned unless
requested by Western Reserve. The change will take effect as of the date the
request is signed, 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. 25.)
For purposes of the riders, the person insured under the Policy is
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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.
INCREASE IN SPECIFIED AMOUNT RIDER: Provides increases in the Specified
Amount of the Policy on specified option dates without additional proof of
insurability. Under the terms of the rider, an increase in the Specified
Amount will automatically occur on an option date upon written request
submitted to Western Reserve within 60 days prior to such option date. An
option date is each Anniversary nearest the Insured's 25th, 28th, 31st, 34th,
37th and 40th birthdays. The amount of the increase will be the option amount
specified in the Policy.
OTHER INSURED RIDER: Provides that Western Reserve will pay the Face
Amount of the rider to the 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 INCOME RIDER: Provides the identical benefit as the
Disability Waiver Rider and, in addition, a monthly income benefit up to a
maximum 120 monthly payments.
PRIMARY INSURED RIDER: Provides the payment of the Face Amount of the
rider upon receipt by Western Reserve of due proof that the Primary Insured's
death occurred while the rider was In Force. On any Monthiversary while the
rider is In Force, the Policyowner may exchange the rider without evidence of
insurability for a new policy on the Primary Insured's life. Such new policy
will be issued upon written request subject to the following: (a) the rider
has not reached the Anniversary nearest the Primary Insured's 70th birthday;
(b) the new policy is any permanent plan of insurance then offered by Western
Reserve; (c) the amount of insurance upon conversion will equal the Face
Amount then In Force under the rider; and (d) the payment of the premium
based on the Primary Insured's rate class under the rider.
THE FIXED ACCOUNT
A Policyowner may allocate Net Premiums and transfer Cash Value to the
Fixed Account, which is part of Western Reserve's General Account. The
Insurance Department of New Jersey has disapproved, for Policies issued in
New Jersey, the ability both to allocate Net Premiums to the Fixed Account
and to transfer Cash Value from Sub-Accounts of the Series Account to the
Fixed 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.
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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.
For Policies issued in New Jersey, the Fixed Account Value at the end of
any Valuation Period is equal to:
1. Any amounts transferred from a Sub-Account to the Fixed Account to
establish a Loan Reserve; plus
2. Total interest credited to the Loan Reserve.
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. For Policies issued prior to September 1, 1994, there is no
limit on the amount that may be transferred from the Fixed Account. For
Policies issued on or after September 1, 1994 in all states which have
approved the change, 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. 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. 28.) Western Reserve further reserves
the right to defer payment of transfers, cash withdrawals, or surrenders from
the Fixed Account for up to six months. In addition, Policy provisions
relating to transfers, cash withdrawals or surrenders from the Series Account
will also apply to Fixed Account transactions.
DISTRIBUTION OF THE POLICIES
The Policy will be sold by individuals who, in addition to being licensed
as life insurance agents for Western Reserve, are also registered
representatives of InterSecurities, Inc., an affiliate of Western Reserve and
the principal underwriter of the Policies, or of broker-dealers who have
entered into written sales agreements with the principal underwriter.
InterSecurities, Inc. is registered with the Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. No amounts have been retained by
InterSecurities, Inc. for acting as principal underwriter for the Policies.
The maximum sales commission payable to Western Reserve agents or other
registered representatives will be approximately 65% of all premium payments
up to the "target" premium (which is less than the Guideline Premium shown on
the Policy) and 2.2% of all premium payments in excess thereof. In addition,
certain production, persistency and managerial bonuses may be paid.
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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
non-smoker Ultimate Select, non-smoker Select, smoker Ultimate Standard or
smoker Standard guaranteed rates, while there is some uncertainty due to the
limited guidance on Section 7702, Western Reserve nonetheless believes that
such a Policy should meet the Section 7702 definition of a life insurance
contract. With respect to a Policy that is issued on a substandard rate
class, there is even less guidance to determine whether such a Policy meets
the Section 7702 definition of a life insurance contract. Thus, it is not
clear whether 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 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.
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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. A Policy issued under the Protector Plus Program will in most
instances be treated as a Modified Endowment Contract. (See Charges and
Deductions - Protector Plus Program,(sm) p. 26.)
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a competent tax adviser
before purchasing a Policy to determine the circumstances under which the
Policy would be a modified endowment contract. In addition, a Policyowner
should contact a competent tax adviser before making any change to, including
an exchange of, a Policy to determine whether such change would cause the
Policy (or the new policy in the case of an exchange) to be treated as a
modified endowment contract.
If a Policy becomes a modified endowment contract, distributions that
occur during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Policies classified as modified endowment contracts are subject to
the following tax rules: First, all pre-death distributions from such a
Policy (including distributions upon surrender, distributions made in
anticipation of the Policy becoming a modified endowment contract, and
benefits paid at maturity) are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the Cash Value immediately
before the distribution over the investment in the Policy (described below)
at such time. Second, loans taken from, or secured by, such a Policy are
treated as distributions from such a Policy and taxed accordingly. (Unpaid
Policy loan interest will be treated as a loan for these purposes.) Third, a
10% additional income tax is imposed on the portion of any distribution from,
or loan taken from, or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the 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
34
<PAGE>
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.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The Policy described in this
Prospectus contains guaranteed cost of insurance rates and guaranteed
purchase rates for certain payment options that distinguish between men and
women. Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS, and Title VII
generally, on any employment-related insurance or benefit program for which a
Policy may be purchased.
SAFEKEEPING OF THE
SERIES ACCOUNT'S ASSETS
Western Reserve holds the assets of the Series Account. The assets are
kept physically segregated and held separate and apart from the General
Account. Western Reserve maintains records of all purchases and redemptions
of Fund shares by each of the Sub-Accounts. Additional protection for the
assets of the Series Account is provided by a blanket bond issued to AEGON
U.S. Holding Corporation ("AEGON U.S.") in the amount of $5 million (subject
to a $1 million deductible), covering all of the employees of AEGON U.S. and
its affiliates, including Western Reserve. A Stockbrokers Blanket Bond,
issued to AEGON U.S.A. Securities, Inc. provides additional fidelity
coverage, to a limit of $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.
35
<PAGE>
DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, Western Reserve itself may disregard
voting instructions in favor of changes initiated by a Policyowner in the
investment policy or the investment adviser of a Portfolio of the Fund if
Western Reserve reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities or Western Reserve determined that
the change would have an adverse effect on its General Account in that the
proposed investment policy for a Portfolio may result in overly speculative
or unsound investments. In the event Western Reserve does disregard voting
instructions, a summary of that action and the reasons for such action will
be included in the next annual report to Policyowners.
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.
RICHARD B. FRANZ, II(1), SENIOR VICE PRESIDENT AND TREASURER, Senior Vice
President (1987 - present), Chief Financial Officer (1987 - December, 1995)
and Treasurer (1988 - present), Western Reserve Life Assurance Co. of Ohio;
Senior Vice President and Treasurer (1988 to February, 1991), Pioneer
Western Corporation (financial services), Largo, Florida; Treasurer (1988
to September, 1990 and November, 1990 to December, 1996), IDEX Series
Fund, (investment company); former Treasurer of IDEX Fund, IDEX II Series
Fund and IDEX Fund 3, all of Largo, Florida; Treasurer (1988 - present),
WRL Series Fund, Inc.
ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL
OFFICER, Executive Vice President (June, 1993 - present), Chief Financial
Officer (December, 1995 - present), Director (October, 1996 - present), WRL
Investment Management, Inc.; Director (October, 1996 - present), WRL
Investment Services, Inc.; Senior Vice President (1981 - June, 1993) and
Actuary (1972 - present), Western Reserve Life Assurance Co. of Ohio;
Executive Vice President (September, 1993 - present), WRL Series Fund, Inc.
WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL,
Senior Vice President, Secretary and General Counsel (July, 1990 - present)
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; Secretary and
General Counsel of Orange State Life and Health Insurance Company, and its
affiliates, Largo, Florida (March, 1980 to April, 1990).
G. JOHN HURLEY(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,
36
<PAGE>
1991 - August, 1992); Vice President (May, 1988 - February, 1991) Pioneer
Western Corporation (financial services).
ALLAN J. HAMILTON(1), VICE PRESIDENT AND CONTROLLER, Vice President and
Controller (1987 - present), Assistant Vice President and Assistant
Controller (1983 - 1987), Western Reserve Life Assurance Co. of Ohio; Vice
President and Controller (1988 to February 1991), Pioneer Western
Corporation (financial services), Largo, Florida.
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 and Counsel of Western Reserve.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Series Account is a party or
to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account.
EXPERTS
The financial statements of WRL Series Life Account as of December 31,
1995 and for the year then ended have been included herein in reliance upon
the report of Price Waterhouse LLP, independent accountants, and upon the
authority of that firm as experts in accounting and auditing.
The financial statements of Western Reserve Life Assurance Co. of Ohio at
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein which are based in part on the reports of
Price Waterhouse LLP, independent accountants. The financial statements
referred to above are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to
the registration statement, to all of which reference is made for further
information concerning the Series Account, Western Reserve and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete
statement of the terms thereof reference is made to such instruments as
filed.
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Prospectus (see p. 69) should be considered only as bearing on the ability of
Western Reserve to meet its obligations under the Policies. They should not
be considered as bearing on the investment performance of the assets held in
the Series Account.
Financial statements for Western Reserve for the years ended December 31,
1995, 1994 and 1993, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
37
<PAGE>
APPENDIX A
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a Policy operates.
They show how the death benefit, Cash Value and Net Surrender Value of a
Policy issued to 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 an
increase or 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 39 is based on a Policy for an Insured who is a
35 year old male in the non-smoker Ultimate Select 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 40 is based on the same factors as those on page
39, 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 41 depicts, in graphic format, the same
levels of cumulative net premiums, Net Surrender Values, and death benefits
payable during any Policy year, as are shown on page 39, and assumes a
hypothetical gross annual rate of return of 12%.
The amounts shown for the death benefits, Cash Values and Net Surrender
Values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each Sub-Account which is equivalent to an
annual charge of 0.90% of the average net assets of the Sub-Accounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.87% of the average daily net assets of the Portfolios of the Fund;
and (3) all applicable premium expense charges and Cash Value charges. The
0.87% average Portfolio expense level assumes an equal allocation of amounts
among the fifteen Sub-Accounts and is based on an average 0.71% investment
advisory fee and estimated 1996 average normal operating expenses of 0.16%
for each of the Portfolios in operation during 1996. Calculation of the
average annual expense level utilized annualized actual 11-month unaudited
expenses incurred during 1996 as adjusted for anticipated expense
modifications incurring in 1997 for the Money Market (0.46%), Bond (0.61%),
Growth (0.85%), Short-to-Intermediate Government (0.72%), Equity-Income
(0.87%), Emerging Growth (0.88%), Global (0.90%), Aggressive Growth (0.91%),
Balanced (0.90%), Utility (0.91%), C.A.S.E. Growth (0.94%), and Tactical
Asset Allocation (0.86%). 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 0.85%, 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. Western Reserve has
undertaken until April 30, 1997 to pay expenses to the extent normal
operating expenses of a Portfolio exceed a stated percentage of the
Portfolio's average daily net assets. Taking into account the assumed charges
of 1.77%, the gross annual investment return rates of 0%, 6% and 12% are
equivalent to net annual investment return rates of - 1.77%, 4.23%, and
10.23%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account, because Western Reserve is
not currently making such charges. In order to produce after tax returns of
0%, 6% or 12% if such charges are made in the future, the Series Account
would have to earn a sufficient amount in excess of 0%, 6% or 12% to cover
any tax charges. (See Charges Against the Series Account - Taxes, p. 25.)
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.
38
<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
DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS AND NET
END OF PREMIUMS ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -1.77% (NET) 4.23% (NET) 10.23% (NET)
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) 139,522 165,000 165,000 356,895
40(AGE 75) 253,680 165,000 165,000 848,665
50(AGE 85) 439,631 * 259,980 2,205,480
60(AGE 95) 742,526 * 392,765 5,511,304
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.77% (NET) 4.23% (NET) 10.23% (NET) -1.77% (NET) 4.23% (NET) 10.23% NET
<S> <C> <C> <C> <C> <C> <C>
1 1,526 1,628 1,731 246 349 451
2 3,016 3,316 3,630 1,652 1,953 2,266
3 4,465 5,061 5,708 3,017 3,613 4,260
4 5,873 6,865 7,985 4,341 5,333 6,453
5 7,239 8,728 10,478 5,623 7,113 8,862
6 8,560 10,650 13,208 6,860 8,951 11,508
7 9,839 12,637 16,201 8,056 10,853 14,418
8 11,078 14,690 19,488 9,210 12,823 17,620
9 12,285 16,824 23,107 10,333 14,872 21,155
10 13,446 19,025 27,078 11,410 16,989 25,043
15 19,512 32,238 54,902 19,512 32,238 54,902
20 24,320 47,872 100,058 24,320 47,872 100,058
30(AGE 65) 29,100 88,713 292,537 29,100 88,713 292,537
40(AGE 75) 23,588 150,417 793,145 23,588 150,417 793,145
50(AGE 85) * 247,600 2,100,458 * 247,600 2,100,458
60(AGE 95) * 388,877 5,456,736 * 388,877 5,456,736
<FN>
* In the absence of an additional payment, the Policy would lapse.
</FN>
</TABLE>
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.
39
<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
DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS AND NET
END OF PREMIUMS ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -1.77% (NET) 4.23% (NET) 10.23% (NET)
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) 139,522 165,000 165,000 337,390
40(AGE 75) 253,680 * 165,000 783,417
50(AGE 85) 439,631 * 165,000 1,978,654
60(AGE 95) 742,526 * 238,832 4,689,069
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.77% (NET) 4.23% (NET) 10.23% (NET) -1.77% (NET) 4.23% (NET) 10.23% NET
<S> <C> <C> <C> <C> <C> <C>
1 1,513 1,615 1,717 233 335 437
2 2,989 3,288 3,599 1,625 1,924 2,236
3 4,424 5,016 5,659 2,976 3,569 4,212
4 5,817 6,802 7,914 4,285 5,271 6,383
5 7,167 8,645 10,382 5,551 7,029 8,767
6 8,472 10,546 13,084 6,772 8,847 11,385
7 9,730 12,504 16,042 7,946 10,721 14,258
8 10,941 14,523 19,282 9,073 12,655 17,414
9 12,102 16,600 22,831 10,150 14,649 20,880
10 13,215 18,741 26,724 11,179 16,705 24,688
15 18,276 30,774 53,165 18,276 30,774 53,165
20 21,592 44,453 95,872 21,592 44,453 95,872
30(AGE 65) 18,569 75,686 276,549 18,569 75,686 276,549
40(AGE 75) * 109,580 732,165 * 109,580 732,165
50(AGE 85) * 152,849 1,884,432 * 152,849 1,884,432
60(AGE 95) * 236,467 4,642,643 * 236,467 4,642,643
<FN>
* In the absence of an additional payment, the Policy would lapse.
</FN>
</TABLE>
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.
40
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT
$165,000 SPECIFIED AMOUNT
OPTION A - FIXED DEATH BENEFIT
CURRENT COST OF INSURANCE RATES
[INSERT CHART]
41
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the average annual returns of common
stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is a historical record and is not
intended as a projection of future performance. Charges associated with a
variable life insurance policy are not reflected.
The data indicates that, historically, the investment performance of
common stocks over long periods of time has been positive and has generally
been superior to that of long-term, high grade debt securities. Common stocks
have, however, been subject to more dramatic market adjustments over short
periods of time. These trends indicate the potential advantages of holding a
variable life insurance policy for a long period of time.
The following chart illustrates the average annual returns of the Standard
& Poor's Index of 500 Common Stocks ("S&P 500 Stock Index") for each of the
20 year periods shown. These returns are compared to the average annual
returns of high grade corporate bonds and U.S. Treasury bills for the same
periods. (The 20-year periods selected for the chart begin in 1935 and have
ending periods at five year intervals.)
AVERAGE ANNUAL RETURNS
TWENTY YEAR HOLDING PERIODS
[PU GRAPH]
* Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1996 YEARBOOK/trademark/,
Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and
Rex A. Sinquefield). Used with permission. All rights reserved.
42
<PAGE>
Over the 51 20-year time periods beginning in 1926 and ending in 1995
(I.E. 1926-1945, 1927-1946, and so on through 1976-1995):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 47 of the 51 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 51 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 51 periods.
From 1926 through 1995 the average annual return for common stocks was
10.2%, compared to 5.4% for high grade, long-term corporate bonds, 3.7% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1926 and ending 1995.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term
results tend to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
-------------------
PERCENT OF HOLDINGS PERIOD WITH THE FOLLOWING RESULTS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
- ----------- ----------- ---------- -------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 year 29.0% 4.3% 11.6% 7.2% 11.6% 36.2%
5 years 10.8% 15.4% 20.2% 27.7% 16.9% 9.2%
10 years 3.3% 11.7% 36.7% 21.7% 25.0% 1.7%
20 years 0.0% 6.0% 34.0% 54.0% 6.0% 0.0%
<FN>
- ---------------------
Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1996 YEARBOOK/trademark/,
Ibbotson Associates, Inc., Chicago (annually updates work by Roger G.
Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved.
</FN>
</TABLE>
-------------------
THE WRL FREEDOM EQUITY PROTECTOR/REGISTERED TRADEMARK/
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.
HOW DOLLAR COST AVERAGING WORKS
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ----
$900 87.5
43
<PAGE>
Total Value Of 87.5 Shares @ $15/Share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more
shares at a savings and thus realize a significant gain. Obviously, the
dollar cost averaging method ONLY works if the investor continues to invest
relatively constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
How does the dollar cost averaging method relate to the WRL Freedom Equity
Protector /Registered Trademark/? 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 at September 30,
1996 (unaudited)
Statements of operations and statements of changes in equity accounts as
of September 30, 1996 (unaudited)
Notes to Financial Statements (unaudited)
Report of Independent Accountants dated January 31, 1996
Statements of assets, liabilities and equity accounts at December 31, 1995
Statements of operations for the year ended December 31, 1995 and
statements of changes in equity accounts for the years ended December 31,
1995 and 1994
Notes to Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Statutory-Basis Balance Sheet as of September 30, 1996 (unaudited)
Statutory-Basis Statement of Operations as of September 30, 1996
(unaudited)
Statutory-Basis Statement of Changes in Capital and Surplus as of
September 30, 1996 (unaudited)
Statutory-Basis Statement of Cash Flows as of September 30, 1996
(unaudited)
Note to Statutory-Basis Financial Statements (unaudited)
Report of Independent Auditors dated February 23, 1996
Statutory-Basis Balance Sheets at December 31, 1995 and 1994
Statutory-Basis Statements of Operations for the years ended December 31,
1995, 1994 and 1993
Statutory-Basis Statements of Capital and Surplus for the years ended
December 31, 1995, 1994 and 1993
Statutory-Basis Statements of Cash Fows for the years ended December 31,
1995, 1994, and 1993
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
WRL00011-01/97
44
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Money Market Portfolio
(14,772,612.310 shares;
cost $ 14,772,612) ................................... $14,772,612
Accrued transfers from (to) depositor - net ............... 38,350
-----------
Total assets ......................................... 14,810,962
-----------
LIABILITIES: ................................................ 0
-----------
Total net assets ..................................... $14,810,962
===========
EQUITY ACCOUNTS:
Policyowners' equity:
Money Market sub-account
(968,329.525481 units;
$15.295374 unit value) ............................... $14,810,962
-----------
Total equity ......................................... $14,810,962
===========
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ...................................... $426,457
Capital gain distributions ........................... 0
--------
426,457
EXPENSES:
Mortality and expense risk charges ................... 76,494
--------
Net investment income (loss) ....................... 349,963
--------
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 ............. $349,963
========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)............................... $ 349,963 $ 397,410
Net gain (loss) on investments............................. 0 0
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... 349,963 397,410
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)........................ 6,152,998 3,139,280
------------- ------------
Less cost of units redeemed:
Administrative charges.................................. 1,753,507 1,356,484
Policy loans............................................ 179,641 219,767
Surrender benefits...................................... 499,065 899,893
Death benefits.......................................... 18,410 7,670
------------- ------------
2,450,623 2,483,814
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 3,702,375 655,466
------------- ------------
Net increase (decrease) in equity accounts.............. 4,052,338 1,052,876
EQUITY ACCOUNTS:
7Beginning of period....................................... 10,758,624 9,705,748
------------- ------------
End of period.............................................. $ 14,810,962 $ 10,758,624
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
1
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- -----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 14.83 $ 14.19 $ 13.84 $ 13.63 $ 13.33 $ 12.78
Income from operations:
Net investment income (loss)........ .47 .64 .35 .21 .30 .55
Net realized and unrealized
gain (loss) on investments........ .00 .00 .00 .00 .00 .00
------- ------- ------- ------- ------- -------
Total income (loss) from operations .47 .64 .35 .21 .30 .55
------- ------- ------- ------- ------- -------
Accumulation unit value, end of period... $ 15.30 $ 14.83 $ 14.19 $ 13.84 $ 13.63 $ 13.33
======= ======= ======= ======= ======= =======
Total return............................. 3.13% 4.49% 2.58% 1.52% 2.24% 4.34%
Ratios and supplemental data:
Net assets at end of period (in thousands) $14,811 $10,759 $ 9,706 $ 4,985 $ 4,619 $ 4,042
Ratio of net investment income (loss) to
average net assets**................ 4.09% 4.37% 2.66% 1.51% 2.12% 4.28%
</TABLE>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
2
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Bond Portfolio
(1,029,776.221 shares;
cost $11,356,557) .................................. $ 11,044,802
Accrued transfers from (to) depositor - net ............. (8,481)
------------
Total assets ....................................... 11,036,321
------------
LIABILITIES: .............................................. 0
------------
Total net assets ................................... $ 11,036,321
============
EQUITY ACCOUNTS:
Policyowners' equity:
Bond sub-account
(580,868.722716 units;
$18.999682 unit value) ............................. $ 11,036,321
------------
Total equity ....................................... $ 11,036,321
============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
------------------
Dividend income ...................................... $ 288,871
Capital gain distributions ........................... 0
---------
288,871
EXPENSES:
Mortality and expense risk charges ................... 69,846
---------
Net investment income (loss) ....................... 219,025
---------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................ (114,753)
Unrealized appreciation (depreciation) ............... (464,520)
---------
Net gain (loss) on investments ..................... (579,273)
---------
Net increase (decrease) in net assets
resulting from operations ...................... $(360,248)
=========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Net investment income (loss)............................ $ 219,025 $ 459,977
Net gain (loss) on investments.......................... (579,273) 1,080,157
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................ (360,248) 1,540,134
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed):.................... 2,715,612 3,749,029
------------- ------------
Less cost of units redeemed:
Administrative charges............................... 953,693 916,494
Policy loans......................................... 148,082 197,829
Surrender benefits................................... 260,483 357,384
Death benefits....................................... 22,917 10,202
------------- ------------
1,385,175 1,481,909
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.......................... 1,330,437 2,267,120
------------- ------------
Net increase (decrease) in equity accounts........... 970,189 3,807,254
EQUITY ACCOUNTS:
Beginning of period..................................... 10,066,132 6,258,878
------------- ------------
End of period........................................... $ 11,036,321 $ 10,066,132
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
3
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
SEPT. 30 DECEMBER 31
-------- -----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 19.67 $ 16.14 $ 17.50 $ 15.57 $ 14.68 $ 12.48
Income from operations:
Net investment income (loss)........ .40 1.05 .89 2.11 1.00 .48
Net realized and unrealized
gain (loss) on investments........ (1.07) 2.48 (2.25) (.18) (.11) 1.72
------- ------- ------- ------- ------- -------
Total income (loss) from operations (.67) 3.53 (1.36) 1.93 .89 2.20
------- ------- ------- ------- ------- -------
Accumulation unit value, end of period... $ 19.00 $ 19.67 $ 16.14 $ 17.50 $ 15.57 $ 14.68
======= ======= ======= ======= ======= =======
Total return............................. (3.43)% 21.89% (7.77)% 12.40% 6.08% 17.63%
Ratios and supplemental data:
Net assets at end of period (in thousands) $11,036 $10,066 $ 6,259 $ 6,985 $ 4,558 $ 3,055
Ratio of net investment income (loss) to
average net assets**................ 2.86% 5.80% 5.57% 12.92% 6.69% 3.59%
- ----------------
<FN>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
4
<PAGE>
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Growth Portfolio
(9,051,069.555 shares;
cost $ 233,268,655) ............................... $ 333,851,051
Accrued transfers from (to) depositor - net ............ (277,798)
-------------
Total assets ...................................... 333,573,253
-------------
LIABILITIES: ............................................. 0
-------------
Total net assets .................................. $ 333,573,253
=============
EQUITY ACCOUNTS:
Policyowners' equity:
Growth sub-account
(6,908,195.647892 units;
$ 48.286596 unit value)............... $ 333,573,253
-------------
Total equity.......................... $ 333,573,253
=============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ..................................... $ 860,787
Capital gain distributions .......................... 1,077,884
------------
1,938,671
EXPENSES:
Mortality and expense risk charges .................. 1,997,056
------------
Net investment income (loss) ...................... (58,385)
------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ........................... 4,232,941
Change in unrealized appreciation
(depreciation) ...................................... 40,880,353
------------
Net gain (loss) on investments ...................... 45,113,294
------------
Net increase (decrease) in equity accounts
resulting from operations ....................... $ 45,054,909
============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)............................ $ (58,385) $ 23,250,380
Net gain (loss) on investments.......................... 45,113,294 54,801,782
------------- -------------
Net increase (decrease) in equity accounts
resulting from operations............................ 45,054,909 78,052,162
------------- -------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)..................... 62,530,238 61,850,933
------------- -------------
Less cost of units redeemed:
Administrative charges............................... 21,253,460 23,714,204
Policy loans......................................... 6,128,299 5,518,596
Surrender benefits................................... 8,699,115 8,982,170
Death benefits....................................... 398,125 711,078
------------- -------------
36,478,999 38,926,048
------------- -------------
Increase (decrease) in equity accounts from
capital unit transactions.......................... 26,051,239 22,924,885
------------- -------------
Net increase (decrease) in equity accounts........... 71,106,148 100,977,047
EQUITY ACCOUNTS:
Beginning of period..................................... 262,467,105 161,490,058
------------- -------------
End of period........................................... $ 333,573,253 $ 262,467,105
============= =============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
5
<PAGE>
WRL
SERIES LIFE ACCOUNT GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
SEPT. 30 DECEMBER 31
-------- ----------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 41.47 $ 28.44 $ 31.30 $ 30.37 $ 29.95 $ 18.91
Income from operations:
Net investment income (loss)........ (.01) 3.89 .04 .46 1.09 1.72
Net realized and unrealized
gain (loss) on investments........ 6.83 9.14 (2.90) .47 (.67) 9.32
-------- -------- -------- -------- -------- --------
Total income (loss) from operations 6.82 13.03 (2.86) .93 .42 11.04
-------- -------- -------- -------- -------- --------
Accumulation unit value, end of period... $ 48.29 $ 41.47 $ 28.44 $ 31.30 $ 30.37 $ 29.95
======== ======== ======== ======== ======== ========
Total return............................. 16.44% 45.81% (9.13)% 3.06% 1.41% 58.37%
Ratios and supplemental data:
Net assets at end of period (in thousands) $333,573 $262,467 $161,490 $169,757 $146,053 $111,375
Ratio of net investment income (loss) to
average net assets**................ (.03)% 11.05% .16% 1.56% 3.84% 7.14%
- ----------------
<FN>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
6
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Short-to-Intermediate Government Portfolio
(144,126.953 shares;
cost $ 1,484,619) .................................... $ 1,497,493
Accrued transfers from (to) depositor - net ............... (1,871)
-----------
Total assets ......................................... 1,495,622
-----------
LIABILITIES: ................................................ 0
-----------
Total net assets ..................................... $ 1,495,622
===========
EQUITY ACCOUNTS:
Policyowners' equity:
Short-to-Intermediate Government sub-account
(128,515.024738 units;
$11.637719 unit value) ............................... $ 1,495,622
-----------
Total equity ......................................... $ 1,495,622
===========
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30,1996
-----------------
Dividend income ....................................... $ 23,677
Capital gain distributions ............................ 0
--------
23,677
EXPENSES:
Mortality and expense risk charges .................... 10,115
--------
Net investment income (loss) ........................ 13,562
--------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................. 22,518
Change in unrealized appreciation
(depreciation) ....................................... (25,656)
--------
Net gain (loss) on investments ...................... (3,139)
--------
Net increase (decrease) in net assets
resulting from operations ......................... $ 10,423
========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30,1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)........................ $ 13,562 $ 62,086
Net gain (loss) on investments...................... (3,139) 68,387
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations........................ 10,423 130,473
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................ 144,541 679,242
------------- ------------
Less cost of units redeemed:
Administrative charges........................... 130,446 141,954
Policy loans..................................... 27,903 52,521
Surrender benefits............................... 18,978 41,967
Death benefits.................................. 0 144
------------- ------------
177,327 236,586
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions...................... (32,786) 442,656
------------- ------------
Net increase (decrease) in equity accounts....... (22,363) 573,129
EQUITY ACCOUNTS:
Beginning of period................................. 1,517,985 944,856
------------- ------------
End of period....................................... $ 1,495,622 $ 1,517,985
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
7
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
------- -------------------------------------
1996 1995 1994 1993 1992\dagger\
------- ------- ------- ------- -------
<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)........ .10 .61 .40 .14 .01
Net realized and unrealized
gain (loss) on investments........ (.01) .67 (.53) .22 .03
------- ------- ------- ------- -------
Total income (loss) from operations .09 1.28 (.13) .36 .04
------- ------- ------- ------- -------
Accumulation unit value, end of period... $ 11.64 $ 11.55 $ 10.27 $ 10.40 $ 10.04
======= ======= ======= ======= =======
Total return............................. .73% 12.53% (1.32)% 3.64% .38%
Ratios and supplemental data:
Net assets at end of period (in thousands) 1,496 $ 1,518 $ 945 $ 1,408 $ 803
Ratio of net investment income (loss) to
average net assets**................ 1.22% 5.53% 4.06% 1.39% .16%
- ------------
<FN>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period. ** This ratio is
annualized for the period ended September 30, 1996.
\dagger\ The inception date of this sub-account was December 3, 1992. The
total return is not annualized.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
8
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Global Portfolio
(3,830,440.472 shares;
cost $ 59,223,121) .................................. $72,234,094
Accrued transfers from (to) depositor - net .............. 32,463
-----------
Total assets ........................................ 72,266,557
-----------
LIABILITIES: ............................................... 0
-----------
Total net assets .................................... $72,266,557
===========
EQUITY ACCOUNTS:
Policyowners' equity:
Global sub-account
(4,974,425.092964 units;
$ 14.527620 unit value) ............................. $72,266,557
-----------
Total equity ........................................ $72,266,557
===========
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30,1996
Dividend income ........................................ $ 354,841
Capital gain distributions ............................. 114,391
----------
469,232
EXPENSES:
Mortality and expense risk charges ..................... 368,006
----------
Net investment income (loss) ......................... 101,226
----------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions .............................. 282,560
Unrealized appreciation (depreciation) ................. 9,409,784
----------
Net gain (loss) on investments ....................... 9,692,344
----------
Net increase (decrease) in net assets
resulting from operations ........................ $9,793,570
==========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)................................. $ 101,226 $ 1,187,745
Net gain (loss) on investments............................... 9,692,344 4,626,003
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................. 9,793,570 5,813,748
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).......................... 32,319,930 15,012,786
------------- ------------
Less cost of units redeemed:
Administrative charges.................................... 4,391,586 4,017,781
Policy loans.............................................. 887,801 666,264
Surrender benefits........................................ 1,309,265 721,584
Death benefits............................................ 38,835 44,234
------------- ------------
6,627,487 5,449,863
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................... 25,692,443 9,562,923
------------- ------------
Net increase (decrease) in equity accounts................ 35,486,013 15,376,671
Depositors' equity contribution (redemption).................. (268,153) 0
EQUITY ACCOUNTS:
Beginning of period.......................................... 37,048,697 21,672,026
------------- ------------
End of period................................................ $ 72,266,557 $ 37,048,697
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
9
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- -----------------
1996 1995 1994\dagger\
-------- ------- -------
Accumulation unit value, beginning of period $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss)........ .03 .45 .71
Net realized and unrealized
gain (loss) on investments........ 2.55 1.70 (.91)
------- ------- -------
Total income (loss) from operations 2.58 2.15 (.20)
------- ------- -------
Accumulation unit value, end of period... $ 14.53 $ 11.95 $ 9.80
======= ======= =======
Total return............................. 21.57% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $72,267 $37,049 $21,672
Ratio of net investment income (loss) to
average net assets**................ .29% 4.25% 7.39%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
\dagger\ The inception date of this sub-account was March 1, 1994. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
10
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Equity-Income Portfolio
(3,657,160.333 shares;
cost $ 43,154,636) ................................. $ 50,638,542
Accrued transfers from (to) depositor - net ............. (53,412)
------------
Total assets ....................................... 50,585,130
------------
LIABILITIES: .............................................. 0
------------
Total net assets ................................... $ 50,585,130
============
EQUITY ACCOUNTS:
Policyowners' equity:
Equity-Income sub-account
(3,414,735.720554 units;
$ 14.813776 unit value) ............................ $ 50,585,130
------------
Total equity ....................................... $ 50,585,130
============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ...................................... $ 312,575
Capital gain distributions ........................... 84,620
----------
397,195
EXPENSES:
Mortality and expense risk charges ................... 302,955
----------
Net investment income (loss) ....................... 94,240
----------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................ 228,689
Unrealized appreciation (depreciation) ............... 3,032,915
----------
Net gain (loss) on investments ..................... 3,261,604
----------
Net increase (decrease) in net assets
resulting from operations ...................... $3,355,844
==========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss).................................. $ 94,240 $ 1,756,089
Net gain (loss) on investments................................ 3,261,604 4,992,475
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations.................................. 3,355,844 6,748,564
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)........................... 12,500,597 14,236,727
------------- ------------
Less cost of units redeemed:
Administrative charges..................................... 3,263,409 3,380,854
Policy loans............................................... 716,938 657,750
Surrender benefits......................................... 853,076 918,863
Death benefits............................................. 86,163 28,153
------------- ------------
4,919,586 4,985,620
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions................................ 7,581,011 9,251,107
------------- ------------
Net increase (decrease) in equity accounts................. 10,936,855 15,999,671
EQUITY ACCOUNTS:
Beginning of period........................................... 39,648,275 23,648,604
------------- ------------
End of period................................................. $ 50,585,130 $ 39,648,275
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
11
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- ---------------------------
1996 1995 1994 1993\dagger\
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period $ 13.74 $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss)........ .03 .68 .18 .19
Net realized and unrealized
gain (loss) on investments........ 1.04 1.94 (.34) 1.09
------- ------- ------- -------
Total income (loss) from operations 1.07 2.62 (.16) 1.28
------- ------- ------- -------
Accumulation unit value, end of period... $ 14.81 $ 13.74 $ 11.12 $ 11.28
======= ======= ======= =======
Total return............................. 7.82% 23.55% (1.42)% 12.81%
Ratios and supplemental data:
Net assets at end of period (in thousands) $50,585 $39,648 $23,649 $13,343
Ratio of net investment income (loss) to
average net assets**................ .28% 5.47% 1.93% 1.89%
- ----------------------------
<FN>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
dagger\ The inception date of this sub-account was March 1, 1993. The total
return is not annualized.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
12
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Aggressive Investments at net asset value:
WRL Series Fund, Inc.:
Aggressive Growth Portfolio
(3,454,037.947 shares;
cost $ 45,039,041) ................................. $ 48,078,822
Accrued transfers from (to) depositor - net ............. (46,950)
------------
Total assets ....................................... 48,031,872
------------
LIABILITIES: .............................................. 0
------------
Total net assets ................................... $ 48,031,872
============
EQUITY ACCOUNTS:
Policyowners' equity:
Aggressive Growth sub-account
(3,364,595.750104 units;
$14.275674 unit value) ............................. $ 48,031,872
------------
Total equity ....................................... $ 48,031,872
============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ....................................... $ 614,817
Capital gain distributions ............................ 216,587
----------
831,404
EXPENSES:
Mortality and expense risk charges .................... 278,502
----------
Net investment income (loss) ........................ 552,902
----------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................. 1,954,191
Unrealized appreciation (depreciation) ................ 22,556
----------
Net gain (loss) on investments ...................... 1,976,747
----------
Net increase (decrease) in net assets
resulting from operations ....................... $2,529,649
==========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss).................................. $ 552,902 $ 663,994
Net gain (loss) on investments................................ 1,976,747 4,424,350
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations.................................. 2,529,649 5,088,344
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)........................... 18,767,881 23,169,917
------------- ------------
Less cost of units redeemed:
Administrative charges..................................... 4,483,421 2,568,298
Policy loans............................................... 609,118 627,821
Surrender benefits......................................... 1,070,651 712,307
Death benefits............................................. 6,437 80,922
------------- ------------
6,169,627 3,989,348
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions................................ 12,598,254 19,180,569
------------- ------------
Net increase (decrease) in equity accounts................. 15,127,903 24,268,913
Depositor's equity contribution (redemption).................. 0 (274,290)
EQUITY ACCOUNTS:
Beginning of period........................................... 32,903,969 8,909,346
------------- ------------
End of period................................................. $ 48,031,872 $ 32,903,969
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
13
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- -----------------
1996 1995 1994\dagger\
-------- ------- -------
Accumulation unit value, beginning of period $ 13.43 $ 9.82 $ 10.00
Income from operations:
Net investment income (loss)........ .18 .37 (.06)
Net realized and unrealized
gain (loss) on investments........ .67 3.24 (.12)
------- ------- -------
Total income (loss) from operations .85 3.61 (.18)
------- ------- -------
Accumulation unit value, end of period... $ 14.28 $ 13.43 $ 9.82
======= ======= =======
Total return............................. 6.33% 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $48,032 $32,904 $ 8,909
Ratio of net investment income (loss) to
average net assets**................ 1.81% 2.93% (.60)%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996
\dagger\ The inception date of this sub-account was March 1, 1994. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
14
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Balanced Portfolio
(478,127.36 shares;
cost $ 4,853,852) .................................. $ 5,273,193
Accrued transfers from (to) depositor - net ............. (6,158)
-----------
Total assets ....................................... 5,267,035
-----------
LIABILITIES: .............................................. 0
-----------
Total net assets ................................... $ 5,267,035
===========
EQUITY ACCOUNTS:
Policyowners' equity:
Balanced sub-account
(456,622.641047 units;
$ 11.534766 unit value) ............................ $ 5,267,035
-----------
Total equity ....................................... $ 5,267,035
===========
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ........................................ $ 31,381
Capital gain distributions ............................. 0
--------
31,381
EXPENSES:
Mortality and expense risk charges ..................... 31,297
--------
Net investment income (loss) ......................... 84
--------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions .............................. 67,906
Unrealized appreciation (depreciation) ................. 106,741
--------
Net gain (loss) on investments ....................... 174,647
--------
Net increase (decrease) in net assets
resulting from operations ........................ $174,731
========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)................................... $ 84 $ 102,635
Net gain (loss) on investments................................. 174,647 401,549
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................... 174,731 504,184
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)............................ 2,043,775 1,545,514
------------- ------------
Less cost of units redeemed:
Administrative charges...................................... 404,262 327,290
Policy loans................................................ 55,007 29,025
Surrender benefits.......................................... 63,488 27,726
Death benefits.............................................. 3,933 14,881
------------- ------------
526,690 398,852
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions................................. 1,517,085 1,146,662
------------- ------------
Net increase (decrease) in equity accounts.................. 1,691,816 1,650,846
Depositor's equity contribution (redemption)................... (220,175) 0
EQUITY ACCOUNTS:
Beginning of period............................................ 3,795,394 2,144,548
------------- ------------
End of period.................................................. $ 5,267,035 $ 3,795,394
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- -------------------------------------------------------------------------------
15
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT.30 DECEMBER 31
-------- -----------------------
1996 1995 1994\dagger\
-------- ------- -------------
Accumulation unit value, beginning of period $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss)........ .00 .37 .22
Net realized and unrealized
gain (loss) on investments........ .40 1.39 (.85)
------- ------- -------
Total income (loss) from operations .40 1.76 (.63)
------- ------- -------
Accumulation unit value, end of period... $ 11.53 $ 11.13 $ 9.37
======= ======= =======
Total return............................. 3.68% 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 5,267 $ 3,795 $ 2,145
Ratio of net investment income (loss) to
average net assets**................ .00% 3.59% 2.55%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996
\dagger\ The inception date of this sub-account was March 1, 1994. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
16
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Emerging Growth Portfolio
(5,215,027.007 shares;
cost $ 72,827,461) .................................. $104,681,427
Accrued transfers from (to) depositor - net .............. 54,104
------------
Total assets ........................................ 104,735,531
------------
LIABILITIES: ............................................... 0
------------
Total net assets .................................... $104,735,531
============
EQUITY ACCOUNTS:
Policyowners' equity:
Emerging Growth sub-account
(5,143,416.816593 units;
$ 20.363026 unit value) ............................. $104,735,531
------------
Total equity ........................................ $104,735,531
============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income .................................... $ 3,998
Capital gain distributions ......................... 178,386
------------
182,384
EXPENSES:
Mortality and expense risk charges ................. 564,594
------------
Net investment income (loss) ..................... (382,210)
------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions .......................... 858,061
Unrealized appreciation (depreciation) ............. 17,300,721
------------
Net gain (loss) on investments ................... 18,158,782
------------
Net increase (decrease) in net assets
resulting from operations .................... $ 17,776,572
============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)................................ $ (382,210) $ 2,356,904
Net gain (loss) on investments.............................. 18,158,782 16,180,870
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations................................ 17,776,572 18,537,774
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)......................... 28,842,554 21,556,186
------------- ------------
Less cost of units redeemed:
Administrative charges................................... 6,379,364 5,846,452
Policy loans............................................. 1,447,069 1,387,434
Surrender benefits....................................... 1,930,578 1,602,690
Death benefits........................................... 31,537 38,971
------------- ------------
9,788,548 8,875,547
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions.............................. 19,054,006 12,680,639
------------- ------------
Net increase (decrease) in equity accounts............... 36,830,578 31,218,413
EQUITY ACCOUNTS:
Beginning of period......................................... 67,904,953 36,686,540
------------- ------------
End of period............................................... $ 104,735,531 $ 67,904,953
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
17
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- ---------------------------------
1996 1995 1994 1993\dagger\
-------- ------- ------- -------------
<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)........ (.08) .65 (.09) (.09)
Net realized and unrealized
gain (loss) on investments........ 3.88 4.53 (.93) 2.49
------- ------- ------- -------
Total income (loss) from operations 3.80 5.18 (1.02) 2.40
------- ------- ------- ------
Accumulation unit value, end of period... $ 20.36 $ 16.56 $ 11.38 $ 12.40
======= ======= ======= =======
Total return............................. 22.98% 45.49% (8.18)% 23.96%
Ratios and supplemental data:
Net assets at end of period (in thousands) $104,736 $67,905 $36,687 $18,620
Ratio of net investment income (loss) to
average net assets**................ (.62)% 4.66% (.86)% (.77)%
- ------------------
<FN>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996
\dagger\ The inception date of this sub-account was March 1, 1993. The total
return is not annualized.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
18
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Utility Portfolio
(398,719.984 shares;
cost $ 4,334,954) .................................... $4,481,093
Accrued transfers from (to) depositor - net ............... 315
----------
Total assets ......................................... 4,481,408
----------
LIABILITIES: ................................................ 0
----------
Total net assets ..................................... $4,481,408
==========
EQUITY ACCOUNTS:
Policyowners' equity:
Utility sub-account
(376,602.892904 units;
$ 11.899559 unit value) .............................. $4,481,408
----------
Total equity ......................................... $4,481,408
==========
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ...................................... $ 24,453
Capital gain distributions ........................... 1,948
---------
26,401
EXPENSES:
Mortality and expense risk charges ................... 24,289
---------
Net investment income (loss) ....................... 2,112
---------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................ 108,198
Unrealized appreciation (depreciation) ............... (98,824)
---------
Net gain (loss) on investments ..................... 9,374
---------
Net increase (decrease) in net assets
resulting from operations ...................... $ 11,486
=========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED YEAR ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Net investment income (loss)............................... $ 2,112 $ 88,634
Net gain (loss) on investments............................. 9,374 336,528
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... 11,486 425,162
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)........................ 2,489,074 1,368,262
------------- ------------
Less cost of units redeemed:
Administrative charges.................................. 303,641 221,419
Policy loans............................................ 43,852 26,862
Surrender benefits...................................... 67,364 126,576
Death benefits.......................................... 2,733 2,896
------------- ------------
417,590 377,753
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................. 2,071,484 990,509
------------- ------------
Net increase (decrease) in equity accounts.............. 2,082,970 1,415,671
Depositors' equity contribution (redemption)............ (232,644) 0
EQUITY ACCOUNTS:
Beginning of period........................................ 2,631,082 1,215,411
------------- ------------
End of period.............................................. $ 4,481,408 $ 2,631,082
============= ============
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
19
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
-------- -----------------
1996 1995 1994\dagger
-------- ------- -------
Accumulation unit value, beginning of period $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss)........ .01 .49 .29
Net realized and unrealized
gain (loss) on investments........ .12 1.79 (.80)
------- ------- -------
Total income (loss) from operations .13 2.28 (.51)
------- ------- -------
Accumulation unit value, end of period... $ 11.90 $ 11.77 $ 9.49
======= ======= =======
Total return............................. 1.06% 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of period (in thousands) $4,481 $2,631 $ 1,215
Ratio of net investment income (loss) to
average net assets.................. .08% 4.57% 3.09%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996
\dagger\ The inception date of this sub-account was March 1, 1994. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
20
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Tactical Asset Allocation Portfolio
(1,217,272.416 shares;
cost $ 13,823,979) ................................. $ 14,885,662
Accrued transfers from (to) depositor - net ............. (21,556)
Total assets ....................................... 14,864,106
------------
LIABILITIES: .............................................. 0
------------
Total net assets ................................... $ 14,864,106
============
EQUITY ACCOUNTS:
Policyowners' equity:
Tactical Asset Allocation sub-account
(1,173,005.980111 units;
$ 12.671808 unit value) ............................ $ 14,864,106
------------
Total equity ....................................... $ 14,864,106
============
STATEMENT OF OPERATIONS
NINE MONTHS ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996
Dividend income ....................................... $ 99,486
Capital gain distributions ............................ 0
--------
99,486
EXPENSES:
Mortality and expense risk charges .................... 86,544
--------
Net investment income (loss) ........................ 12,942
--------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................. 296,655
Unrealized appreciation (depreciation) ................ 445,964
--------
Net gain (loss) on investments ...................... 742,619
--------
Net increase (decrease) in net assets
resulting from operations ....................... $755,561
========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
NINE MONTHS ENDED PERIOD ENDED
OPERATIONS: SEPTEMBER 30, 1996 DECEMBER 31, 1995*
<S> <C> <C>
Net investment income (loss)............................... $ 12,942 $ 314,171
Net gain (loss) on investments............................. 742,619 733,874
------------- ------------
Net increase (decrease) in equity accounts
resulting from operations............................... 755,561 1,048,045
------------- ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)........................ 6,456,969 9,081,189
------------- ------------
Less cost of units redeemed:
Administrative charges..................................... 767,103 434,848
Policy loans............................................... 253,319 145,685
Surrender benefits......................................... 773,024 70,630
Death benefits............................................. 835 22,440
------------- ------------
1,794,281 673,603
------------- ------------
Increase (decrease) in equity accounts from
capital unit transactions............................... 4,662,688 8,407,586
------------- ------------
Net increase (decrease) in equity accounts................. 5,418,249 9,455,631
Depositor's equity contribution (redemption)............... 0 (9,774)
EQUITY ACCOUNTS:
Beginning of period........................................ 9,445,857 0
------------- ------------
End of period.............................................. $ 14,864,106 $ 9,445,857
============= ============
</TABLE>
* The inception date of this sub-account was January 3, 1995.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
21
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPT. 30 DECEMBER 31
1996 1995\dagger\
Accumulation unit value, beginning of period $ 11.90 $ 10.00
Income from operations:
Net investment income (loss)........ .01 .61
Net realized and unrealized
gain (loss) on investments........ .76 1.29
------- -------
Total income (loss) from operations .77 1.90
------- -------
Accumulation unit value, end of period... $ 12.67 $ 11.90
======= =======
Total return............................. 6.46% 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands) $14,864 $ 9,446
Ratio of net investment income (loss) to
average net assets**................ .14% 5.47%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
\dagger\ The inception date of this sub-account was January 3, 1995. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
22
<PAGE>
WRL SERIES LIFE ACCOUNT
C.A.S.E. GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
C.A.S.E. Growth Portfolio
(211,216.975 shares;
cost $ 2,608,808) ................................... $ 2,715,157
Accrued transfers from (to) depositor - net .............. (56,062)
-----------
Total assets ........................................ 2,659,095
-----------
LIABILITIES: ............................................... 0
-----------
Total net assets .................................... $ 2,659,095
===========
EQUITY ACCOUNTS:
Policyowners' equity:
C.A.S.E. Growth sub-account
(258,931.483192 units;
$ 10.171290 unit value) ............................. $ 2,633,667
Depositor's equity:
C.A.S.E. Growth sub-account
(2,500.000000 units;
$ 10.171290 unit value .............................. 25,428
-----------
Total equity ........................................ $ 2,659,095
===========
STATEMENT OF OPERATIONS
PERIOD ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996*
Dividend income ....................................... $ 739
Capital gain distributions ............................ 0
---------
739
EXPENSES:
Mortality and expense risk charges .................... 4,077
---------
Net investment income (loss) ........................ (3,338)
---------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................. (2,194)
Unrealized appreciation (depreciation) ................ 106,349
---------
Net gain (loss) on investments ...................... 104,155
---------
Net increase (decrease) in net assets
resulting from operations ....................... $ 100,817
=========
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
PERIOD ENDED
OPERATIONS: SEPTEMBER 30, 1996*
Net investment income (loss) ............................. $ (3,338)
Net gain (loss) on investments ........................... 104,155
-----------
Net increase (decrease) in equity accounts
resulting from operations ............................. 100,817
-----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 2,590,910
-----------
Less cost of units redeemed:
Administrative charges ................................ 47,280
Policy loans .......................................... 0
Surrender benefits .................................... 10,352
Death benefits ........................................ 0
-----------
57,632
Increase (decrease) in equity accounts from
capital unit transactions ........................... 2,533,278
-----------
Net increase (decrease) in equity accounts ............ 2,634,095
Depositor's equity contribution (redemption) ............. 25,000
EQUITY ACCOUNTS:
Beginning of period ...................................... 0
-----------
End of period ............................................ $ 2,659,095
===========
* The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
23
<PAGE>
WRL SERIES LIFE ACCOUNT
C.A.S.E. GROWTH SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPTEMBER 30
1996\dagger\
Accumulation unit value, beginning of period $ 10.00
Income from operations:
Net investment income (loss)........ (.05)
Net realized and unrealized
gain (loss) on investments........ .22
-------
Total income (loss) from operations .17
-------
Accumulation unit value, end of period... $ 10.17
=======
Total return............................. 1.71%
Ratios and supplemental data:
Net assets at end of period (in thousands) $ 2,659
Ratio of net investment income (loss)
to average net assets**............. (1.67)%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
\dagger\ The inception date of this sub-account was May 1, 1996. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
24
<PAGE>
WRL SERIES LIFE ACCOUNT
VALUE EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
ASSETS: SEPTEMBER 30, 1996
Investments at net asset value:
WRL Series Fund, Inc.:
Value Equity Portfolio
(503,729.939 shares;
cost $ 5,170,272) ................................ $5,351,399
Accrued transfers from (to) depositor - net ........... 31,656
----------
Total assets ..................................... 5,383,055
----------
LIABILITIES: ............................................ 0
----------
Total net assets ................................. $5,383,055
==========
EQUITY ACCOUNTS:
Policyowners' equity:
Value Equity sub-account
(488,616.296490 units;
$ 10.583725 unit value) .......................... $5,171,381
Depositor's equity:
Value Equity sub-account
(20,000.000000 units;
$ 10.583725 unit value ........................... 211,674
----------
Total equity ..................................... $5,383,055
==========
STATEMENT OF OPERATIONS
PERIOD ENDED
INVESTMENT INCOME: SEPTEMBER 30, 1996*
Dividend income ...................................... $ 0
Capital gain distributions ........................... 0
---------
0
EXPENSES:
Mortality and expense risk charges ................... 5,878
---------
Net investment income (loss) ....................... (5,878)
---------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
securities transactions ............................ 3,604
Unrealized appreciation (depreciation) ............... 181,127
---------
Net gain (loss) on investments ..................... 184,731
---------
Net increase (decrease) in net assets
resulting from operations ...................... $ 178,853
=========
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
PERIOD ENDED
OPERATIONS: SEPTEMBER 30, 1996*
Net investment income (loss) ............................ $ (5,878)
Net gain (loss) on investments .......................... 184,731
-----------
Net increase (decrease) in equity accounts
resulting from operations ............................ 178,853
-----------
EQUITY TRANSACTIONS:
Proceeds from units sold (repurchased):
Net payments (redemptions) ........................... 5,063,012
-----------
Less cost of units redeemed:
Cost of insurance and administrative charges ......... 38,783
Policy loans ......................................... 0
Surrender benefits ................................... 20,027
Death benefits ....................................... 0
-----------
58,810
Increase (decrease) in equity accounts from
capital unit transactions .......................... 5,004,202
-----------
Net increase (decrease) in equity accounts ........... 5,183,055
Depositor's equity contribution (redemption) ............ 200,000
EQUITY ACCOUNTS:
Beginning of period ..................................... 0
-----------
End of period ........................................... $ 5,383,055
===========
* The inception date of this sub-account was May 1, 1996
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
25
<PAGE>
WRL SERIES LIFE ACCOUNT
VALUE EQUITY SUB-ACCOUNT
(UNAUDITED)
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
SEPTEMBER 30
1996\dagger\
------------
Accumulation unit value, beginning of period $ 10.00
Income from operations:
Net investment income (loss)........ (.15)
Net realized and unrealized
gain (loss) on investments........ .73
-------
Total income (loss) from operations .58
-------
Accumulation unit value, end of period... $ 10.58
=======
Total return............................. 5.84%
Ratios and supplemental data:
Net assets at end of period (in thousa $ 5,383
Ratio of net investment income to
average net assets**................ (3.64)%
* The above table illustrates the change for a unit outstanding computed
using average units outstanding through each period.
** This ratio is annualized for the period ended September 30, 1996.
\dagger\ The inception date of this sub-account was May 1, 1996. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
26
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
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
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 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.
("AEGON Management")
Global JCC
Equity-Income Luther King Asset
Management Inc.
Emerging Growth Van Kampen/American
Capital Asset
Management,Inc.
Aggressive Growth Fred Alger Management,Inc.
Balanced AEGON Management
Utility Federated Investment
Counseling
Tactical Asset Dean Investment Associates
Allocation
C.A.S.E. Growth C.A.S.E. Management, Inc.
Value Equity NWQ Investment
Management Company, Inc.
WRL and AEGON Management are indirectly wholly-owned subsidiaries of AEGON
USA, Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a
Netherlands Corporation.
On May 1, 1996, WRL made an initial contribution to the Life Account
C.A.S.E. Growth and Value Equity sub-accounts, which in turn invested in the
respective portfolios. The amount of the contribution and the units received 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 the financial statements in accordance wth generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 September 30, 1996.
Investment transactions are accounted for on the trade date, using the Fund
NAV per share next determined after receipt of sale or redemption order
without sales charges. Dividend income and capital gain distributions are
recorded on the ex-dividend date. The cost of investments sold is
determined on a first-in first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, sales and other administrative charges
are deducted by WRL prior to allocation of policyowner payments to the
sub-accounts.
- --------------------------------------------------------------------------------
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
WRL SERIES LIFE ACCOUNT
(UNAUDITED)
- -------------------------------------------------------------------------------
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 not deducted prior to allocation of the initial
premium payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net assets
of the Life Account is assessed to compensate WRL for assumption of mortality
and expense risks in connection with issuance and administration of the
Policies. This charge (not assessed at the individual policy level) effectively
reduces the value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are declared and
reinvested semi-annually, while capital gain distributions are declared and
reinvested annually. Dividends and distributions of the Fund are generally paid
to and reinvested by the Life Account the next business day after declaration.
NOTE 4 - OTHER MATTERS
As of September 30, 1996 the equity accounts include net unrealized
appreciation (depreciation) on investments of:
SUB-ACCOUNT
-----------
Money Market.............................. $ n/a
Bond...................................... (311,755)
Growth.................................... 100,582,396
Short-to-Intermediate Government.......... 12,874
Global.................................... 13,010,973
Equity-Income............................. 7,483,906
Emerging Growth........................... 31,853,966
Aggressive Growth......................... 3,039,781
Balanced.................................. 419,341
Utility................................... 146,139
Tactical Asset Allocation................. 1,061,683
C.A.S.E. Growth........................... 106,349
Value Equity.............................. 181,127
- --------------------------------------------------------------------------------
28
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEET - STATUTORY BASIS
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS) (UNAUDITED)
ASSETS
------
Bonds $ 397,320
Common stocks and mutual funds 610
Mortgage loans on real estate 6,079
Real estate 7,289
Policy loans 47,942
Cash and short-term investments (8,163)
Separate account assets 3,295,321
Other assets 17,235
----------
Total assets $3,763,633
==========
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
Policy reserves $ 299,797
Other policy liabilities 30,655
Amounts due or accrued 14,118
Separate account liabilities 3,290,269
Borrowed money 25,900
Asset valuation reserve 6,033
---------
Total liabilities 3,666,772
Total capital and surplus 96,861
---------
Total liabilities, capital, and surplus $3,763,633
==========
See note to financial statements
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF OPERATIONS - STATUTORY BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS) (UNAUDITED)
Premium income $750,143
Net investment income 27,905
Net realized capital gains (losses) 89
Other income 10,172
Benefit payments incurred (241,024)
Decrease in policy
and contract reserves 94,965
Net transfers to separate accounts (491,331)
Operating costs (143,580)
--------
Income before income taxes 7,339
Federal income taxes (6,002)
--------
Net income (loss) $ 1,337
========
See note to financial statements
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CHANGES IN CAPITAL AND SURPLUS-STATUTORY BASIS
(IN THOUSANDS) (UNAUDITED)
ADDITIONAL TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK CAPITAL SURPLUS SURPLUS
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $1,500 $68,015 $28,424 $97,939
Net income 1,337 1,337
Change in reserve valuation basis - - (2,246) (2,246)
Change in Unrealized gains (losses) - - 147 147
Change in non-admitted assets - - 96 96
Change in asset valuation reserves - - (444) (444)
Change in separate accounts surplus - - 32 32
------ ------- ------- -------
Balance at September 30, 1996 $1,500 $68,015 $27,346 $96,861
====== ======= ======= =======
</TABLE>
See note to financial statements
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CASH FLOWS - STATUTORY BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS) (UNAUDITED)
Operations:
Cash from insurance operations $(126,122)
Investment income received 28,529
Federal income taxes (5,624)
---------
Cash provided (used) by operations (103,217)
---------
Investment activities:
Proceeds from sale or maturity of
long-term invested assets 92,739
Cost of long-term investments acquired (32,327)
Other, net 10,243
---------
Cash provided (used) by
investment activities 70,655
---------
Financing activities:
Increase (decrease) in borrowed money 25,900
---------
Cash provided by (used in)
financing activities 25,900
---------
Net increase (decrease) in cash
and short-term investments (6,662)
Cash and short-term investments:
Beginning of year (1,501
---------
End of period $ (8,163)
=========
See note to financial statements
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTE TO FINANCIAL STATEMENTS - STATUTORY BASIS
AS OF SEPTEMBER 30, 1996 (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 nine-month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1995.
<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 the Money Market, Bond, Growth,
Short-to-Intermediate Government, Global, Equity-Income, Emerging Growth,
Aggressive Growth, Balanced, Utility and Tactical Asset Allocation Sub-Accounts
of the WRL Series Life Account (a separate account of Western Reserve Life
Assurance Co. of Ohio, hereafter referred to as the "Life Account") at December
31, 1995, the results of each of their operations, the changes in each of their
equity accounts and the selected per unit data and ratios for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and selected per unit data and ratios (hereafter
referred to as "financial statements") are the responsibility of the Life
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1996
- --------------------------------------------------------------------------------
1
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Money Market Portfolio
(10,819,939.810 shares;
cost $ 10,819,940)..................... $ 10,819,940
Accrued transfers from (to)
depositor - net.......................... (61,316)
-----------------
Total assets........................... 10,758,624
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 10,758,624
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Money Market sub-account
(725,394.862557 units;
$ 14.831403 unit value)................ $ 10,758,624
-----------------
Total equity........................... $ 10,758,624
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 478,782
Capital gain distributions............... 0
-----------------
478,782
EXPENSES:
Mortality and expense risk charges....... 81,372
-----------------
Net investment income (loss)........... 397,410
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... 0
Change in unrealized appreciation
(depreciation)......................... 0
-----------------
Net gain (loss) on investments......... 0
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 397,410
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 397,410 $ 185,968
Net gain (loss) on investments......................................................... 0 0
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 397,410 185,968
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 3,139,280 6,263,945
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 1,356,484 1,261,165
Policy loans......................................................................... 219,767 57,873
Surrender benefits................................................................... 899,893 409,880
Death benefits....................................................................... 7,670 562
---------------- -----------------
2,483,814 1,729,480
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 655,466 4,534,465
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 1,052,876 4,720,433
EQUITY ACCOUNTS:
Beginning of period.................................................................... 9,705,748 4,985,315
---------------- -----------------
End of period.......................................................................... $ 10,758,624 $ 9,705,748
================ =================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
2
<PAGE>
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 14.19 $ 13.84 $ 13.63 $ 13.33 $ 12.78
Income from operations:
Net investment income (loss)................ .64 .35 .21 .30 .55
Net realized and unrealized
gain (loss) on investments................ .00 .00 .00 .00 .00
-------- ------- ------- ------- -------
Total income (loss) from operations....... .64 .35 .21 .30 .55
-------- ------- ------- ------- -------
Accumulation unit value, end of period.......... $ 14.83 $ 14.19 $ 13.84 $ 13.63 $ 13.33
======== ======== ======== ======== ========
Total return.................................... 4.49% 2.58% 1.52% 2.24% 4.34%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 10,759 $ 9,706 $ 4,985 $ 4,619 $ 4,042
Ratio of net investment income (loss)
to average net assets....................... 4.37% 2.66% 1.51% 2.12% 4.28%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
3
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Bond Portfolio
(886,633.291 shares;
cost $ 9,906,273)...................... $ 10,059,038
Accrued transfers from (to)
depositor - net.......................... 7,094
-----------------
Total assets........................... 10,066,132
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 10,066,132
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Bond sub-account
(511,648.226174 units;
$ 19.673931 unit value)................ $ 10,066,132
-----------------
Total equity........................... $ 10,066,132
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 531,010
Capital gain distributions............... 0
-----------------
531,010
EXPENSES:
Mortality and expense risk charges....... 71,033
-----------------
Net investment income (loss)........... 459,977
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... (127,916)
Change in unrealized appreciation
(depreciation)......................... 1,208,073
-----------------
Net gain (loss) on investments......... 1,080,157
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 1,540,134
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 459,977 $ 346,531
Net gain (loss) on investments........................................................ 1,080,157 (901,953)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 1,540,134 (555,422)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 3,749,029 678,317
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 916,494 595,277
Policy loans........................................................................ 197,829 57,084
Surrender benefits.................................................................. 357,384 194,018
Death benefits...................................................................... 10,202 2,326
----------------- -----------------
1,481,909 848,705
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 2,267,120 (170,388)
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 3,807,254 (725,810
EQUITY ACCOUNTS:
Beginning of period................................................................... 6,258,878 6,984,688
----------------- -----------------
End of period......................................................................... $ 10,066,132 $ 6,258,878
================= =================
</TABLE>
The notes to the financial statements are an integral part of this report
- --------------------------------------------------------------------------------
4
<PAGE>
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 16.14 $ 17.50 $ 15.57 $ 14.68 $ 12.48
Income from operations:
Net investment income (loss)................ 1.05 .89 2.11 1.00 .48
Net realized and unrealized
gain (loss) on investments................ 2.48 (2.25) (.18) (.11) 1.72
-------- ------- ------- ------- -------
Total income (loss) from operations....... 3.53 (1.36) 1.93 .89 2.20
-------- ------- ------- ------- -------
Accumulation unit value, end of period.......... $ 19.67 $ 16.14 $ 17.50 $ 15.57 $ 14.68
========= ======== ======== ======== ========
Total return.................................... 21.89% (7.77)% 12.40% 6.08% 17.63%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 10,066 $ 6,259 $ 6,985 $ 4,558 $ 3,055
Ratio of net investment income (loss)
to average net assets....................... 5.80% 5.57% 12.92% 6.69% 3.59%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
5
<PAGE>
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Growth Portfolio
(8,285,195.096 shares;
cost $ 202,613,364).................. $ 262,315,405
Accrued transfers from (to)
depositor - net........................ 151,700
-----------------
Total assets......................... 262,467,105
-----------------
LIABILITIES:............................... 0
-----------------
Total net assets..................... $ 262,467,105
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Growth sub-account
(6,329,021.828348 units;
$ 41.470406 unit value).............. $ 262,467,105
-----------------
Total equity......................... $ 262,467,105
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
INVESTMENT INCOME:
<S> <C>
Dividend income......................... $ 1,182,462
Capital gain distributions.............. 23,952,283
----------------
25,134,745
EXPENSES:
Mortality and expense risk charges...... 1,884,365
----------------
Net investment income (loss).......... 23,250,380
----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions.......................... 5,296,297
Change in unrealized appreciation
(depreciation)........................ 49,505,485
----------------
Net gain (loss) on investments........ 54,801,782
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 78,052,162
================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 23,250,380 $ 242,685
Net gain (loss) on investments......................................................... 54,801,782 (16,096,859)
---------------- ----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 78,052,162 (15,854,174)
---------------- ----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 61,850,933 37,295,869
---------------- ----------------
Less cost of units redeemed:
Administrative charges............................................................... 23,714,204 20,971,223
Policy loans......................................................................... 5,518,596 2,955,838
Surrender benefits................................................................... 8,982,170 5,498,322
Death benefits....................................................................... 711,078 282,972
---------------- ----------------
38,926,048 29,708,355
---------------- ----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 22,924,885 7,587,514
---------------- ----------------
Net increase (decrease) in equity accounts........................................... 100,977,047 (8,266,660)
EQUITY ACCOUNTS:
Beginning of period.................................................................... 161,490,058 169,756,718
---------------- ----------------
End of period.......................................................................... $ 262,467,105 $ 161,490,058
================ ================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
6
<PAGE>
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------
1995 1994 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 28.44 $ 31.30 $ 30.37 $ 29.95
Income from operations:
Net investment income (loss)................ 3.89 .04 .46 1.09
Net realized and unrealized
gain (loss) on investments................ 9.14 (2.90) .47 (.67)
--------- --------- --------- ---------
Total income (loss) from operations....... 13.03 (2.86) .93 .42
--------- --------- --------- ---------
Accumulation unit value, end of period.......... $ 41.47 $ 28.44 $ 31.30 $ 30.37
========== ========== ========== ==========
Total return.................................... 45.81% (9.13)% 3.06% 1.41%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 262,467 $ 161,490 $ 169,757 $ 146,053
Ratio of net investment income (loss)
to average net assets....................... 11.05% .16% 1.56% 3.84%
<CAPTION>
1991
---------
<S> <C>
Accumulation unit value, beginning of period.... $ 18.91
Income from operations:
Net investment income (loss)................ 1.72
Net realized and unrealized
gain (loss) on investments................ 9.32
---------
Total income (loss) from operations....... 11.04
---------
Accumulation unit value, end of period.......... $ 29.95
==========
Total return.................................... 58.37%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 111,375
Ratio of net investment income (loss)
to average net assets....................... 7.14%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
7
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Short-to-Intermediate Government
Portfolio
(142,006.075 shares;
cost $ 1,440,621)...................... $ 1,479,151
Accrued transfers from (to)
depositor - net.......................... 38,834
-----------------
Total assets........................... 1,517,985
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 1,517,985
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Short-to-Intermediate Government
sub-account
(131,385.750734 units;
$ 11.553647 unit value)................ $ 1,517,985
-----------------
Total equity........................... $ 1,517,985
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 72,133
Capital gain distributions............... 0
-----------------
72,133
EXPENSES:
Mortality and expense risk charges....... 10,047
-----------------
Net investment income (loss)........... 62,086
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... 2,109
Change in unrealized appreciation
(depreciation)......................... 66,278
-----------------
Net gain (loss) on investments......... 68,387
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 130,473
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 62,086 $ 37,124
Net gain (loss) on investments........................................................ 68,387 (49,327)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 130,473 (12,203)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 679,242 515,009
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 141,954 108,685
Policy loans........................................................................ 52,521 3,307
Surrender benefits.................................................................. 41,967 11,985
Death benefits...................................................................... 144 15,256
----------------- -----------------
236,586 139,233
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 442,656 375,776
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 573,129 363,573
Depositor's equity contribution (redemption).......................................... 0 (826,666)
EQUITY ACCOUNTS:
Beginning of period................................................................... 944,856 1,407,949
----------------- -----------------
End of period......................................................................... $ 1,517,985 $ 944,856
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
8
<PAGE>
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1995 1994 1993 1992/dagger/
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 10.27 $ 10.40 $ 10.04 $ 10.00
Income from operations:
Net investment income (loss)................ .61 .40 .14 .01
Net realized and unrealized
gain (loss) on investments................ .67 (.53) .22 .03
------- ------- ------- -------
Total income (loss) from operations....... 1.28 (.13) .36 .04
------- ------- ------- -------
Accumulation unit value, end of period.......... $ 11.55 $ 10.27 $ 10.40 $ 10.04
======== ======== ======== ========
Total return.................................... 12.53% (1.32)% 3.64% .38%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 1,518 $ 945 $ 1,408 $ 803
Ratio of net investment income (loss)
to average net assets....................... 5.53% 4.06% 1.39% .16%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was December 3, 1992. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
9
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Global Portfolio
(2,386,494.041 shares;
cost $ 33,426,846)..................... $ 37,028,035
Accrued transfers from (to)
depositor - net.......................... 20,662
-----------------
Total assets........................... 37,048,697
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 37,048,697
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Global sub-account
(3,080,374.719544 units;
$ 11.949748 unit value)................ $ 36,809,702
Depositors' equity:
Global sub-account
(20,000.000000 units;
$ 11.949748 unit value)................ 238,995
-----------------
Total equity........................... $ 37,048,697
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 37,966
Capital gain distributions............... 1,399,851
-----------------
1,437,817
EXPENSES:
Mortality and expense risk charges....... 250,072
-----------------
Net investment income (loss)........... 1,187,745
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... 153,618
Change in unrealized appreciation
(depreciation)......................... 4,472,385
-----------------
Net gain (loss) on investments......... 4,626,003
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 5,813,748
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 1,187,745 $ 763,643
Net gain (loss) on investments........................................................ 4,626,003 (875,349)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 5,813,748 (111,706)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 15,012,786 23,149,750
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 4,017,781 1,181,608
Policy loans........................................................................ 666,264 142,084
Surrender benefits.................................................................. 721,584 234,323
Death benefits...................................................................... 44,234 8,003
----------------- -----------------
5,449,863 1,566,018
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 9,562,923 21,583,732
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 15,376,671 21,472,026
Depositor's equity contribution (redemption).......................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period................................................................... 21,672,026 0
----------------- -----------------
End of period......................................................................... $ 37,048,697 $ 21,672,026
=================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
10
<PAGE>
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994/dagger/
-------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.80 $ 10.00
Income from operations:
Net investment income (loss)................ .45 .71
Net realized and unrealized
gain (loss) on investments................ 1.70 (.91)
-------- -----------
Total income (loss) from operations....... 2.15 (.20)
-------- -----------
Accumulation unit value, end of period.......... $ 11.95 $ 9.80
========= ===========
Total return.................................... 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 37,049 $ 21,672
Ratio of net investment income (loss)
to average net assets....................... 4.25% 7.39%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was March 1, 1994. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
11
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Equity-Income Portfolio
(3,079,777.685 shares;
cost $ 35,168,616)..................... $ 39,619,606
Accrued transfers from (to)
depositor - net.......................... 28,669
----------------
Total assets........................... 39,648,275
----------------
LIABILITIES:................................. 0
----------------
Total net assets....................... $ 39,648,275
================
EQUITY ACCOUNTS:
Policy Owners' equity:
Equity-Income sub-account
(2,885,803.576534 units;
$ 13.739076 unit value)................ $ 39,648,275
----------------
Total equity........................... $ 39,648,275
================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 1,009,870
Capital gain distributions............... 1,034,053
---------------
2,043,923
EXPENSES:
Mortality and expense risk charges....... 287,834
---------------
Net investment income (loss)........... 1,756,089
---------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... 220,725
Change in unrealized appreciation
(depreciation)......................... 4,771,750
---------------
Net gain (loss) on investments......... 4,992,475
---------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 6,748,564
===============
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 1,756,089 $ 347,798
Net gain (loss) on investments........................................................ 4,992,475 (596,517)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 6,748,564 (248,719)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 14,236,727 13,516,053
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 3,380,854 1,893,532
Policy loans........................................................................ 657,750 296,848
Surrender benefits.................................................................. 918,863 406,848
Death benefits...................................................................... 28,153 19,871
----------------- -----------------
4,985,620 2,617,099
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 9,251,107 10,898,954
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 15,999,671 10,650,235
Depositor's equity contribution (redemption).......................................... 0 (344,138)
EQUITY ACCOUNTS:
Beginning of period................................................................... 23,648,604 13,342,507
----------------- -----------------
End of period......................................................................... $ 39,648,275 $ 23,648,604
================= =================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
12
<PAGE>
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1995 1994 1993/dagger/
-------- -------- --------
<S> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss)................ .68 .18 .19
Net realized and unrealized
gain (loss) on investments................ 1.94 (.34) 1.09
-------- -------- --------
Total income (loss) from operations....... 2.62 (.16) 1.28
-------- -------- --------
Accumulation unit value, end of period.......... $ 13.74 $ 11.12 $ 11.28
========= ========= =========
Total return.................................... 23.55% (1.42)% 12.81%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 39,648 $ 23,649 $ 13,343
Ratio of net investment income (loss)
to average net assets....................... 5.47% 1.93% 1.89%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was March 1, 1993. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
13
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Emerging Growth Portfolio
(4,177,036.054 shares;
cost $ 53,301,177)..................... $ 67,854,423
Accrued transfers from (to)
depositor - net.......................... 50,530
----------------
Total assets........................... 67,904,953
----------------
LIABILITIES:................................. 0
----------------
Total net assets....................... $ 67,904,953
================
EQUITY ACCOUNTS:
Policy Owners' equity:
Emerging Growth sub-account
(4,100,892.510689 units;
$ 16.558579 unit value)................ $ 67,904,953
----------------
Total equity........................... $ 67,904,953
================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 10,599
Capital gain distributions............... 2,799,377
-----------------
2,809,976
EXPENSES:
Mortality and expense risk charges....... 453,072
-----------------
Net investment income (loss)........... 2,356,904
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... 276,206
Change in unrealized appreciation
(depreciation)......................... 15,904,664
-----------------
Net gain (loss) on investments......... 16,180,870
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 18,537,774
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 2,356,904 $ (242,847)
Net gain (loss) on investments........................................................ 16,180,870 (2,055,599)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 18,537,774 (2,298,446)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 21,556,186 25,803,270
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 5,846,452 3,746,668
Policy loans........................................................................ 1,387,434 725,423
Surrender benefits.................................................................. 1,602,690 533,353
Death benefits...................................................................... 38,971 42,065
----------------- -----------------
8,875,547 5,047,509
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 12,680,639 20,755,761
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 31,218,413 18,457,315
Depositor's equity contribution (redemption).......................................... 0 (390,327)
EQUITY ACCOUNTS:
Beginning of period................................................................... 36,686,540 18,619,552
----------------- -----------------
End of period......................................................................... $ 67,904,953 $ 36,686,540
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
14
<PAGE>
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1995 1994 1993/dagger/
-------- -------- --------
<S> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss)................ .65 (.09) (.09)
Net realized and unrealized
gain (loss) on investments................ 4.53 (.93) 2.49
-------- -------- --------
Total income (loss) from operations....... 5.18 (1.02) 2.40
-------- -------- --------
Accumulation unit value, end of period.......... $ 16.56 $ 11.38 $ 12.40
========= ========= =========
Total return.................................... 45.49% (8.18)% 23.96%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 67,905 $ 36,687 $ 18,620
Ratio of net investment income (loss)
to average net assets....................... 4.66% (.86)% (.77)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was March 1, 1993. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
15
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Aggressive Growth Portfolio
(2,477,941.266 shares;
cost $ 29,816,384)................... $ 32,833,608
Accrued transfers from (to)
depositor - net........................ 70,361
-----------------
Total assets......................... 32,903,969
-----------------
LIABILITIES:............................... 0
-----------------
Total net assets..................... $ 32,903,969
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Aggressive Growth sub-account
(2,450,804.260823 units;
$ 13.425784 unit value).............. $ 32,903,969
-----------------
Total equity......................... $ 32,903,969
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
INVESTMENT INCOME:
<S> <C>
Dividend income......................... $ 103
Capital gain distributions.............. 866,971
----------------
867,074
EXPENSES:
Mortality and expense risk charges...... 203,080
----------------
Net investment income (loss).......... 663,994
----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions.......................... 1,785,515
Change in unrealized appreciation
(depreciation)........................ 2,638,835
----------------
Net gain (loss) on investments........ 4,424,350
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 5,088,344
================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 663,994 $ (27,542)
Net gain (loss) on investments......................................................... 4,424,350 384,517
---------------- ----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 5,088,344 356,975
---------------- ----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 23,169,917 8,797,727
---------------- ----------------
Less cost of units redeemed:
Administrative charges............................................................... 2,568,298 379,087
Policy loans......................................................................... 627,821 72,785
Surrender benefits................................................................... 712,307 48,513
Death benefits....................................................................... 80,922 4,971
---------------- ----------------
3,989,348 505,356
---------------- ----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 19,180,569 8,292,371
---------------- ----------------
Net increase (decrease) in equity accounts........................................... 24,268,913 8,649,346
Depositor's equity contribution (redemption)........................................... (274,290) 260,000
EQUITY ACCOUNTS:
Beginning of period.................................................................... 8,909,346 0
---------------- ----------------
End of period.......................................................................... $ 32,903,969 $ 8,909,346
================ ================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
16
<PAGE>
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994/dagger/
-------- --------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.82 $ 10.00
Income from operations:
Net investment income (loss)................ .37 (.06)
Net realized and unrealized
gain (loss) on investments................ 3.24 (.12)
-------- --------
Total income (loss) from operations....... 3.61 (.18)
-------- --------
Accumulation unit value, end of period.......... $ 13.43 $ 9.82
======== ========
Total return.................................... 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 32,904 $ 8,909
Ratio of net investment income (loss)
to average net assets....................... 2.93% (.60)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was March 1, 1994. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
17
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Balanced Portfolio
(356,742.991 shares;
cost $ 3,481,188)...................... $ 3,793,788
Accrued transfers from (to)
depositor - net.......................... 1,606
-----------------
Total assets........................... 3,795,394
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 3,795,394
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Balanced sub-account
(321,143.504151 units;
$ 11.125506 unit value)................ $ 3,572,884
Depositors' equity:
Balanced sub-account
(20,000.000000 units;
$ 11.125506 unit value)................ 222,510
-----------------
Total equity........................... $ 3,795,394
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 128,272
Capital gain distributions............... 0
-----------------
128,272
EXPENSES:
Mortality and expense risk charges....... 25,637
-----------------
Net investment income (loss)........... 102,635
-----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions........................... (6,199)
Change in unrealized appreciation
(depreciation)......................... 407,748
-----------------
Net gain (loss) on investments......... 401,549
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 504,184
=================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 102,635 $ 30,401
Net gain (loss) on investments........................................................ 401,549 (115,505)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 504,184 (85,104)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 1,545,514 2,131,962
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 327,290 84,481
Policy loans........................................................................ 29,025 0
Surrender benefits.................................................................. 27,726 15,378
Death benefits...................................................................... 14,811 2,451
----------------- -----------------
398,852 102,310
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 1,146,662 2,029,652
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 1,650,846 1,944,548
Depositor's equity contribution (redemption).......................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period................................................................. 2,144,548 0
----------------- -----------------
End of period....................................................................... $ 3,795,394 $ 2,144,548
=================== =================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
18
<PAGE>
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994/dagger/
------- -------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.37 $ 10.00
Income from operations:
Net investment income (loss)................ .37 .22
Net realized and unrealized
gain (loss) on investments................ 1.39 (.85)
------- -------
Total income (loss) from operations....... 1.76 (.63)
------- -------
Accumulation unit value, end of period.......... $ 11.13 $ 9.37
======== ========
Total return.................................... 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 3,795 $ 2,145
Ratio of net investment income (loss)
to average net assets....................... 3.59% 2.55%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was March 1, 1994. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
19
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Utility Portfolio
(236,391.086 shares;
cost $ 2,384,572)...................... $ 2,629,535
Accrued transfers from (to)
depositor - net.......................... 1,547
-----------------
Total assets........................... 2,631,082
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 2,631,082
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Utility sub-account
(203,453.934332 units;
$ 11.774605 unit value)................ $ 2,395,590
Depositors' equity:
Utility sub-account
(20,000.000000 units;
$ 11.774605 unit value)................ 235,492
-----------------
Total equity........................... $ 2,631,082
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
INVESTMENT INCOME:
<S> <C>
Dividend income......................... $ 86,266
Capital gain distributions.............. 19,740
----------------
106,006
EXPENSES:
Mortality and expense risk charges...... 17,372
----------------
Net investment income (loss).......... 88,634
----------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions.......................... 44,646
Change in unrealized appreciation
(depreciation)........................ 291,882
----------------
Net gain (loss) on investments........ 336,528
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 425,162
================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 88,634 $ 23,434
Net gain (loss) on investments......................................................... 336,528 (58,002)
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 425,162 (34,568)
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 1,368,262 1,102,522
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 221,419 42,870
Policy loans......................................................................... 26,862 0
Surrender benefits................................................................... 126,576 6,295
Death benefits....................................................................... 2,896 3,378
---------------- -----------------
377,753 52,543
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 990,509 1,049,979
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 1,415,671 1,015,411
Depositor's equity contribution (redemption)........................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period.................................................................... 1,215,411 0
---------------- -----------------
End of period.......................................................................... $ 2,631,082 $ 1,215,411
================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
20
<PAGE>
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994/dagger/
------- --------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.49 $ 10.00
Income from operations:
Net investment income (loss)................ .49 .29
Net realized and unrealized
gain (loss) on investment................. 1.79 (.80)
------- --------
Total income (loss) from operations....... 2.28 (.51)
------- --------
Accumulation unit value, end of period.......... $11.77 $ 9.49
======== ========
Total return.................................... 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $2,631 $ 1,215
Ratio of net investment income (loss)
to average net assets....................... 4.57% 3.09%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date for this sub-account was March 1, 1994. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
21
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Tactical Asset Allocation Portfolio
(822,390.362 shares;
cost $ 8,835,438)...................... $ 9,451,157
Accrued transfers from (to)
depositor - net.......................... (5,300)
-----------------
Total assets........................... 9,445,857
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 9,445,857
=================
EQUITY ACCOUNTS:
Policy Owners' equity:
Tactical Asset Allocation sub-account
(793,585.197167 units;
$ 11.902763 unit value)................ $ 9,445,857
-----------------
Total equity........................... $ 9,445,857
=================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
INVESTMENT INCOME: DECEMBER 31, 1995*
<S> <C>
Dividend income......................... $ 193,985
Capital gain distributions.............. 171,580
------------------
365,565
EXPENSES:
Mortality and expense risk charges...... 51,394
------------------
Net investment income (loss).......... 314,171
------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities
transactions.......................... 118,155
Change in unrealized appreciation
(depreciation)........................ 615,719
------------------
Net gain (loss) on investments........ 733,874
------------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 1,048,045
==================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995*
<S> <C>
OPERATIONS:
Net investment income (loss)................................................................................. $ 314,171
Net gain (loss) on investments............................................................................... 733,874
------------------
Net increase (decrease) in equity accounts
resulting from operations.................................................................................. 1,048,045
------------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).......................................................................... 9,081,189
------------------
Less cost of units redeemed:
Administrative charges..................................................................................... 434,848
Policy loans............................................................................................... 145,685
Surrender benefits......................................................................................... 70,630
Death benefits............................................................................................. 22,440
------------------
673,603
------------------
Increase (decrease) in equity accounts from
capital unit transactions................................................................................ 8,407,586
------------------
Net increase (decrease) in equity accounts................................................................. 9,455,631
Depositor's equity contribution (redemption)................................................................. (9,774)
EQUITY ACCOUNTS:
Beginning of period.......................................................................................... 0
------------------
End of period................................................................................................ $ 9,445,857
====================
</TABLE>
* The inception of this sub-account was January 3, 1995.
The notes to the financial statements, are an integral part of this report.
- --------------------------------------------------------------------------------
22
<PAGE>
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31, 1995/dagger/
-----------------
<S> <C>
Accumulation unit value, beginning of period................. $ 10.00
Income from operations:
Net investment income (loss)............................. .61
Net realized and unrealized
gain (loss) on investments............................. 1.29
-----------
Total income (loss) from operations.................... 1.90
-----------
Accumulation unit value, end of period....................... $ 11.90
===========
Total return................................................. 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands)................. $ 9,446
Ratio of net investment income (loss)
to average net assets.................................... 5.47%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
/dagger/ The inception date of this sub-account was January 3, 1995. The total
return and ratio of net investment income to average net assets are not
annualized.
The notes to the financial statements, are an integral part of this report.
- --------------------------------------------------------------------------------
23
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account") was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under the
Investment Company Act of 1940, as amended. The Life Account contains eleven
investment options referred to as sub-accounts. Each sub-account invests in the
corresponding portfolio of the WRL Series Fund, Inc. (the "Fund"), a registered
management investment company under the Investment Company Act of 1940, as
amended. These portfolios and their respective investment management
organizations are as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT MANAGER
--------- ------------------------
<S> <C>
Money Market Janus Capital Corporation
("JCC")
Bond JCC
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc. ("AEGON
Management")
Global JCC
Equity-Income Luther King Capital
Management Corporation
Emerging Growth Van Kampen American Capital
Asset Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AEGON Management
Utility Federated Investment
Counseling
Tactical Asset Dean Investment Associates
Allocation
</TABLE>
WRL and AEGON Management are indirectly wholly-owned subsidiaries of AEGON
USA, Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a
Netherlands corporation.
On January 3, 1995, WRL made an initial contribution of $200,000 to the
Life Account, Tactical Asset Allocation sub-account, for which WRL received
20,000.000000 units. On April 20, 1995, WRL redeemed the initial contribution in
the Life Account, Tactical Asset Allocation sub-account, for $209,775.
The Life Account holds assets to support the benefits under flexible
premium variable universal life insurance policies (the "Policies") issued by
WRL, which issued the first of such Policies on October 3, 1986. The Life
Account's equity transactions are accounted for using the appropriate effective
date at the corresponding accumulation unit value.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently used in preparation of the Trust's financial statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on December 31, 1995.
Investment transactions are accounted for on the trade date, using the Fund
NAV next determined after receipt of sale or redemption order without sales
charges. Dividend income and capital gain distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, sales and other administrative charges are
deducted by WRL prior to allocation of policyowner payments to the
sub-accounts. Thereafter, monthly administrative charges are deducted from
the sub-accounts, some of which continue only during the first policy year.
Contingent surrender charges may also apply.
- --------------------------------------------------------------------------------
24
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 - CHARGES AND DEDUCTIONS (CONTINUED)
Under the other forms of the Policies, such "front-end" and other
administrative charges are not deducted prior to allocation of the initial
premium payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net assets
of the Life Account is assessed to compensate WRL for assumption of
mortality and expense risks in connection with issuance and administration
of the Policies. This charge (not assessed at the individual policy level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are declared and
reinvested semiannually, while capital gain distributions are declared and
reinvested annually. Dividends and distributions of the Fund are generally paid
to and reinvested by the Life Account the next business day after declaration.
NOTE 4 - OTHER MATTERS
As of December 31, 1995 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
<TABLE>
<S> <C>
SUB-ACCOUNT
- -----------------
Money Market.......................... $ n/a
Bond.................................. 152,765
Growth................................ 59,702,041
Short-to-Intermediate Government...... 38,530
Global................................ 3,601,189
Equity-Income......................... 4,450,990
Emerging Growth....................... 14,553,246
Aggressive Growth..................... 3,017,224
Balanced.............................. 312,600
Utility............................... 244,963
Tactical Asset Allocation............. 615,719
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1995 and 1994, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
The Company presents its financial statements in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Ohio. The variances between such practices and generally accepted accounting
principles are described in Note 1. The effects of these variances are not
reasonably determinable but we believe they are material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Western
Reserve Life Assurance Co. of Ohio at December 31, 1995 and 1994, or the results
of its operations or its cash flows for each of the three years in the period
ended December 31, 1995.
<PAGE>
In addition, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Ohio. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic statutory-basis
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 23, 1996
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
DECEMBER 31
1995 1994
----------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 4,999 $ 46,722
Bonds 452,474 423,758
Stocks:
Preferred, at market (cost: $78 in 1994) - 14
Common, at market (cost: $473 in 1995 and
$1,944 in 1994) 834 2,541
Mortgage loans on real estate 6,181 9,539
Home office properties, at cost less accumulated
depreciation ($1,505 in 1995 and $1,358 in 1994 5,121 4,818
Policy loans 37,125 27,520
----------------------------
Total cash and invested assets 506,734 514,912
Premiums deferred and uncollected 1,787 1,763
Accrued investment income 7,565 7,505
Receivable from affiliates 4,337 481
Other assets 4,264 3,504
Separate account assets 2,419,205 1,596,736
----------------------------
Total admitted assets $ 2,943,892 $2,124,901
============================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
DECEMBER 31
1995 1994
-----------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 73,163 $ 84,689
Annuity 319,353 314,124
Policy and contract claim reserves 6,612 5,119
Other policyholders' funds 2,384 2,495
Remittances and items not allocated 5,136 4,613
Federal income taxes payable 1,417 96
Asset valuation reserve 5,590 8,491
Interest maintenance reserve 6,392 6,720
Payable to affiliate - 674
Other liabilities 10,102 8,239
Separate account liabilities 2,415,804 1,594,621
-----------------------------
Total liabilities 2,845,953 2,029,881
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 28,424 25,505
-----------------------------
Total capital and surplus 97,939 95,020
=============================
Total liabilities and capital and surplus $2,943,892 $2,124,901
=============================
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Operations - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life $ 191,508 $150,991 $107,008
Annuity 378,390 449,141 449,361
Net investment income 40,891 40,139 46,197
Amortization of interest maintenance reserve 882 726 618
Commissions and expense allowances on
reinsurance ceded 11 12 14
Other income 8,237 6,354 4,322
---------------------------------------
619,919 647,363 607,520
Benefits and expenses:
Benefits paid or provided for:
Death, surrender and other life insurance and
annuity benefits 243,658 230,511 111,785
Increase (decrease) in aggregate reserves for
policies and contracts:
Life (15,023) (11,332) (4,259)
Annuity 5,229 (78,590) (12,486)
---------------------------------------
233,864 140,589 95,040
Insurance expenses:
Net transfers to separate accounts 242,427 386,174 414,357
Commissions 82,903 78,168 60,975
General insurance expenses 37,246 33,100 24,701
Taxes, licenses and fees 8,919 5,931 5,682
---------------------------------------
371,495 503,373 505,715
---------------------------------------
605,359 643,962 600,755
---------------------------------------
Gain from operations before federal income
taxes and realized capital gains (losses) on
investments 14,560 3,401 6,765
Federal income tax expense 8,917 3,406 4,206
---------------------------------------
Gain (loss) from operations before realized capital
gains (losses) on investments 5,643 (5) 2,559
Netrealized capital gains (losses) on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve) (1,678) (1,133) 2,348
---------------------------------------
Net income (loss) $ 3,965 $ (1,138) $ 4,907
=======================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
Additional Total
Common Paid-In Unassigned Capital and
Stock Capital Surplus Surplus
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $1,500 $23,015 $19,109 $43,624
Net income for 1993 - - 4,907 4,907
Net unrealized capital gains - - 1,503 1,503
Decrease in non-admitted assets - - 5,535 5,535
Increase in asset valuation reserves - - (1,706) (1,706)
Increase in surplus in separate accounts - - 633 633
Dividend to stockholder - - (5,600) (5,600)
Other adjustments - - 513 513
--------------------------------------------------------
Balance at December 31, 1993 1,500 23,015 24,894 49,409
Capital contribution - 45,000 - 45,000
Net loss for 1994 - - (1,138) (1,138)
Net unrealized capital losses - - (9) (9)
Decrease in non-admitted assets - - 368 368
Decrease in asset valuation reserves - - 4,321 4,321
Decrease in surplus in separate accounts - - (748) (748)
Other adjustments - - (2,183) (2,183)
--------------------------------------------------------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 - - 3,965 3,965
Net unrealized capital losses - - (500) (500)
Decrease in non-admitted assets - - 903 903
Decrease in asset valuation reserve - - 2,901 2,901
Decrease in surplus in separate accounts - - 541 541
Change in reserve valuation - - (3,496) (3,496)
Other adjustments - - (1,395) (1,395)
--------------------------------------------------------
Balance at December 31, 1995 $1,500 $68,015 $28,424 $97,939
========================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of reinsurance $ 569,934 $ 600,405 $ 556,353
Net investment income 42,359 41,977 47,424
Other income 8,052 6,311 4,245
-----------------------------------
620,345 648,693 608,022
Life claims (16,759) (14,660) (12,820)
Surrender benefits and other fund withdrawals (206,250) (196,169) (81,902)
Other benefits to policyholders (19,041) (18,251) (17,385)
Commissions, other expenses and taxes (128,314) (119,755) (92,572)
Dividends to policyholders (26) (22) (44)
Federal income taxes (7,531) (3,378) (3,573)
Net increase in policy loans (9,605) (4,496) (4,686)
Net transfers to separate accounts (242,427) (386,174) (414,357)
-----------------------------------
Net cash used by operations (9,608) (94,212) (19,317)
Proceeds from investments sold, matured or repaid:
Bonds and redeemable preferred stock 108,554 99,241 203,547
Common stocks 2,108 80,066 81,391
Mortgage loans on real estate 1,954 132 764
Real estate -- -- 109
Miscellaneous -- (28) --
-----------------------------------
Total cash from investments 112,616 179,411 285,811
Capital contribution -- 45,000 --
Other sources 2,830 6,135 5,899
-----------------------------------
Total sources of cash 105,838 136,334 272,393
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 139,402 47,214 165,967
Common stocks 589 65,911 82,767
Mortgage loans on real estate 6 1,004 290
Real estate 449 37 478
-----------------------------------
Total investments acquired 140,446 114,166 249,502
Dividend to stockholder -- -- 5,600
Other applications, net 7,115 6,086 1,959
-----------------------------------
Total applications of cash 147,561 120,252 257,061
-----------------------------------
Net change in cash and short-term investments (41,723) 16,082 15,332
Cash and short-term investments at beginning of year 46,722 30,640 15,308
-----------------------------------
Cash and short-term investments at end of year $ 4,999 $ 46,722 $ 30,640
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis
(Dollars in thousands)
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ in some respects from generally accepted
accounting principles. The more significant of these differences are as follows:
(a) bonds are generally carried at amortized cost rather than segregating the
portfolio into held-to-maturity (carried at amortized cost), available-for-sale
(carried at fair value), and trading (carried at fair value) classifications;
(b) acquisition costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of the
policies; (c) policy reserves on traditional life products are based on
statutory mortality rates and interest which may differ from reserves based on
reasonable assumptions of expected mortality, interest, and withdrawals which
include a provision for possible unfavorable deviation from such assumptions;
(d) policy reserves on certain investment products use discounting methodologies
utilizing statutory interest rates rather than full account values; (e)
reinsurance amounts are netted against the corresponding receivable or payable
rather than shown as gross amounts on the balance sheet; (f) deferred income
taxes are not provided for the difference between the financial statement and
income tax bases of assets and liabilities; (g) net realized gains or losses
attributed to changes in the
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) declines
in the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as a
liability) changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated as
"non-admitted assets" have been charged to surplus rather than being reported as
assets; (j) revenues for universal life and investment products consist of
premiums received rather than policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; and (k) pension expense is recorded as amounts are paid. The
effects of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1996,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount includes $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates prospectively when such assumptions are
changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks are carried at market and include shares of mutual funds (money market
and other). Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other "admitted assets" are valued,
principally at cost, as required or permitted by Ohio Insurance Laws.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1995, 1994 and 1993, net realized capital gains of $554, $436 and $4,270,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$882, $726 and $618 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1995, 1994 and 1993, the
Company excluded investment income due and accrued of $1, $237 and $0,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by law.
The aggregate policy reserves for traditional life insurance policies are based
principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25% to 5.50% and are computed principally on the Net Level Valuation and the
Commissioner's Reserve Valuation Method (CRVM). Reserves for universal life
policies are based on account balances adjusted for the CRVM.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method plus excess interest reserves to cover situations where
the future interest guarantees plus the decrease in surrender charges are in
excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 7.00% to 9.25% and mortality rates, where appropriate, from a variety of
tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNT
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $467,142, $533,536 and $489,243
in 1995, 1994 and 1993, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those estimates
can only be made at excessive cost. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS: The carrying amounts
reported in the statutory-basis balance sheet for these instruments
approximate their fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices and are recognized in the statutory-basis
balance sheet.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 452,474 $ 479,656 $ 423,758 $ 414,541
Stocks 834 834 2,555 2,555
Mortgage loans on real estate 6,181 6,536 9,539 7,915
Policy loans 37,125 37,125 27,520 27,520
Cash and short-term investments 4,999 4,999 46,722 46,722
Separate account assets 2,419,205 2,419,205 1,596,736 1,596,736
LIABILITIES
Investment contract liabilities 309,556 279,347 302,890 245,161
Separate account annuities 1,930,590 1,930,590 1,316,237 1,316,237
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government 15,079 940 - 16,019
Public utilities 16,143 1,425 - 17,568
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
---------------------------------------------------------
Total bonds $ 452,474 $28,101 $919 $479,656
=========================================================
</TABLE>
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and
agencies $ 11,277 $ 17 $ 1,048 $ 10,246
State, municipal and other
government 13,117 - 423 12,694
Public utilities 13,296 75 432 12,939
Industrial and miscellaneous 238,389 3,668 7,543 234,514
Mortgage-backed securities 147,679 1,597 5,128 144,148
---------------------------------------------------------
Total bonds 423,758 5,357 14,574 414,541
Preferred stock 14 - - 14
---------------------------------------------------------
$ 423,772 $ 5,357 $14,574 $414,555
=========================================================
</TABLE>
Preferred stock required writedowns for the securities not in good standing to
fair values of $64 in 1994.
The carrying value and fair value of bonds at December 31, 1995 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
ESTIMATED
CARRYING FAIR
VALUE VALUE
--------------------------
Due in one year or less $ 23,820 $ 23,842
Due one through five years 109,362 114,336
Due five through ten years 91,534 101,034
Due after ten years 37,881 42,579
--------------------------
262,597 281,791
Mortgage and other asset backed securities 189,877 197,865
--------------------------
$ 452,474 $479,656
==========================
<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
1995 1994 1993
----------------------------------
Interest on bonds $38,047 $37,318 $43,744
Dividends on equity investments 30 700 1,533
Interest on mortgage loans 573 616 832
Interest on policy loans 2,353 1,830 1,465
Other investment income 1,919 1,802 1,010
----------------------------------
Gross investment income 42,922 42,266 48,584
Investment expenses (2,031) (2,127) (2,387)
----------------------------------
Net investment income $40,891 $40,139 $46,197
==================================
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
Proceeds $108,554 $99,241 $203,547
=====================================
Gross realized gains $ 1,631 $ 2,019 $ 7,584
Gross realized losses 1,346 1,362 703
-------------------------------------
Net realized gains $ 285 $ 657 $ 6,881
=====================================
At December 31, 1995, bonds with an aggregate carrying value of $4,483 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Debt securities $ 285 $ 657 $6,881
Equity securities - (1,579) -
Mortgage loans (1,409) - -
Real estate - - (37)
------------------------------------------
(1,124) (922) 6,844
Tax effect - 225 (226)
Transfer to interest maintenance reserve (554) (436) (4,270)
------------------------------------------
Net realized gains (losses) $(1,678) $(1,133) $2,348
==========================================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Debt securities $36,399 $(43,354) $5,598
Common stock (236) 1,009 1,581
------------------------------------
Change in unrealized appreciation (depreciation) $36,163 $(42,345) $7,179
====================================
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED
---------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
Unrealized gains $361 $597 $1,045
Unrealized losses - - 1,457
---------------------------------
Net unrealized gains (losses) $361 $597 $ (412)
=================================
The Company issued no mortgage loans during 1995. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1995, 1994 and 1993, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1995, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
1995 1994 1993
--------------------------------------------
Direct premiums $570,413 $600,608 $556,641
Reinsurance assumed 1,569 1,232 1,015
Reinsurance ceded (2,084) (1,708) (1,287)
--------------------------------------------
Net premiums earned $569,898 $600,132 $556,369
============================================
The Company received reinsurance recoveries in the amount of $512, $1,146 and
$1,135 during 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2 and $85, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1995 and 1994 of $848 and $807,
respectively.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $5,096 $1,190 $2,368
Purchase accounting tax adjustments - - (424)
Deferred acquisition costs - tax basis 4,241 4,043 3,395
Tax reserve valuation (49) (1,353) (817)
Investment income differences 85 (109) (192)
Amortization of IMR (309) (254) (216)
Other, net (147) (111) 92
----------------------------------
Federal income tax expense $8,917 $3,406 $4,206
==================================
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1995). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service. The agreed upon settlement totaled $2.26 million in taxes and
interest. The Company's former parent company, Kansas City Southern Industries,
is principally liable for reimbursing this amount to the Company under the terms
of an indemnification agreement made coincident with the sale of the Company. A
charge to surplus of $1.8 million was made as a prior period adjustment related
to this assessment.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately 7.7% and 8.2% of life
insurance in force at December 31, 1995 and 1994, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------- --------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 13,422 1% $ 12,345 1%
Subject to discretionary withdrawal at
book value less surrender charge 60,970 3 73,733 4
Subject to discretionary withdrawal at
market value 1,930,590 85 1,316,237 81
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 227,549 10 207,779 13
Not subject to discretionary withdrawal
provision 20,034 1 22,788 1
-------------------- -------------------
2,252,565 100% 1,632,882 100%
========= ========
Less reinsurance ceded - -
---------- -----------
Total policy reserves on annuities and
deposit fund liabilities $2,252,565 $1,632,882
========== ==========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1995 and 1994, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
GROSS LOADING NET
----------------------------------
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 - 379
Reinsurance ceded (100) - (100)
----------------------------------
$2,033 $246 $1,787
==================================
DECEMBER 31, 1994
Ordinary direct first year business $ 46 $ 17 $ 29
Ordinary direct renewal business 1,649 252 1,397
Group life direct business 362 - 362
Reinsurance ceded (25) - (25)
----------------------------------
$2,032 $269 $1,763
==================================
At December 31, 1995 and 1994, the Company had insurance in force aggregating
$2,374 and $3,403, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $32 and $40 to cover these deficiencies at December 31, 1995 and
1994, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $3,496 and $450 was
made for the years ended December 31, 1995 and 1994, respectively, related to
the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The maximum dividend payout which may be made without prior
approval in 1996 is approximately $9,644.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $505, $397 and $249 for the years ended
December 31, 1995, 1994 and 1993, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $305, $250 and $176 for the years ended
December 31, 1995, 1994 and 1993, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $86, $70 and
$0 for the years ended December 31, 1995, 1994 and 1993, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives investment advisory and management services from certain
affiliates. During 1995, 1994 and 1993, the Company paid $8,825, $7,497 and
$4,583, respectively, for such services, which approximates their costs to the
affiliates. The Company provides office space, marketing and administrative
services to certain affiliates. During 1995, 1994 and 1993, the Company received
$4,545, $3,261 and $1,900, respectively, for such services, which approximates
their cost. The Company had a receivable (payable) with affiliates of $3,625 and
$(674) at December 31, 1995 and 1994, respectively.
The Company paid a cash dividend to its immediate parent, First AUSA Life
Insurance Company, of $5,600 in 1993, and during 1994 received capital
contributions of $45,000.
The Company has an agreement with an affiliate through which net agents debit
balances are sold for cash. The net non-admitted assets sold during 1995, 1994
and 1993 aggregated $5,887, $3,553 and $4,555, respectively.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,445 at December 31, 1995 for its estimated share of future
guaranty fund assessments related to several post major insurer insolvencies. An
asset of $1,319 at December 31, 1995 has been recorded relating to anticipated
offsets available for certain state premium taxes to be utilized in future
periods. The guaranty fund expense was $1,950, $618 and $329 at December 31,
1995, 1994 and 1993, respectively.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Summary of Investments Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1995
<TABLE>
<CAPTION>
SCHEDULE I
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and govern-
ment agencies and authorities $108,398 $112,590 $108,213
Foreign governments 15,196 16,019 15,079
Public utilities 16,179 17,568 16,143
All other corporate bonds 315,676 333,479 313,039
------------------------------------------------
Total fixed maturities 455,449 479,656 452,474
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 473 834 834
------------------------------------------------
Total equity securities 473 834 834
Mortgage loans on real estate 6,181 6,536 6,181
Real estate 5,121 5,121 5,121
Policy loans 37,125 37,125 37,125
Cash and short-term investments 4,999 4,999 4,999
------------------------------------------------
Total investments $509,348 $534,271 $506,734
================================================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts. Real estate is net of accumulated depreciation.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
---------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Individual life $ 65,259 $41 $5,811
Group life and health 7,904 - 701
Annuity 319,353 - 100
-------------------------------------------
$392,516 $41 $6,612
===========================================
YEAR ENDED DECEMBER 31, 1994
Individual life $ 77,366 $52 $4,501
Group life 7,323 - 481
Annuity 314,124 - 137
-------------------------------------------
$ 398,813 $52 $5,119
===========================================
YEAR ENDED DECEMBER 31, 1993
Individual life $ 78,371 $56 $2,757
Group life 17,380 - 488
Annuity 392,714 - 763
-------------------------------------------
$ 488,465 $56 $4,008
===========================================
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS OTHER
PREMIUM REVENUE INVESTMENT AND CLAIMS OPERATING PREMIUMS
REVENUE INCOME EXPENSES EXPENSES WRITTEN
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$188,143 $ 9,470 $ 36,066 $ 83,675 $ 99,115
3,365 1,054 2,217 946 780
378,390 30,367 205,375 44,447 342,949
- ----------------------------------------------------------------------------------------------
$569,898 $40,891 $243,658 $129,068 $442,844
==============================================================================================
$147,282 $10,146 $ 29,272 $ 71,807 $ 89,467
3,709 372 1,754 1,329 1,846
449,141 29,621 199,485 44,063 421,176
- ----------------------------------------------------------------------------------------------
$600,132 $40,139 $230,511 $117,199 $512,489
==============================================================================================
$101,621 $10,943 $ 24,086 $ 52,514 $ 62,600
5,387 201 1,293 1,104 4,063
449,361 35,053 86,406 37,740 419,037
- ----------------------------------------------------------------------------------------------
$556,369 $46,197 $111,785 $ 91,358 $485,700
==============================================================================================
</TABLE>
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
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, 1995
Life insurance in force $21,057,581 $1,365,119 $ - $19,692,462 0.0%
=============================================================================
Premiums:
Individual life $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life and health 2,153 357 1,569 3,365 46.6
Annuity 378,390 - - 378,390 0.0
-----------------------------------------------------------------------------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=============================================================================
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $1,090,845 $1,271,402 $14,501,943 8.8%
=============================================================================
Premiums:
Individual life $ 148,766 $ 1,484 $ - $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 - - 449,141 0.0
-----------------------------------------------------------------------------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=============================================================================
YEAR ENDED DECEMBER 31, 1993
Life insurance in force $ 9,881,904 $ 851,042 $1,009,201 $10,040,063 10.1%
=============================================================================
Premiums:
Individual life $ 102,817 $ 1,196 $ - $ 101,621 0.0%
Group life 4,463 91 1,015 5,387 18.8
Annuity 449,361 - - 449,361 0.0
-----------------------------------------------------------------------------
$ 556,641 $ 1,287 $ 1,015 $ 556,369 0.2%
=============================================================================
</TABLE>
