As filed with the Securities and Exchange Commission on April 18, 1997
Registration File Nos. 33-69138/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
POST-EFFECTIVE AMENDMENT NO. 9
FORM S-6
---------------------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
---------------------------------
WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 33770
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Vice President and Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
---------------------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on date, pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2, the Registrant has chosen to register an indefinite
amount of securities being offered. The Rule 24f-2 Notice for Registrant's most
recent fiscal year was filed on February 21, 1997.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- - ----------- ---------------------
1 Cover Page; The Series Account
2 Cover Page; Western Reserve Life Assurance Co. of Ohio
3 Not Applicable
4 Distribution of the Policies
5 The Series Account
6 The Series Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Introduction; Policy Benefits; Payment and Allocation
of Premiums; Investments of the Series Account;
Policy Rights
11 The Series Account; WRL Series Fund, Inc.
12 The Series Account; WRL Series Fund, Inc.
13 Charges and Deductions; The Series Account;
Investments of the Series Account
14 Introduction; Allocation of Premiums and Cash Value
15 Allocation of Premiums and Cash Value
16 The Series Account
17 Cash Value; The Series Account; Policy Rights
18 Payment and Allocation of Premiums; Cash Value
19 Voting Rights of the Series Account; Reports and Records
(i)
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- - ----------- ---------------------
20 Not Applicable
21 Loan Privileges
22 Not Applicable
23 Safekeeping of the Series Account's Assets
24 Policy Rights
25 Western Reserve Life Assurance Co. of Ohio
26 Not Applicable
27 Western Reserve Life Assurance Co. of Ohio; The
Series Account; WRL Series Fund, Inc.
28 Western Reserve Life Assurance Co. of Ohio; Executive
Officers and Directors of Western Reserve Life
Assurance Co. of Ohio
29 Western Reserve Life Assurance Co. of Ohio
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Western Reserve Life Assurance Co. of Ohio
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
(ii)
<PAGE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- - ----------- ---------------------
40 Not Applicable
41 Distribution of the Policies; Western Reserve Life
Assurance Co. of Ohio
42 Not Applicable
43 Not Applicable
44 Cash Value
45 Not Applicable
46 Cash Value
47 Introduction; Allocation of Premiums and Cash Value
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Introduction; Western Reserve Life Assurance Co. of
Ohio; Policy Benefits; Charges and Deductions
52 The Series Account; WRL Series Fund, Inc.
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
(iii)
<PAGE>
WRL FREEDOM WEALTH PROTECTOR(R)
JOINT SURVIVORSHIP 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 joint survivorship flexible premium variable life insurance policy
("Policy") issued by Western Reserve Life Assurance Co. of Ohio
("Western Reserve") and described in this Prospectus is designed to
provide lifetime insurance protection and maximum flexibility in connection with
premium payments and death benefits. A Policyowner may, subject to certain
restrictions, vary the timing and amount of premium payments and increase or
decrease the level of life insurance benefits payable under the Policy. This
flexibility allows a Policyowner to provide for changing insurance needs under a
single life insurance policy. The minimum Specified Amount for a Policy at issue
is generally $100,000.
The Policy provides a death benefit payable upon the death of the Surviving
Insured, and a Net Surrender Value that can be obtained by completely or
partially surrendering the Policy. Net premiums are allocated according to the
Policyowner's directions among the Sub-Accounts of the WRL Series Life Account
("Series Account"), or to a fixed interest account ("Fixed Account")
or a combination of both. With respect to amounts allocated to Sub-Accounts of
the Series Account, the amount of the death benefit may, and the Cash Value
will, vary to reflect both the investment experience of the Sub-Accounts and the
timing and amount of additional premium payments. However, as long as the Policy
remains In Force, Western Reserve guarantees that the death benefit will never
be less than the Specified Amount of the Policy. While additional premium
payments are not required under the Policy, additional premium payments may be
necessary to prevent Lapse if there is insufficient Net Surrender Value.
The Policy provides a free-look period. The Policyowner may cancel the
Policy within 10 days after the Policyowner receives it, or 10 days after
Western Reserve mails or delivers a written notice of withdrawal right to the
Policyowner, or within 45 days after signing the application, whichever is
latest. Certain states require a free-look period longer than 10 days, either
for all Policyowners or for certain classes of Policyowners.
The assets of each Sub-Account of the Series Account will be invested
solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the
"Fund"). The Prospectus for the Fund describes the investment objectives
and the risks of investing in the Portfolios of the Fund corresponding to the
Sub-Accounts currently available under the Policy. The Policyowner bears the
entire investment risk for all amounts allocated to the Series Account; there is
no guaranteed minimum Cash Value.
It may not be to your advantage to replace existing insurance or supplement
an existing flexible premium variable life insurance policy with a policy
described in this Prospectus.
Please read this Prospectus and the Prospectus for the Fund carefully and
retain for future reference.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR DEPOSITORY INSTITUTION, AND THE POLICY IS NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS
FOR THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL
STATES. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
Prospectus Dated May 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS ................................................ 1
INTRODUCTION ............................................. 3
INVESTMENT EXPERIENCE INFORMATION ........................ 7
Rates of Return .......................................... 7
Death Benefit, Cash Value and Net Surrender
Value Illustrations ....................................... 8
Other Performance Data .................................... 13
WESTERN RESERVE AND THE
SERIES ACCOUNT ............................................. 14
Western Reserve Life Assurance Co.
of Ohio ................................................... 14
The Series Account ....................................... 14
POLICY BENEFITS .......................................... 14
Death Benefit ............................................. 14
When Insurance Coverage Takes Effect ..................... 16
Terminal Illness Accelerated Death
Benefit Rider ............................................. 17
Cash Value ................................................ 17
INVESTMENTS OF THE SERIES ACCOUNT ........................ 18
WRL Series Fund, Inc. .................................... 18
Addition, Deletion, or Substitution
of Investments .......................................... 21
PAYMENT AND ALLOCATION OF PREMIUMS ........................ 21
Issuance of a Policy .................................... 21
Premiums ................................................ 21
Allocation of Premiums and Cash Value ..................... 22
Dollar Cost Averaging .................................... 23
Asset Rebalancing Program ................................. 24
Policy Lapse and Reinstatement ........................... 24
CHARGES AND DEDUCTIONS .................................... 25
Premium Expense Charges ................................. 25
Contingent Surrender Charges ........................... 26
Cash Value Charges ....................................... 27
Optional Cash Value Charges .............................. 28
Charges Against the Series Account ........................ 28
Expenses of the Fund .................................... 28
Group or Sponsored Policies .............................. 29
Employee/Associate Policies .............................. 29
POLICY RIGHTS ............................................. 29
Loan Privileges .......................................... 29
Surrender Privileges .................................... 30
Examination of Policy Privilege ("Free-Look") ............ 31
Conversion Rights ....................................... 31
Policy Split Option ....................................... 31
Benefits at Maturity .................................... 32
Payment of Policy Benefits .............................. 32
PAGE
----
GENERAL PROVISIONS ....................................... 32
Postponement of Payments ................................. 32
The Contract ............................................. 32
Suicide ................................................... 33
Incontestability ....................................... 33
Change of Owner or Beneficiary ........................... 33
Assignment ................................................ 33
Misstatement of Age or Sex .............................. 33
Reports and Records ....................................... 33
Optional Insurance Benefits .............................. 33
THE FIXED ACCOUNT .......................................... 34
Fixed Account Value ....................................... 34
Minimum Guaranteed and Current
Interest Rates .......................................... 34
Allocations, Transfers and Withdrawals .................. 34
DISTRIBUTION OF THE POLICIES .............................. 35
FEDERAL TAX MATTERS ....................................... 35
Introduction ............................................. 35
Tax Charges ............................................. 35
Tax Status of the Policy ................................. 35
Tax Treatment of Policy Benefits ........................ 36
Employment-Related Benefit Plans ........................ 38
SAFEKEEPING OF THE SERIES
ACCOUNT'S ASSETS .......................................... 38
VOTING RIGHTS OF THE SERIES ACCOUNT ........................ 38
STATE REGULATION OF WESTERN
RESERVE ................................................... 38
REINSURANCE ................................................ 38
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE ....................................... 39
LEGAL MATTERS ............................................. 40
LEGAL PROCEEDINGS .......................................... 40
EXPERTS ................................................... 40
ADDITIONAL INFORMATION .................................... 40
INFORMATION ABOUT
WESTERN RESERVE'S
FINANCIAL STATEMENTS ....................................... 40
APPENDIX A - ILLUSTRATION
OF BENEFITS ................................................ 41
APPENDIX B - LONG TERM MARKET
TRENDS ................................................... 45
INDEX TO FINANCIAL
STATEMENTS ................................................ 47
</TABLE>
The Policy is not available in all States.
i
<PAGE>
DEFINITIONS
ACCOUNTS - Allocation options including the Fixed Account and Sub-Accounts
of the Series Account.
ATTAINED AGE - For each Joint Insured, the Issue Age plus the number of
completed Policy years.
ANNIVERSARY - The same day and month as the Policy Date for each
succeeding year the Policy remains In Force.
BENEFICIARY - The person or persons specified by the Owner as entitled to
receive the death benefit proceeds under the Policy.
CASH VALUE - The sum of the values in each Sub-Account plus the Policy's
value in the Fixed Account.
FIXED ACCOUNT - An allocation option other than the Series Account. Part
of Western Reserve's General Account.
FUND - WRL Series Fund, Inc., a registered management investment company
in which the assets of the Series Account are invested.
GENERAL ACCOUNT - The assets of Western Reserve other than those allocated
to the Series Account or any other separate account.
GUIDELINE PREMIUM - The level annual premium payment necessary to provide
the benefits selected by the Policyowner under the Policy through its Maturity
Date, based on the particular facts relating to the Insureds and certain
assumptions allowed by law. The dollar amount of the Guideline Premium is shown
on the Policy's Schedule Page.
IN FORCE - Condition under which the coverage is active and both
Insureds' lives remain insured.
INITIAL PREMIUM - The amount which must be paid before coverage begins.
ISSUE AGE - For each Joint Insured, issue age refers to the age on the
Insured's birthday nearest the Policy Date.
JOINT INSUREDS - The persons whose lives are insured under the Policy.
LAPSE - Termination of the Policy at the end of the grace period.
LOAN RESERVE - A part of the Fixed Account to which amounts are
transferred as collateral for Policy loans.
MATURITY DATE - The date when coverage under the Policy will terminate if
either of the Insureds is living and the Policy is In Force.
MONTHLY ANNIVERSARY OR MONTHIVERSARY - The same date in each succeeding
month as the Policy Date. For purposes of the Series Account, whenever the
Monthly Anniversary falls on a date other than a Valuation Date, the Monthly
Anniversary will be deemed to be the next Valuation Date.
NET SURRENDER VALUE - The amount payable upon surrender of the Policy
equal to the Cash Value less indebtedness and less any surrender charge.
NET PREMIUM - The portion of the premium available for allocation to
either the Fixed Account or the Sub- Accounts of the Series Account equal to the
premium paid by the Policyowner less the applicable premium expense charges.
NO LAPSE DATE - Either, (1) the later of attained target premium age 65 or
five Policy years, or (2) the later of attained target premium age 75 or ten
Policy years, as selected by the Policyowner at time of application for the
Policy.
NO LAPSE PERIOD - The period of time between the Policy Date and the No
Lapse Date, during which the Policy will not Lapse if certain conditions are
met, even though Net Surrender Value is insufficient to meet the monthly
deduction.
OFFICE - The administrative office of Western Reserve whose mailing
address is P. O. Box 5068, Clearwater, Florida 34618-5068.
PLANNED PERIODIC PREMIUM - A scheduled premium of a level amount at a
fixed interval over a specified period of time.
POLICY - The joint survivorship flexible premium variable life insurance
policy offered by Western Reserve and described in this Prospectus.
POLICY DATE - The date set forth in the Policy when insurance coverage is
effective and monthly deductions commence under the Policy. The Policy Date is
used to determine Policy years and Policy Months. Policy Anniversaries are
measured from the Policy Date.
POLICY MONTH - A month beginning on the Monthly Anniversary.
POLICYOWNER(S) ("OWNER(S)") - The person(s) who owns the Policy, and
who may exercise all rights under the Policy while either or both Joint Insureds
are living. If two Owners are named, the Policy will be owned jointly and the
consent of each Owner will be required to exercise ownership rights.
PORTFOLIO - A separate investment portfolio of the Fund.
RECORD DATE - The date the Policy is recorded on the books of Western
Reserve as an In Force Policy.
SERIES ACCOUNT - WRL Series Life Account, a separate investment account
established by Western Reserve to receive and invest Net Premiums allocated
under the Policy.
SPECIFIED AMOUNT - The minimum death benefit payable under the Policy as
long as the Policy remains In Force. The death benefit proceeds will be reduced
by any outstanding indebtedness and any due and unpaid charges.
SUB-ACCOUNT - A sub-division of the Series Account. Each Sub-Account
invests exclusively in the shares of a specified Portfolio of the Fund.
SURVIVING INSURED - The Joint Insured who remains alive after the other
Joint Insured has died.
1
<PAGE>
TERMINATION - Condition when either of the Joint Insured's lives is no
longer insured under the coverage provided.
VALUATION DATE - Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD - The period commencing at the end of one Valuation Date
and continuing to the end of the next succeeding Valuation Date.
2
<PAGE>
INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL
FIXED-BENEFIT POLICY PRIOR TO THE DEATH OF AN INSURED?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide: (1) the accumulation of Cash
Value; and (2) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate Net Premiums to one or more Sub-Accounts
of the Series Account, or to the Fixed Account, or to a combination of both.
Each Sub-Account invests in a designated Portfolio of the Fund. The amount
and/or duration of the life insurance coverage and the Cash Value of the
Policy are not guaranteed and may increase or decrease depending upon the
investment experience of the Series Account. Accordingly, the Policyowner
bears the investment risk of any depreciation in value of the underlying
assets of the Series Account but reaps the benefits of any appreciation in
value. (See Allocation of Premiums and Cash Value - Allocation of Net
Premiums, p. 22.) Unlike conventional fixed-benefit life insurance, a
Policyowner also has the flexibility, subject to certain restrictions (see
Premiums - Premium Limitations, p. 22), to vary the frequency and amount of
premium payments and to decrease the Specified Amount. Thus, unlike
conventional fixed-benefit life insurance, the Policy does not require a
Policyowner to adhere to a fixed premium schedule. Moreover, the failure to
pay a scheduled premium ("Planned Periodic Premium") will not itself cause
the Policy to lapse, although additional premium payments may be necessary
to prevent lapse if Net Surrender Value is insufficient to pay certain
monthly charges, and a grace period expires without a sufficient payment.
(See Policy Lapse and Reinstatement - Lapse, p. 24.)
2. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL
FIXED-BENEFIT POLICY UPON THE DEATH OF AN INSURED?
Under a conventional fixed-benefit life insurance Policy, only one
person is insured. Upon the insured's death, the Policy terminates and the
death benefit is paid to the beneficiary. Under a joint survivorship Policy,
two people are insured. When one of the two insureds dies with the other
insured still living, no death benefit is paid, and the Policy continues
without any change in the Policy provisions, charges or cash value
accumulation. The Owner(s) may continue to pay premiums, as necessary or
desired, and exercise all rights as Owner(s) under the Policy.
3. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the
Surviving Insured. The Policy contains two death benefit options. Under
Death Benefit Option A, the death benefit is the greater of the Specified
Amount of the Policy or a specified percentage times the Cash Value of the
Policy on the date of death of the Surviving Insured. Under Death Benefit
Option B, the death benefit is the greater of the Specified Amount of the
Policy plus the Cash Value of the Policy on the date of death of the
Surviving Insured or a specified percentage times the Cash Value of the
Policy on the date of death of the Surviving Insured. As long as the Policy
remains In Force, the minimum death benefit payable under either option will
be the current Specified Amount. The amount of death benefit will be reduced
by any outstanding indebtedness and any due and unpaid charges, and
increased by any additional insurance benefits added by rider and any
unearned loan interest. Under Western Reserve's current rules, the minimum
Specified Amount for a Policy at issue is generally $100,000. The minimum
Specified Amount will be set forth in the Policyowner's Policy. (See Policy
Benefits - Death Benefit, p. 14.)
Optional insurance benefits offered under the Policy include a Joint
Insured Term Rider; an Individual Insured Rider; and a Wealth Protector
Rider. (See Optional Cash Value Charges - Optional Insurance Benefits, p.
28.) 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. 27.)
A Terminal Illness Accelerated Death Benefit Rider is automatically
included with every Policy at no additional charge (this Rider may not be
available in all states). This rider makes a "Single Sum Benefit" available
prior to an Insured's death if the Insured has incurred a condition
resulting from illness which, as determined by a Physician, has reduced the
Insured's life expectancy as defined in the rider. (See Policy Benefits -
Terminal Illness Accelerated Death Benefit Rider, p. 17.)
Benefits under the Policy may be paid in a lump sum or under one of the
settlement options set forth in the Policy. (See Payment of Policy Benefits
- Settlement Options, p. 32.)
4. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under either death benefit option, as long as the Policy remains In
Force, the death benefit will not be
3
<PAGE>
less than the current Specified Amount of the Policy. The amount of death
benefit will be reduced by any outstanding policy loan, plus any unearned
loan interest, and any due and unpaid charges. The death benefit may,
however, exceed the Specified Amount under certain circumstances. The amount
by which the death benefit exceeds the Specified Amount depends upon the
option chosen and the Cash Value of the Policy. (See Policy Benefits - Death
Benefit, p. 14.)
The Policy's Cash Value in the Series Account will reflect the amount
and frequency of premium payments, the investment experience of the chosen
Sub-Accounts of the Series Account, any partial surrenders, and any charges
imposed in connection with the Policy. The entire investment risk for
amounts allocated to the Sub- Accounts of the Series Account is borne by the
Policyowner; Western Reserve does not guarantee a minimum Cash Value. (See
Policy Benefits - Cash Value, p. 17.)
5. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE
DEATH BENEFIT?
The Policyowner has the flexibility to adjust the death benefit payable
by changing the Death Benefit Option type, by decreasing the Specified
Amount of the Policy or by adding riders to increase the total death benefit
payable. No such change or decrease may be requested during the first three
Policy years. The Policyowner may either change the death benefit option or
decrease the Specified Amount, but not both, only once each Policy year
after the third Policy year. (See Death Benefit - Change in Death Benefit
Option, p. 15.)
6. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE IN CONNECTION WITH PREMIUM
PAYMENTS?
A Policyowner has considerable flexibility concerning the amount and
frequency of premium payments. An Initial Premium at least equal to a
minimum monthly first year premium as set forth in the Policy must be paid
before insurance coverage is In Force. (See Policy Benefits - When Insurance
Coverage Takes Effect, p. 16.) Thereafter, a Policyowner may, subject to
certain restrictions, make premium payments in any amount and at any
frequency. (See Payment and Allocation of Premiums - Premiums, p. 21.) Each
Policyowner will also determine a Planned Periodic Premium schedule. The
schedule will provide Planned Periodic Premium payments of a level amount at
a fixed interval over a specified period of time. The amount and frequency
of planned premium payments will be set forth in the Policy. The amount and
frequency of Planned Periodic Premium payments may be changed upon written
request. (See Premiums - Planned Periodic Premiums, p. 21.)
7. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will Lapse only when Net Surrender Value is insufficient to
pay the monthly deduction (see Charges and Deductions - Cash Value Charges,
p. 27), providing excess indebtedness does not exceed the Policy's Cash
Value, and a grace period expires without a sufficient payment by the
Policyowner. (See Loan Privileges - Indebtedness, p. 30.) However, until the
No Lapse Date as provided in the Policy, the Policy will remain In Force and
no grace period will begin provided the total premiums received (minus any
withdrawals and minus any outstanding loans) equal or exceed the minimum
monthly guarantee premium shown in the Policy times the number of months
since the Policy Date, including the current month. The Policy, therefore,
differs in two important respects from a conventional life insurance policy.
First, the failure to pay a Planned Periodic Premium will not automatically
cause the Policy to Lapse. Second, after the No Lapse Date, the Policy can
Lapse even if Planned Periodic Premiums or premiums in other amounts have
been paid, if Net Surrender Value is insufficient to pay the monthly
deduction, and a grace period expires without a sufficient payment. Such a
Lapse could happen if the investment experience has been sufficiently
unfavorable to have resulted in a decrease in the Net Surrender Value, or
the Net Surrender Value has decreased because not enough premiums have been
paid to offset the monthly deduction. If either Insured is alive and the
Policy is In Force on the Maturity Date, which is the younger Insured's
100th birthday, the Policy will then terminate and no longer be In Force.
Upon request, Western Reserve will extend the Maturity Date as long as there
appears to be no unfavorable tax consequences. The Net Surrender Value as of
the Maturity Date will be paid to the Policyowner. (See Policy Rights -
Benefits at Maturity, p. 32.)
8. HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("Net Premium")
equals the premium paid less the premium expense charges. (See Charges and
Deductions - Premium Expense Charges, p. 25.) The Policyowner initially
determines the allocation of the Net Premium among the Sub-Accounts of the
Series Account, each of which invests in shares of a designated Portfolio of
the Fund, or to the Fixed Account, or a combination. Each Portfolio has a
different investment objective. (See Investments of the Series Account - WRL
Series Fund, Inc., p. 18.) The allocation of future Net Premiums may be
changed without charge at any time by providing Western Reserve with written
notification from the Policyowner, or by calling Western Reserve's toll-free
number, 1-800-851-9777.
4
<PAGE>
9. IS THERE A "FREE-LOOK" PERIOD?
Yes, the Policy provides a free-look period. The Policyowner may cancel
the Policy within 10 days after the Policyowner receives it, or 10 days
after Western Reserve mails or delivers a written notice of withdrawal right
to the Policyowner, or within 45 days after signing the application,
whichever is latest. Certain states require a Free-Look period longer than
10 days, either for all Policyowners or for certain classes of Policyowners.
In most states, Western Reserve will refund the value of the amounts
allocated to the Accounts plus any charges previously deducted. In certain
states, the refund will be the total of all premiums paid. (See Policy
Rights - Examination of Policy Privilege, p. 31.)
10. MAY THE POLICY BE SURRENDERED?
Yes, the Policyowner may totally surrender the Policy at any time and
receive the Net Surrender Value of the Policy. Subject to certain
limitations, the Policyowner may also make cash withdrawals from the Policy
at any time after the first Policy year and prior to the Maturity Date. (See
Policy Rights - Surrender Privileges, p. 30.) If Death Benefit Option A is
in effect, cash withdrawals will reduce the Policy's Specified Amount by the
amount of the cash withdrawal.
11. WHAT IS THE LOAN PRIVILEGE?
After the first Policy Anniversary, a Policyowner may obtain a Policy
loan in any amount which is not greater than 90% of the Cash Value less any
surrender charge and any already outstanding loan. Western Reserve reserves
the right to permit a Policy loan prior to the first Policy Anniversary for
Policies issued pursuant to a transfer of cash values from another life
insurance policy, 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. 35.)
The interest rate on a loan is 5.2% payable annually in advance. The
requested loan amount, plus interest in advance, will be transferred from
the Accounts to the Loan Reserve and credited at the end of each Policy year
with guaranteed interest at a rate of 4% per year. Western Reserve may from
time to time, and in its sole discretion, credit the Loan Reserve with
additional interest at a rate higher than 4% per year. The Loan Reserve is
currently being credited with a rate higher than 4% per year. The minimum
loan amount is generally $500. (See Policy Rights - Loan Privileges, p. 29.)
Upon repayment of a loan, amounts in the Loan Reserve in excess of the
outstanding value of the loan are currently transferred to the Accounts in
the same manner as Net Premium allocations; however, Western Reserve may in
the future require these amounts to be transferred to the Fixed Account.
(See The Fixed Account, p. 34.)
There are risks involved in taking a Policy loan, including 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. 36.)
12. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?
Certain charges are deducted from each premium. A sales charge equal to
3.5% of the premiums paid through the end of the tenth Policy year is
deducted to compensate Western Reserve for distribution expenses incurred in
connection with the Policy. A charge of 2.5% of each premium is deducted to
compensate Western Reserve for premium taxes imposed by various states. (See
Charges and Deductions - Premium Expense Charges, p. 25.)
A "surrender charge" (part of which is a contingent deferred sales
charge) is deducted if the Policy is surrendered during the first 15 Policy
years. The surrender charge consists of a deferred issue charge of $5.00 per
$1,000 of Specified Amount; the surrender charge also consists of a deferred
sales charge equal to 26.5% of one Guideline Premium and not more than 4.2%
of premiums above that amount. A declining percentage of the surrender
charge is assessed after the tenth year. (See Charges and Deductions -
Contingent Surrender Charges, p. 26.)
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. 28.)
A cost of insurance charge and a $5.00 monthly administration charge
are deducted monthly from the Cash Value of each Policy to compensate
Western Reserve for the cost of insurance and the cost of administering the
Policy. Cost of insurance charges will vary with the Policy's Specified
Amount, the death benefit option chosen and the investment experiences of
the Portfolios in which the Policy is invested. (See Charges and Deductions
- Cash Value Charges, p. 27.) A Death Benefit Guarantee Charge is deducted
up until the No Lapse Date selected by the Policyowner on the application.
The amount of this charge is set forth on the Policy Schedule Page and will
be $0.04 per $1,000 of Specified Amount for all classes of Policies. On and
after the No Lapse Date selected, this charge will be zero. (See Charges and
Deductions - Cash Value Charges, p. 27.)
5
<PAGE>
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. 28.)
Each Sub-Account invests in a corresponding Portfolio of the Fund. Each
Portfolio pays investment management fees based on a percentage of the
Portfolio's average daily net assets. The annual management fees and other
Fund expenses for the Portfolios are provided on p. 7, under the heading
Fund Annual Expenses. Effective January 1, 1997, the Fund adopted a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan")
and pursuant to the Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-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. 18.)
No charges are currently made from the Series Account for Federal or
state income taxes. Should Western Reserve determine that such taxes may be
imposed by Federal or state agencies, Western Reserve may make deductions
from the Series Account to pay these taxes. (See Federal Tax Matters, p.
35.)
13. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS?
Yes. Twelve Cash Value transfers are permitted among the Sub-Accounts
of the Series Account or from the Sub-Accounts to the Fixed Account without
charge in a Policy year. Western Reserve will impose a $10 charge for each
subsequent transfer. (See Payment and Allocation of Premiums - Allocation of
Premiums and Cash Value, p. 22.) 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. 34.)
14. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
Under current Federal tax law, life insurance policies receive
tax-favored treatment. The death benefit is generally excludable from the
beneficiary's gross income for Federal income tax purposes, according to
Section 101(a)(1) of the Internal Revenue Code. Owners of a life insurance
policy are not taxed on any increase in the cash value while the policy
remains In Force.
If a second-to-die life insurance policy is a modified endowment
contract under Federal tax law, certain distributions made during either
insured's lifetime, such as loans and partial withdrawals from, and
collateral assignments of, the policy are includable in gross income on an
income-first basis. A 10% penalty tax may also be imposed on distributions
made before the policyowner attains age 59-1/2. Life insurance policies that
are not modified endowment contracts under Federal tax law receive
preferential tax treatment with respect to certain distributions.
For a discussion of tax issues associated with this Policy, see
"Federal Tax Matters" on p. 35.
6
<PAGE>
FUND ANNUAL EXPENSES* (AS A % OF FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees ..................... 0.80% 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.18% 0.14% 0.08% 0.19%
Total Fund Annual Expenses ............ 0.98% 0.94% 0.88% 0.99%
<CAPTION>
SHORT-TO-
C.A.S.E. INTERMEDIATE
BALANCED VALUE EQUITY GROWTH GOVERNMENT
PORTFOLIO PORTFOLIO** PORTFOLIO PORTFOLIO
------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
Management Fees ..................... 0.80% 0.80% 0.80% 0.60%
Other Expenses (after reimbursement) ... 0.17% 0.20% 0.20% 0.16%
Total Fund Annual Expenses ............ 0.97% 1.00% 1.00% 0.76%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC GROWTH &
BOND TOTAL RETURN INCOME
PORTFOLIO PORTFOLIO*** PORTFOLIO****
------------ --------------- ----------------
<S> <C> <C> <C>
Management Fees ..................... 0.50% 0.80% 0.75%
Other Expenses (after reimbursement) ... 0.14% 0.11% 0.25%
Total Fund Annual Expenses ............ 0.64% 0.91% 1.00%
<CAPTION>
TACTICAL
MONEY ASSET INTERNATIONAL
MARKET ALLOCATION EQUITY U.S. EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO**
------------ ------------- --------------- ------------
<S> <C> <C> <C> <C>
Management Fees ........................ 0.40% 0.80% 1.00% 0.80%
Other Expenses (after reimbursement) ... 0.12% 0.10% 0.30% 0.25%
Total Fund Annual Expenses ............ 0.52% 0.90% 1.30% 1.05%
<FN>
- - ---------------
* Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant
to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the
Plan, has entered into a Distribution Agreement with InterSecurities, Inc.
("ISI"), principal underwriter for the Fund. Under the Distribution Plan,
the Fund, on behalf of the Portfolios, is authorized to pay to various
service providers, as direct payment for expenses incurred in connection
with the distribution of a Portfolio's shares, amounts equal to actual
expenses associated with distributing a Portfolio's shares, up to a maximum
rate of 0.15% (fifteen one- hundredths of one percent) on an annualized
basis of the average daily net assets. This fee is measured and accrued
daily and paid monthly. ISI has determined that it will not seek payment by
the Fund of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI's seeking reimbursement,
Policyowners will be notified in advance.
** Because the Value Equity Portfolio commenced operations on May 1, 1996 the
"Other Expenses" and "Total Fund Annual Expenses" are annualized. Because
the International Equity and U.S. Equity Portfolios commenced operations on
January 2, 1997, the percentages set forth as "Other Expenses" and "Total
Fund Annual Expenses" are estimates.
*** Prior to May 1, 1997, this Portfolio was known as Equity-Income.
**** Prior to May 1, 1997, this Portfolio was known as Utility.
</FN>
</TABLE>
The purpose of the preceding Table is to assist the Policyowner in
understanding the various costs and expenses that a Policyowner will bear
directly and indirectly. The Table reflects charges and expenses of the Separate
Account as well as the Portfolios of the Fund for the fiscal year ended December
31, 1996, except that the "Other Expenses" and "Total Fund Annual Expenses" for
the Value Equity Portfolio are annualized and the "Other Expenses" and "Total
Fund Annual Expenses" for the International Equity and U.S. Equity Portfolios
are estimates. Expenses of the Fund may be higher or lower in the future.
Certain states and other governmental entities may impose a premium tax, which
the Table does not include. For more information on the charges described in
this Table, see "Charges And Deductions" on page 25 and the Fund Prospectus
which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30,
1998, to pay Fund expenses on behalf of the Portfolios to the extent normal
operating expenses of a Portfolio exceed a stated percentage of each Portfolio's
average daily net assets. In 1996, Western Reserve, the Fund's Investment
Adviser prior to January 1, 1997, reimbursed the Value Equity Portfolio in the
amount of $13,672, and the C.A.S.E. Growth Portfolio in the amount of $73,269.
Without such reimbursement, the total annual Fund expenses during 1996 for the
Value Equity Portfolio and the C.A.S.E. Growth Portfolio would have been 1.03%
and 1.64%, respectively. See the Fund's Prospectus for a description of the
expense limitation applicable to each Portfolio.
INVESTMENT EXPERIENCE INFORMATION
THE INFORMATION PROVIDED IN THIS SECTION SHOWS THE HISTORICAL INVESTMENT
EXPERIENCE OF THE FUND AND HYPOTHETICAL ILLUSTRATIONS OF THE POLICY BASED ON THE
HISTORICAL INVESTMENT EXPERIENCE OF THE FUND. IT DOES NOT REPRESENT OR PROJECT
FUTURE INVESTMENT PERFORMANCE.
The Policies became available for sale in January of 1994. The Series
Account and the Fund commenced operations on October 2, 1986. The rates of
return shown below depict the historic investment experience of each Portfolio
of the Fund for the periods shown and assumes that the rate of return for each
Portfolio in each calendar year was uniformly earned throughout the year. The
actual performance of the Portfolios, however, has and will vary throughout the
year, and will result in variable monthly deductions from Cash Value that could
affect performance. 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 for Insureds in the age
and risk classes indicated, based on the historical investment experience of the
Portfolio indicated since January 1, 1987. The actual rate of return in each
calendar year was assumed to be uniformly earned throughout that year.
RATES OF RETURN
The rates of return shown below are based on the investment performance, as
described above, after the deduction of investment management fees and direct
Fund expenses, of the Portfolios of the Fund. The rates are average annual
compounded rates of return for the periods ended on December 31, 1996. (See
Investments of the Series Account - WRL Series Fund, Inc., p. 18.)
7
<PAGE>
These rates of return do not reflect the annual charge against the assets of
the Series Account of 0.90% for mortality and expense risks. These rates of
return also do not reflect the charges deducted from premiums, monthly
deductions from Cash Value, or surrender charges. (See Charges and Deductions -
Premium Expense Charges, p. 25; Contingent Surrender Charges, p. 26; and Cash
Value Charges, p. 27.) 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. 8.)
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. As an
unmanaged index, the Standard & Poor's Index of 500 Common Stocks does not
reflect any deductions for the expense of operating and managing an investment
portfolio.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
FUND PORTFOLIO INCEPTION* 5 YEARS 3 YEARS 1 YEAR
- - ---------------------- ---------- ------- ------- -------
<S> <C> <C> <C> <C>
Growth 17.66% 11.11% 16.75% 17.96%
Global 20.82% N/A 16.37% 27.74%
Bond 7.63% 6.77% 4.65% 0.14%
Short-to-Intermediate
Government 5.18% N/A 5.37% 3.48%
Money Market 4.98% 4.99% 3.86% 5.03%
Emerging Growth 20.04% N/A 17.37% 18.88%
Strategic Total
Return** 13.36% N/A 12.55% 15.00%
Aggressive Growth 15.50% N/A N/A 10.45%
Balanced 8.19% N/A N/A 10.72%
Growth & Income*** 10.69% N/A N/A 11.64%
Tactical Asset
Allocation 17.27% N/A N/A 14.42%
C.A.S.E. Growth 23.22% N/A N/A 17.50%
Value Equity 13.19% N/A N/A N/A
Standard & Poor's
Index of 500
Common Stocks 15.46% 15.22% 19.68% 22.96%
<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 Strategic Total Return Portfolios commenced operations
on March 1, 1993. The Aggressive Growth, Balanced and Growth & Income
Portfolios commenced operations on March 1, 1994. The Tactical Asset
Allocation Portfolio commenced operations on January 3, 1995. The C.A.S.E.
Growth Portfolio commenced operations on May 1, 1995. The Value Equity
Portfolio commenced operations on May 1, 1996. The Standard & Poor's Index
of 500 Common Stocks returns are based on an inception date of October 2,
1986.
** Prior to May 1, 1997, this Portfolio was known as Equity-Income.
*** Prior to May 1, 1997, this Portfolio was known as Utility.
</FN>
</TABLE>
Because the U.S. Equity Portfolio and International Equity Portfolio had not
yet commenced operations as of December 31, 1996, the above chart does not
reflect rates of return for these Portfolios.
Additional information regarding the investment performance of the
Portfolios of the Fund appears in the attached Prospectus for the Portfolios of
the Fund.
DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS
In order to demonstrate how the historic investment experience of the
Portfolios would have affected the Option B death benefits, the Policy Cash
Value and Net Surrender Value, the following hypothetical illustrations are
based on the historic investment experience of each Portfolio as if the Policy
had been available for sale and issued on January 1, 1987. The historic rate of
return in each calendar year was assumed to be uniformly earned throughout that
year. The actual performance of the Portfolios, however, has and will vary
throughout the year, and will result in variable monthly deductions from Cash
Values that could affect performance. These illustrations do not represent what
may happen in the future.
The illustrations show Option B based on the payment of annual premiums of
$4,000 at the beginning of each Policy year, and a Specified Amount of $250,000
for a male age 55 and a female age 55. The illustrations also assume that the
Joint Insureds are placed in Western Reserve's Select underwriting rate class.
(See Cash Value Charges - Cost of Insurance, p. 27.) The illustrations also
assume that the Policy's entire Cash Value is allocated to the Sub-Account
corresponding to the Portfolio shown. The illustrated values would be different
if the Policyowner had chosen Option A death benefits.
The amounts shown for death benefits, Cash Values and Net Surrender Values
take into account all charges and deductions from the Policy, the Series Account
and the Fund (see Charges and Deductions - Premium Expense Charges, p. 25,
Charges Against the Series Account, p. 26, and Investments of the Series Account
- - - WRL Series Fund, Inc., p. 18).
For each Portfolio of the Fund, one illustration is based on the guaranteed
cost of insurance rates, while the other illustration is based on the current
cost of insurance rates. These examples of Policy performance are for the
specific ages, sexes, rate class, premium payment pattern and Policy set forth
above. The amount and timing of premium payments would affect individual Policy
benefits as would any withdrawals or loans.
This Prospectus also contains illustrations based on assumed rates of
return. See Appendix A, pp. 41-44.
The following example shows how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1987. This example assumes that the Net Premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
8
<PAGE>
GROWTH PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option B
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 .............................. $3,969 $3,969 $1,659 $1,659
1989* ........................... 8,689 8,689 6,039 6,039
1990* ........................... 18,134 18,134 15,316 15,316
1991* ........................... 20,961 20,961 17,975 17,975
1992* ........................... 38,967 38,967 35,813 35,813
1993* ........................... 42,918 42,913 39,596 39,591
1994* ........................... 47,317 47,295 43,827 43,804
1995* ........................... 45,863 45,814 42,205 42,156
1996* .............................. 72,172 72,038 68,346 68,212
1997* .............................. 87,418 87,179 83,424 83,185
<FN>
- - ------------
* For the years 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 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option B
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 .............................. $3,384 $3,384 $1,074 $1,074
1989* ........................... 7,343 7,343 4,693 4,693
1990* ........................... 12,452 12,452 9,634 9,634
1991* ........................... 16,889 16,889 13,903 13,903
1992* ........................... 23,585 23,585 20,431 20,431
1993* ........................... 28,901 28,896 25,579 25,574
1994* ........................... 35,773 35,749 32,283 32,259
1995* ........................... 36,123 36,072 32,464 32,413
1996* .............................. 47,989 47,871 44,163 44,045
1997* .............................. 50,300 50,107 46,305 46,112
<FN>
- - ----------
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
9
<PAGE>
The following example shows how the hypothetical net return of the Money
Market Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1987. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
MONEY MARKET PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option B
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 .............................. $3,759 $3,759 $1,449 $1,449
1989* ........................... 7,692 7,692 5,042 5,042
1990* ........................... 12,007 12,007 9,189 9,189
1991* ........................... 16,478 16,478 13,492 13,492
1992* ........................... 20,759 20,759 17,605 17,605
1993* ........................... 24,664 24,659 21,342 21,337
1994* ........................... 28,389 28,366 24,899 24,876
1995* ........................... 32,444 32,390 28,786 28,732
1996* .............................. 37,182 37,076 33,356 33,249
1997* .............................. 41,874 41,684 37,880 37,690
<FN>
- - -------------
* For the years 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, and if the Global Portfolio had been offered through the Policy as of
January 1, 1993. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
GLOBAL PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option B
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 .............................. $4,799 $4,799 $2,489 $2,489
1995* ........................... 8,310 8,310 5,659 5,659
1996* .............................. 14,487 14,487 11,669 11,669
1997* .............................. 22,406 22,406 19,419 19,419
<FN>
- - ------------
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
10
<PAGE>
The following example shows how the hypothetical net return of the
Short-to-Intermediate Government Portfolio of the Fund would have affected
benefits for a Policy dated January 1, 1993, and if the Short-to-Intermediate
Government Portfolio had been offered through the Policy as of January 1, 1993.
This example assumes that Net Premiums and related Cash Values were in the
Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option B
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 .............................. $3,689 $3,689 $1,379 $1,379
1995* ........................... 7,137 7,137 4,487 4,487
1996* .............................. 12,009 12,009 9,191 9,191
1997* .............................. 15,829 15,829 12,843 12,843
<FN>
- - --------
* For the years 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 Emerging
Growth Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1994, if the Emerging Growth Portfolio had been offered by the Policy
as of January 1, 1994. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
EMERGING GROWTH PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $3,282 $3,282 $ 972 $ 972
1996* .............................. 10,065 10,065 7,415 7,415
1997* .............................. 15,828 15,828 13,010 13,010
<FN>
- - ----------
* For the years 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 Strategic
Total Return Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1994, if the Strategic Total Return Portfolio had been offered
by the Policy as of January 1, 1994. This example assumes that Net Premiums and
related Cash Values were in the Sub-Account for the entire period and that the
values were determined on the first Valuation Date following January 1st of each
year.
STRATEGIC TOTAL RETURN PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $3,536 $3,536 $1,226 $1,226
1996* .............................. 8,816 8,816 6,166 6,166
1997* .............................. 13,890 13,890 11,072 11,072
<FN>
- - ---------
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
11
<PAGE>
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 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $5,002 $5,002 $2,692 $2,692
1997* .............................. 9,267 9,267 6,616 6,616
<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 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 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $4,274 $4,274 $1,964 $1,964
1997* .............................. 8,498 8,498 5,848 5,848
<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 Growth &
Income Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1995. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
GROWTH & INCOME PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $4,488 $4,488 $2,178 $2,178
1997* .............................. 8,743 8,743 6,093 6,093
<FN>
- - ----------
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
</FN>
</TABLE>
12
<PAGE>
The following example shows how the hypothetical net return of the Tactical
Asset Allocation Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1995, if the Tactical Asset Allocation Portfolio had been
offered by the Policy as of January 1, 1995. This example assumes that Net
Premiums and related Cash Values were in the Sub-Account for the entire period
and that the values were determined on the first Valuation Date following
January 1st of each year.
TACTICAL ASSET ALLOCATION PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
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 .............................. $4,309 $4,309 $1,999 $1,999
1997* .............................. 8,813 8,813 6,163 6,163
<FN>
- - ----------
* For the years 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 C.A.S.E.
Growth Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1996, if the C.A.S.E. Growth Portfolio had been offered by the Policy
as of January 1, 1996. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
C.A.S.E. GROWTH PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
---------------------------- ----------------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED
- - ------------------------------------
<S> <C> <C> <C> <C>
1997 .............................. $4,125 $4,125 $1,815 $1,815
</TABLE>
Because the Value Equity Portfolio commenced operations on May 1, 1996, and
the U.S. Equity Portfolio and International Equity Portfolio had not commenced
operations as of December 31, 1996, there are no hypothetical illustrations for
these Portfolios.
OTHER PERFORMANCE DATA
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable life
issuers in general, or to the performance of particular types of variable life
insurance policies investing in mutual funds, or investment series of mutual
funds, with investment objectives similar to each of the Sub- Accounts whose
performance is reported by Lipper Analytical Services, Inc. ("Lipper") and
Morningstar, Inc. ("Morningstar") or reported by other services, companies,
individuals or other industry or financial publications of general interest,
such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK, BARRON'S,
KIPLINGER'S PERSONAL FINANCE and FORTUNE. 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
13
<PAGE>
example, Sub-Account performance may be compared with Donoghue Money Market
Institutional Average (money market rates), Lehman Brothers Corporate Bond Index
(corporate bond interest rates) or Lehman Brothers Government Bond Index
(long-term U.S. Government obligation interest rates).
WESTERN RESERVE AND THE SERIES ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. The Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
5068, Clearwater, FL 34618-5068. Western Reserve is a wholly-owned subsidiary of
First AUSA Life Insurance Company ("First AUSA"), a stock life insurance company
which is wholly-owned by AEGON USA, Inc. ("AEGON"). AEGON is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON is a wholly- owned indirect
subsidiary of AEGON nv, a Netherlands corporation, which is a publicly traded
international insurance group.
PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to time
publish in advertisements, sales literature and reports to Policyowners, the
ratings and other information assigned to it by one or more independent rating
organizations such as A.M. Best Company ("A.M. Best"), Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Insurance Rating Services
("Standard & Poor's"), and Duff & Phelps Credit Rating Co. ("Duff & Phelps").
A.M. Best's and Moody's ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. Standard & Poor's
and Duff & Phelps provide ratings which measure the claims- paying ability of
insurance companies. These ratings are opinions of an operating insurance
company's financial capacity to meet the obligations of its insurance policies
in accordance with their terms. Claims-paying ability ratings do not refer to an
insurer's ability to meet non-policy obligations (I.E., debt/ commercial paper).
THE SERIES ACCOUNT
WRL Series Life Account ("Series Account") was established by Western
Reserve as a separate account on July 16, 1985. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The Series
Account will receive and invest the Net Premiums paid under this Policy and
other flexible premium variable life insurance policies issued by Western
Reserve.
Although the assets of the Series Account are the property of Western
Reserve, the Code of Ohio, under which the Series Account was established,
provides that the assets in the Series Account attributable to the Policies are
not chargeable with liabilities arising out of any other business which Western
Reserve may conduct. The assets of the Series Account shall, however, be
available to cover the liabilities of the General Account of Western Reserve to
the extent that the Series Account's assets exceed its liabilities arising under
the Policies supported by it.
The Series Account is currently divided into 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") or Death
Benefit Option B ("Option B"). As long as the Policy remains In Force, (see
Policy Lapse and Reinstatement - Lapse, p. 24), Western Reserve will, upon
receiving due proof of the Surviving Insured's death, pay the death benefit
proceeds of a Policy to the named Beneficiary in accordance with the designated
death benefit option. The amount of the death benefit proceeds payable will be
determined at the end of the Valuation Period during which the Surviving Insured
dies. The proceeds may be paid in a lump sum or under one or more of the
settlement options set forth in the Policy. (See Payments of Policy Benefits -
Settlement Options, p. 32.) Western Reserve guarantees that as long as the
Policy remains In Force (see Policy Lapse and Reinstatement - Lapse, p. 24), the
death benefit proceeds under 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 (i) the Specified Amount of
the Policy or (ii) a specified percentage (the "limitation percentage") times
the Cash Value of the Policy on the date of death of the Surviving Insured. The
limitation percentage is a percentage based on the Attained Age of the younger
Joint Insured and is 250% for a younger Joint Insured age 40 or below on the
Policy Anniversary prior to the date of death. For a younger Joint Insured with
an Attained Age over 40 on a Policy Anniversary, the percentage declines as
shown in the following Limitation Percentage Table. Accordingly, under Option A
the death benefit will remain level unless the limitation percentage times the
Cash Value exceeds the Specified Amount, in which case the amount of the death
benefit will vary as the Cash Value varies.
ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that the
younger Joint Insured's Attained Age is
14
<PAGE>
under 40 and that there is no outstanding indebtedness. Under Option A, a Policy
with a $250,000 Specified Amount will generally pay $250,000 in death benefits.
However, because the death benefit must be equal to or be greater than 250% of
Cash Value, any time the Cash Value of the Policy exceeds $100,000, the death
benefit will exceed the $250,000 Specified Amount. Each additional dollar added
to Cash Value above $100,000 will increase the death benefit by $2.50.
Similarly, so long as Cash Value exceeds $100,000, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however, the
Cash Value multiplied by the limitation percentage is less than the Specified
Amount, the death benefit will equal the Specified Amount of the Policy.
LIMITATION PERCENTAGE TABLE
<TABLE>
<CAPTION>
ATTAINED AGE
OF YOUNGER PER YEAR
JOINT INSURED LESS OVER AGE
- - -------------------- ------- ----------
<S> <C> <C> <C>
40 and under ...... 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
96 and older ...... 100% 0% 95
</TABLE>
OPTION B. The death benefit is equal to (i) the greater of the Specified
Amount plus the Cash Value of the Policy on the date of death of the Surviving
Insured or (ii) the limitation percentage times the Cash Value of the Policy on
or prior to the date of death. The applicable percentage is 250% for the younger
Joint Insured age 40 or below on the Policy Anniversary prior to the date of
death of the Surviving Insured. For the younger Joint Insured with an Attained
Age over 40 on a Policy Anniversary, the percentage declines as shown in the
Limitation Percentage Table above. Accordingly, under Option B the amount of the
death benefit will always vary as the Cash Value varies.
ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that the
younger Joint Insured is under the age of 40 and that there is no outstanding
indebtedness. Under Option B, a Policy with a Specified Amount of $250,000 will
generally pay a death benefit of $250,000 plus Cash Value. Thus, for example, a
Policy with a Cash Value of $50,000 will have a death benefit of $300,000
($250,000 + $50,000). The death benefit, however, must be at least 250% of Cash
Value. As a result, if the Cash Value of the Policy exceeds $166,666, the death
benefit will be greater than the Specified Amount plus Cash Value. Each
additional dollar of Cash Value above $166,666 will increase the death benefit
by $2.50.
Similarly, any time Cash Value exceeds $166,666, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however, Cash
Value multiplied by the limitation percentage is less than the Specified Amount
plus the Cash Value, then the death benefit will be the Specified Amount plus
the Cash Value of the Policy.
CHOOSING DEATH BENEFIT OPTION A OR OPTION B. Assuming the death benefit is
not determined by reference to the limitation percentage, Option A will provide
a Specified Amount of death benefit which does not vary with changes in Cash
Value. Thus, under Option A, as Cash Value increases, Western Reserve's net
amount at risk and therefore the pure insurance protection under the Policy will
decline. In contrast, Option B involves a constant net amount at risk, assuming
that the death benefit is not determined by reference to the limitation
percentage. 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, provided that no decrease is made that year, by sending Western
Reserve a written request for a change. A change in death benefit option may
have Federal income tax consequences. (See Federal Tax Matters, p. 35.) The
Policyowner may either change the death benefit option or decrease the Specified
Amount, but not both, only once each Policy year after the third Policy year.
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
15
<PAGE>
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. 27.)
INSURANCE PROTECTION. A Policyowner may increase or decrease the pure
insurance protection provided by a Policy (I.E., the difference between the
death benefit and the Cash Value) in one of several ways as insurance needs
change. These ways include decreasing the Specified Amount of insurance,
changing the level of premium payments, and, to a lesser extent, making a cash
withdrawal from the Policy. 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. 14), in general
decrease the insurance protection and the charges under the Policy
without reducing the Cash Value.
(b) If Option A is elected, an increased level of premium payments also
will reduce the pure insurance protection, until the limitation
percentage times the Cash Value exceeds the Specified Amount.
Furthermore, increased premiums should increase the amount of funds
available to keep the Policy In Force.
(c) A cash withdrawal will reduce the death benefit. (See Surrender
Privileges - Cash Withdrawals, p. 31.) 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. It results in a reduced amount of Net Surrender Value
available to pay the monthly deduction, thereby increasing the
possibility that the Policy will lapse.
(d) A reduced level of premium payments also generally increases the amount
of pure insurance protection if Option A is elected, or maintains the
same amount of pure insurance protection if Option B is elected, again
depending on the limitation percentage. It results in a reduced amount
of Cash Value and increases the possibility that the Policy will lapse.
HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In
Force, Western Reserve guarantees that the death benefit will never be less than
the Specified Amount of the Policy. These proceeds will be reduced by any
outstanding indebtedness and any due and unpaid charges. The death benefit may,
however, vary with the Policy's Cash Value. Under Option A, the death benefit
will only vary when the Cash Value multiplied by the limitation percentage
exceeds the Specified Amount of the Policy. The death benefit under Option B
will always vary with the Cash Value because the death benefit equals either the
Specified Amount plus the Cash Value or the limitation percentage times the Cash
Value.
DECREASE IN SPECIFIED AMOUNT. Subject to certain limitations, a Policyowner
may decrease the Specified Amount of a Policy. A decrease in Specified Amount
may affect the net amount at risk, which may affect a Policyowner's cost of
insurance charge. (See Cash Value Charges - Cost of Insurance, p. 27.) A
decrease in Specified Amount could also have Federal income tax consequences.
(See Federal Tax Matters, p. 35.) The Policyowner may either change the death
benefit option or decrease the Specified Amount, but not both, only once each
Policy year after the third Policy year.
Any decrease in the Specified Amount will become effective on the Monthly
Anniversary date on or following receipt of a written request from the
Policyowner by Western Reserve. No requested decrease in the Specified Amount
will be permitted during the first three Policy years. The Policyowner may
either change the death benefit option or decrease the Specified Amount, but not
both, only once each Policy year after the third Policy year. The Specified
Amount remaining In Force after any requested decrease may not be less than the
minimum Specified Amount set forth in the Policy. Western Reserve reserves the
right to limit any decrease to no more than 20% of the Specified Amount
immediately prior to the decrease. If, following the decrease in Specified
Amount, the Policy would not comply with the maximum premium limitations
required by Federal tax law (see Premiums - Premium Limitations, p. 22), the
decrease may be limited to the extent necessary to meet these requirements.
WHEN INSURANCE COVERAGE TAKES EFFECT
No life insurance coverage shall take effect unless the proposed Joint
Insureds are alive and in the same condition of health as described in the
application when the Policy is delivered to the Policyowner and the full Initial
Premium is paid. However, if the full Initial Premium is paid as set forth in
the conditional receipt attached to the application, and the conditional receipt
is delivered to the Policyowner, the terms of the conditional receipt shall
apply.
CONDITIONAL INSURANCE COVERAGE. The proposed Joint Insureds must be
insurable and acceptable to Western Reserve under its underwriting rules for the
amount, plan and risk classification applied for on the later of: (a) the date
of application, or (b) the date of completion of all medical tests and
examinations required by Western Reserve. Any check given for payment must be
honored on first presentation. The conditional receipt and all coverages applied
for on the application are void if a check or draft received for payment of the
Initial Premium is not honored when first presented for payment.
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
16
<PAGE>
conditional insurance coverage specified above shall take effect on the later
of: (a) the date of the application, or (b) the date of the completion of all
medical tests and examinations required by Western Reserve. All conditional
coverages for the proposed Joint Insureds will be deemed void if the application
contains material misrepresentation or is fraudulently completed. Benefits under
the conditional receipt coverage will be denied if any proposed Joint Insured
commits suicide.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE ENDS. Conditional life insurance
coverage shall terminate automatically, without notice, on the earliest of the
following dates: (a) the date Western Reserve approves the Policy as applied
for, or (b) 10 days following any counteroffer by Western Reserve to offer
insurance to any person proposed for insurance under a different plan or at an
increased premium or on a different rate class or (c) at the end of the fraction
of a year which the payment bears to the premium required to provide one month
of insurance coverage in the amount as described above, or (d) at the beginning
of the 60th day following the date of the conditional receipt.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
In states where this rider has been approved by that state's department of
insurance, upon receipt of proof satisfactory to Western Reserve that the
Surviving Insured has incurred a condition resulting from illness which, as
determined by a Physician, has reduced life expectancy to not more than 12
months from the date of the Physician's Statement (a "Terminal Condition"),
Western Reserve will pay to the Policyowner a "Single Sum Benefit", equal to:
(a) the Death Benefit in effect on the date the Single Sum Benefit is paid;
multiplied by
(b) the Election Percentage; divided by
(c) 1 + i, where i equals the greater of (A) and (B) on the date the Single
Sum Benefit is paid. (A) equals the interest rate determined under
Internal Revenue Code section 846(c)(2), as it may be amended from time
to time; and (B) equals the Policy Loan Interest Rate; minus
(d) indebtedness, if any, at the time the Single Sum Benefit is paid,
multiplied by the Election Percentage.
"Death Benefit" under the Rider means the amount payable at death of the
Surviving Insured under the Policy, plus the benefit payable under any In Force
Joint Insured Term Rider or Wealth Protector Rider. (See Optional Insurance
Benefits, p. 33.) "Election Percentage" means a percentage, selected by the
Policyowner, not to exceed 100% of the Policy's Death Benefit, as defined under
the Rider; however, in no event will the Election Percentage result in a Single
Sum Benefit greater than $500,000. A "Physician" may be a Doctor of Medicine or
a Doctor of Osteopathy, licensed to practice medicine and treat injury or
illness in the state in which treatment is received and who is acting within the
scope of that license, and must be someone other than the Surviving Insured, the
Policyowner, a person who lives with the Surviving Insured or Policyowner, or a
person who is part of the Surviving Insured's or Policyowner's "Immediate
Family" (spouse, child, brother, sister, parent, grandparent or grandchild of
the Surviving Insured). The "Physician's Statement" must be a written statement
signed by a Physician which provides the Physician's diagnosis of the Surviving
Insured's non-correctable medical condition. It must state with reasonable
medical certainty that the non-correctable medical condition will result in the
death of the Surviving Insured within 12 months of the Physician's Statement,
taking into consideration the ordinary and reasonable medical care, advice and
treatment available in the same or similar communities.
The Rider will not pay benefits for a Terminal Condition resulting from
self-inflicted bodily injuries occurring within the same period specified in the
Policy's suicide provision. The Rider terminates at the earliest of (a) the date
the Policy terminates, (b) the effective date of a settlement option elected
under the Policy, (c) the date the Single Sum Benefit is paid, or (d) the date
the Policyowner elects to terminate the Rider.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, Western Reserve believes that for Federal income tax
purposes a Single Sum Benefit payment made under the Terminal Illness
Accelerated Death Benefit Rider should be fully excludable from the gross income
of the Beneficiary, as long as the Beneficiary is the Insured under the Policy.
However, a Policyowner should consult a qualified tax advisor about the
consequences of adding this Rider to a Policy or requesting a Single Sum Benefit
payment under this Rider. There is no additional charge for this benefit. As
stated above, this Rider may not be available in all states, or, if available,
the terms of the Rider may vary in accordance with each state's insurance laws.
CASH VALUE
At the end of any Valuation Period, the Cash Value of the Policy is equal to
the sum of the Policy's value in each Sub-Account of the Series Account plus the
Fixed Account Value. There is no guaranteed minimum Cash Value.
NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy and
receive the Policy's Net Surrender Value. (See Policy Rights - Surrender
Privileges, p. 30.) The Net Surrender Value as of any date is equal to:
(1) the Cash Value as of such date; minus
(2) any surrender charge as of such date (as described on p. 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 Series Account will equal the portion of
any Net Premium allocated to the Sub-Account, reduced by the portion of the
first monthly deduction allocated to that Sub-Account. (See Payment and
Allocation of Premiums - Allocation of Premiums and Cash Value, p. 22.)
Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of the
Series
17
<PAGE>
Account will equal the number of units in the Sub-Account, multiplied by the
unit value of that Sub-Account.
The number of units that the Policy has in each Sub-Account is equal to:
(1) The initial units purchased on the Policy Date; plus
(2) Units purchased at the time additional Net Premiums are allocated to
the Sub-Account; plus
(3) Units purchased through transfers from another Sub-Account or the
Fixed Account; minus
(4) Units that are redeemed to pay for monthly deductions as they are due;
minus
(5) Units that are redeemed to pay for any cash withdrawals; minus
(6) Units that are redeemed as part of any transfer to another Sub-Account
or the Fixed Account.
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.
34.) Because the Cash Value is dependent upon a number of variables, including
the investment experience of the chosen Sub- Accounts of the Series Account, the
frequency and amount of premium payments, transfers and surrenders, and charges
assessed in connection with the Policy, a Policy's Cash Value cannot be
predetermined.
UNIT VALUE. The unit value of each Sub-Account was originally established at
$10 per unit. The unit value may increase or decrease from one Valuation Period
to the next. Unit values also will vary between Sub-Accounts. The unit value of
any Sub-Account at the end of a Valuation Period is the result of:
(1) The total value of the assets held in the Sub- Account, determined by
multiplying the number of shares of the designated Portfolio owned by
the Sub-Account times the Portfolio's net asset value per share; minus
(2) A deduction for the charge for mortality and expense risks. The daily
amount of this charge is equal to an annual amount of ninety
one-hundredths of one per cent (0.90%), and is used to compensate
Western Reserve for its assumption of certain mortality and expense
risks, and is multiplied times the net assets of the Sub-Account; minus
(3) The accrued amount of reserve for any taxes or other economic burden
resulting from the application of tax laws that are determined by
Western Reserve to be properly attributable to the Sub-Account; and the
result divided by
(4) The number of outstanding units in the Sub-Account.
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of shares
of the Fund is determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern
time), on each day the Exchange is open.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of the Fund, a series mutual fund which
is registered with the Securities and Exchange Commission ("Commission") as an
open-end diversified management investment company. Such registration does not
involve supervision of the management or investment practices or policies of the
Fund by the Commission.
Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of
the Series Account are: Aggressive Growth Portfolio, Emerging Growth Portfolio,
Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic Total Return
Portfolio, Bond Portfolio, Short-to-Intermediate Government Portfolio, Growth &
Income Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio,
C.A.S.E. Growth Portfolio, Value Equity Portfolio, U.S. Equity Portfolio and
International Equity Portfolio. The assets of each Portfolio are held separate
from the assets of the other Portfolios, and each Portfolio has investment
objectives and policies which are different from those of the other Portfolios.
Thus, each Portfolio operates as a separate investment fund, and the income or
losses of one Portfolio 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.
STRATEGIC TOTAL RETURN PORTFOLIO: (Prior to May 1, 1997, this Portfolio was
known as Equity-Income.) This Portfolio seeks to provide current income,
long-term growth of
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income and capital appreciation by investing primarily in a blend of equity and
fixed-income securities, including common stocks, income producing securities
convertible into common stock, 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.
GROWTH & INCOME PORTFOLIO: (Prior to May 1, 1997, this Portfolio was known
as Utility.) This Portfolio's objective is to seek total return by investing in
securities that have defensive characteristics. The Portfolio will invest
primarily in a diversified portfolio of equity and debt securities with an
emphasis on sector investing.
MONEY MARKET PORTFOLIO: This Portfolio'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 each Portfolio of the Fund and manages its assets in
accordance with policies, programs and guidelines established by the Board of
Directors of the Fund.
Each Sub-Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The Sub-Advisers for the Portfolios of the
Fund are as follows:
Janus Capital Corporation ("Janus") serves as sub-adviser to the Growth,
Bond and Global Portfolios of the Fund. WRL Management and Janus will divide
equally monthly compensation at current annual rates of 0.50% of the aggregate
average daily net assets of the Bond Portfolio and 0.80% of the aggregate
average daily net assets each of the Growth Portfolio and the Global Portfolio.
AEGON USA Investment Management, Inc. ("AIMI") is sub-adviser to the
Short-to-Intermediate Government Portfolio and the Balanced Portfolio of the
Fund. AIMI is a wholly-owned subsidiary of AEGON and thus is an affiliate of
Western Reserve. WRL Management and AIMI will divide equally monthly
compensation at the current annual rate of 0.60% 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. AIMI's
compensation will be reduced by 50% of the amount paid by WRL Management on
behalf of the Short-to-Intermediate Government Portfolio and the Balanced
Portfolio pursuant to any expense limitation or other reimbursement.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen American
Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van
Kampen American Capital 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. It is anticipated that in mid-June, 1997, Morgan Stanley
Group Inc. will merge with Dean Witter, Discover & Co., a financial services
company. WRL Management and Van Kampen American Capital will divide equally
monthly compensation at the current annual rate of 0.80% of the aggregate
average daily net assets of the Emerging Growth Portfolio. Van Kampen American
Capital's compensation will be reduced by 50% of the amount paid by WRL
Management on behalf of the Emerging Growth Portfolio pursuant to any expense
limitation or other reimbursement.
Luther King Capital Management Corporation ("Luther King") is sub-adviser to
the Strategic Total Return Portfolio of the Fund. Ultimate control of Luther
King is exercised by J. Luther King, Jr. WRL Management and Luther King will
divide equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the Strategic Total Return Portfolio.
Federated Investment Counseling ("Federated") is sub-adviser to the Growth &
Income Portfolio of the Fund. Federated is a wholly-owned subsidiary of
Federated Investors. WRL Management will receive monthly compensation at the
current annual rate of 0.75% of the aggregate average daily net assets of the
Growth & Income Portfolio. From this amount, as compensation of its services,
Federated will receive payments of fees equal to 0.50% of the first $30 million
of average daily net assets, 0.35% of the next $20 million of average daily net
assets, and 0.25% of average daily net assets in excess of $50 million of the
Growth & Income Portfolio.
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Fred Alger Management, Inc. ("Fred Alger") is sub- adviser to the Aggressive
Growth Portfolio of the Fund. Fred Alger is a wholly-owned subsidiary of Fred
Alger & Company, Incorporated, which in turn is a wholly-owned subsidiary of
Alger Associates, Inc., a financial services holding company controlled by Fred
M. Alger. WRL Management and Fred Alger will divide equally monthly compensation
at the current annual rate of 0.80% of the aggregate average daily net assets of
the Aggressive Growth Portfolio.
Dean Investment Associates, a Division of C.H. Dean and Associates, Inc.
("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the Fund.
Dean is wholly-owned by C.H. Dean and Associates, Inc. WRL Management and Dean
will divide equally monthly compensation at the current annual rate of 0.80% of
the aggregate average daily net assets of the Tactical Asset Allocation
Portfolio. Dean's compensation will be reduced by 50% of the amount paid by WRL
Management on behalf of the Tactical Asset Allocation Portfolio pursuant to any
expense limitation or other reimbursement.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan" is sub-adviser to the
Money Market Portfolio of the Fund. J.P. Morgan is a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated. WRL Management will receive monthly compensation
at the current annual rate of 0.40% of the aggregate average daily net assets of
the Money Market Portfolio. From this amount, as compensation for its services,
J.P. Morgan will receive 0.15% of the average daily net assets of the Money
Market Portfolio.
C.A.S.E. Management, Inc. ("C.A.S.E.") is sub-adviser to the C.A.S.E. Growth
Portfolio of the Fund. C.A.S.E. is a wholly-owned subsidiary of C.A.S.E. Inc.
C.A.S.E. Inc. is indirectly controlled by William Edward Lange, president and
chief executive officer of C.A.S.E. WRL Management and C.A.S.E. will divide
equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the C.A.S.E. Growth Portfolio.
NWQ Investment Management Company, Inc. ("NWQ Investment") is sub-adviser to
the Value Equity Portfolio of the Fund. NWQ Investment was founded in 1982 and
is a wholly-owned subsidiary of United Asset Management Corporation. WRL
Management and NWQ Investment will divide equally monthly compensation at the
current annual rate of 0.80% of the aggregate average daily net assets of the
Value Equity Portfolio. NWQ Investment's compensation will be reduced by 50% of
the amount paid by Western Reserve on behalf of the Value Equity Portfolio
pursuant to any expense limitation or other reimbursement.
Scottish Equitable Investment Management Limited ("Scottish Equitable")
serves as a co-sub-adviser to the International Equity Portfolio. Scottish
Equitable is a wholly-owned subsidiary of Scottish Equitable plc, successor to
Scottish Equitable Life Assurance Society, which was founded in Edinburgh in
1831. Scottish Equitable is also an indirect wholly-owned subsidiary of AEGON
nv. WRL Management receives monthly compensation at the annual rate of 1.00% of
the aggregate average daily net assets of the International Equity Portfolio.
From this amount, Scottish Equitable receives 0.50% of average daily net assets
of the Portfolio managed by Scottish Equitable, less 50% of the amount of excess
expenses attributable to such assets.
GE Investment Management Incorporated ("GEIM") also serves as a
co-sub-adviser to the International Equity Portfolio and as sub-adviser to the
U.S. Equity Portfolio. GEIM is a wholly-owned subsidiary of General Electric
Company ("GE"). GEIM's principal officers and directors serve in similar
capacities with respect to General Electric Investment Corporation ("GEIC," and,
together with GEIM and their predecessors, collectively referred to as "GE
Investments"), which like GEIM is a wholly-owned subsidiary of GE. WRL
Management receives monthly compensation at the annual rate of 1.00% of the
aggregate average daily net assets of the International Equity Portfolio. From
this amount, GEIM, receives 0.50% of average daily net assets of the Portfolio
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, 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
20
<PAGE>
determine what action, if any, it should take. Such action could include the
sale of Fund shares by one or more of the separate accounts, which could have
adverse consequences. Material conflicts could result from, for example, (1)
changes in state insurance laws, (2) changes in Federal income tax laws, or (3)
differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contract owners. If
the Board of Directors were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, Western
Reserve will bear the attendant expenses, but variable life insurance
policyowners and variable annuity contract owners would no longer have the
economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right to transfer assets of the Series
Account to another separate account which Western Reserve determines to be
associated with the class of contracts to which the Policy belongs. Western
Reserve also reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the investments that are
held by any Sub-Account or that any Sub-Account may purchase. Any such addition,
deletion or substitution by Western Reserve of shares of another Portfolio of
the Fund or of another open-end, registered investment company, will only be
taken if the shares of a Portfolio are no longer available for investment, or if
in Western Reserve's judgement further investment in any Portfolio should
become inappropriate in view of the purposes of the Series Account. Western
Reserve will not add, delete or substitute any shares attributable to a
Policyowner's interest in a Sub-Account of the Series Account without notice to
and prior approval of the Commission, to the extent required by the Investment
Company Act of 1940, as amended (the "1940 Act") or other applicable law.
Nothing contained herein shall prevent the Series Account from purchasing other
securities for other Portfolios or classes of policies, or from permitting a
conversion between Portfolios or classes of policies on the basis of requests
made by Policyowners.
Western Reserve also reserves the right to establish additional
Sub-Accounts of the Series Account, each of which would invest in a new
Portfolio of the Fund, or in shares of another investment company, with a
specified investment objective. New Sub-Accounts may be established when, in the
sole discretion of Western Reserve, marketing, tax or investment conditions
warrant, and any 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, and when permitted by law, the Series Account may be (1)
operated as a management company under the 1940 Act, (2) deregistered under the
1940 Act in the event such registration is no longer required, (3) managed under
the direction of a committee, or (4) combined with one or more other separate
accounts, or sub-accounts.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed application
to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068. Under Western
Reserve's current rules, the minimum Specified Amount of a Policy is generally
$100,000. Policies will generally be issued only to Joint Insureds ages 1 to 85
who supply satisfactory evidence of insurability sufficient to Western Reserve.
(Because a few state insurance regulatory authorities have not yet approved
Policies for issue to Joint Insureds ages 1-19, Western Reserve will only issue
Policies for Joint Insureds ages 1-19 of these states upon approval by their
regulatory authorities.)
The younger Joint Insured must be no older than age 80. Further, the sum
of the ages of the Joint Insureds cannot exceed the total of 160 years (see
Policy Lapse and Reinstatement - Lapse, p. 24). Western Reserve may, however, at
its sole discretion, issue a Policy with a younger Joint Insured above the age
of 80. Acceptance is subject to Western Reserve's underwriting rules and
Western Reserve reserves the right to reject an application for any reason
permitted by law.
PREMIUMS
Subject to certain limitations, a Policyowner has flexibility in
determining the frequency and amount of premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy
frees the Policyowner from the requirement that premiums be paid in accordance
with a rigid and inflexible premium schedule. Western Reserve may require the
Policyowner to pay an Initial Premium at least equal to a minimum monthly
guarantee premium set forth in the Policy before issuing the Policy. (See
Charges and Deductions - Premium Expense Charges, p. 25.) Thereafter, subject to
the minimum and maximum premium limitations described below, a Policyowner may
make unscheduled premium payments at any time in any amount.
PLANNED PERIODIC PREMIUMS. Each Policyowner will determine a Planned
Periodic Premium schedule that provides for the payment of a level premium at a
fixed interval over a specified period of time. The Policyowner is not required
to pay premiums in accordance with this schedule. Furthermore, the Policyowner
has considerable flexibility to alter the amount, frequency, and the time period
over which Planned Periodic Premiums are paid.
The payment of a Planned Periodic Premium will not guarantee that the
Policy remains In Force. Instead, the duration of the Policy depends upon the
Policy's Net Surrender Value. Thus, even if Planned Periodic Premiums are paid
by the Policyowner, the Policy will nonetheless lapse any time
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<PAGE>
Net Surrender Value is insufficient to pay certain monthly charges, and a grace
period expires without a sufficient payment. However, until the No Lapse Date as
provided in the Policy, the Policy will remain In Force and no grace period will
begin provided there has been no addition of any riders and the total of the
premiums received (minus any withdrawals and any outstanding loans) is equal to
or exceeds the minimum monthly guarantee premium set forth in the Policy times
the number of months since the Policy Date, including the current month. (See
Policy Lapse and Reinstatement - Lapse, p. 24.)
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 $100. Premium payments
less than this minimum amount may be returned to the Policyowner.
PAYMENT OF PREMIUMS. Payments made by the Policyowner will be treated as
a premium payment unless clearly marked as loan repayments. Certain charges will
be deducted from each premium payment. (See Charges and Deductions - Premium
Expense Charges, p. 25.)
As an accommodation to Policyowners, Western Reserve will accept
transmittal of Initial and subsequent Premiums of at least $1,000 by wire
transfer. For an Initial Premium, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission ("FAX") of a completed
application. An Initial Premium of $2,000 or more accepted via wire transfer
with FAX will be allocated in accordance with current procedures explained in
the next section entitled "Allocation of Premiums and Cash Value -
Allocations of Net Premiums," below. An Initial Premium made by wire transfer
not accompanied by a simultaneous FAX, or accompanied by a FAX of an incomplete
application, will be retained for a period up to five business days while
Western Reserve attempts to obtain the FAX or complete the essential information
required to establish the Policy and allocate the Initial Premium at the unit
value next determined after receipt of the FAX or information necessary to
complete the application. If Western Reserve cannot obtain the FAX or essential
information within five business days, Western Reserve will return the Initial
Premium to the applicant, unless the applicant consents to allow Western Reserve
to retain the Initial Premium until the required FAX or essential information is
received.
In the event the application with original signature is received and the
allocation instructions in that application, for any reason, are inconsistent
with those previously designated on the FAX, the Initial Premium will be
reallocated on the first Valuation Date on or following the Record Date in
accordance with the allocation instructions in the application with original
signature.
Policyowners wishing to make payments via bank wire should instruct their
banks to wire Federal Funds as follows:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1620
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less the premium
expense charges. (See Charges and Deductions - Premium Expense Charges, p. 25.)
When an Initial Premium accompanies the application, monthly deductions from the
Cash Value of the Policy commence on the Policy Date.
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the
Policyowner will allocate Net Premiums to one or more of the Sub-Accounts of the
Series Account, to the Fixed Account, or to a combination of both.
Notwithstanding the allocation in the application, the Initial Premium, less
charges, will first be allocated, on the first Valuation Date on or following
the Policy Date, to the Sub-Account of the Series Account that invests
exclusively in shares of the Money Market Portfolio, and will be reallocated in
accordance with the Policyowner's directions in the application on the first
Valuation Date on or following the Record Date. The Record Date of the Policy
will be the date on which the Policy is recorded on Western Reserve's books as
an In Force Policy. (See Payment and Allocation of Premiums beginning on p. 21,
and Policy Benefits - When Conditional Life Insurance Coverage Begins p. 16.)
Net Premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions in the application. Western Reserve does
not currently require that allocation of Net Premiums to an Account meet a
minimum percentage. Western Reserve does reserve the right to limit allocation
of Net Premiums to any Account to no less than 10% of each Net Premium payment.
No fractional percentages are permitted. The allocation of future Net Premiums
may be changed without charge at any time by providing Western Reserve with
written notification from the Policyowner, or by telephone by calling Western
Reserve's toll-free number, 1-800-851-9777. Western Reserve will employ the
same procedures to confirm that such telephone instructions are genuine as it
employs regarding transfers among Sub-Accounts and the Fixed Account by
telephone. Upon instructions from the Policyowner, the registered
representative/agent of record may also change the allocation
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<PAGE>
of future Net Premiums. Western Reserve reserves the right to limit the number
of changes of the allocation of Net Premiums to one per year. Investment returns
from the amounts allocated to Sub-Accounts of the Series Account will vary with
the investment experience of these Sub-Accounts and the Policyowner bears the
entire investment risk.
TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the
Series Account or from the Sub- Accounts to the Fixed Account. Transfers may
also be made from the Fixed Account to the Sub-Accounts, subject to certain
restrictions. (See The Fixed Account - Allocations, Transfers and Withdrawals,
p. 34.) The amount of Cash Value available for transfer from any Sub-Account, or
the Fixed Account, is determined at the end of the Valuation Period during which
the transfer request is received at Western Reserve's Office. The net asset
value for each share of the corresponding Portfolio of any Sub-Account is
determined, once daily, as of the close of the regular business session of the
New York Stock Exchange ("Exchange") (usually 4:00 p.m. Eastern time), which
coincides with the end of each Valuation Period. (See Policy Benefits - Cash
Value - Valuation Date and Valuation Period, p. 18.) Therefore, any transfer
request received after the close of the regular business session of the
Exchange, on any day the Exchange is open, will be processed on the next day the
Exchange is open for business, utilizing the net asset value for each share of
the applicable Portfolio determined as of the close of the regular business
session of the Exchange. Cash Value available for transfer from the Fixed
Account will be determined in the same manner.
Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The registered
representative/agent of record for the Policy may, upon instruction 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 the toll-free number: 1-800-851-9777. Western Reserve will not be
liable for complying with telephone instructions it reasonably believes to be
authentic, nor for any loss, damage, cost or expense in acting on such telephone
instructions, and Policyowners will bear the risk of any such loss. Western
Reserve will employ reasonable procedures to confirm that telephone instructions
are genuine. If Western Reserve does not employ such procedures, it may be
liable for losses due to unauthorized or fraudulent instructions. Such
procedures may include, among others, requiring forms of personal identification
prior to acting upon such telephone instructions, providing written confirmation
of such transactions to Policyowners and/or tape recording of telephone transfer
request instructions received from Policyowners. Western Reserve may, at any
time, revoke or modify the transfer privilege. Under Western Reserve's current
procedures, it will effect transfers and determine all values in connection with
transfers at the end of the Valuation Period during which the transfer request
is received at Western Reserve's Office.
Twelve Cash Value transfers are permitted without charge during any one
Policy year. Western Reserve will impose a charge of $10 for each subsequent
transfer. The transfer charge will not be increased. (See Optional Cash Value
Charges - Cash Value Transfers, p. 28.) 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. 31.)
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Policyowners to
conduct transfers on a Policyowner's behalf, or who provide recommendations as
to how Sub-Account values should be allocated. This includes, but is not limited
to, transferring Sub-Account values among Sub-Accounts in accordance with
various investment allocation strategies such third party may employ. Such
independent third parties may or may not be appointed Western Reserve agents for
the sale of Policies. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS
OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY
HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE
TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED
ON A POLICYOWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
a Policyowner any additional fees for providing these support services.
DOLLAR COST AVERAGING
The Policyowner may direct Western Reserve to automatically transfer
specified amounts from the Money Market Sub-Account, the Bond Sub-Account, the
Fixed Account or any combination of these Accounts on a monthly basis to a
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss. To qualify for
Dollar Cost Averaging a minimum of $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
23
<PAGE>
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. 34.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Policyowner in order to begin transfers. The first
transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market or Bond Sub-Accounts or the Fixed Account will
be processed monthly until the entire value of each Account from which transfers
are made is completely depleted or the Policyowner instructs Western Reserve in
writing to cancel the monthly transfers. For example, if $15,000 was allocated
to the Money Market Sub-Account and $10,000 was allocated to the Bond
Sub-Account and transfers of $500 are made each month from each of these Sub-
Accounts to the Growth Sub-Account, transfers of $500 per month would continue
to be made from the Money Market Sub-Account even though transfers from the Bond
Sub-Account had ceased as a result of depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
twelve free transfers allowed during each Policy year. (See Allocation of
Premiums and Cash Value - Transfers on p. 23.) Western Reserve may discontinue,
modify, or suspend Dollar Cost Averaging at any time, following prior written
notice to Policyowners. Dollar Cost Averaging is not available if the Owner has
elected the Asset Rebalancing Program, or has elected an asset allocation
service provided by a third party.
ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which the Policyowner may
authorize Western Reserve to transfer automatically Cash Value periodically to
maintain a particular percentage allocation among the Sub-Accounts. The Cash
Value allocated to each Sub-Account will grow or decline in value at different
rates. The Asset Rebalancing Program automatically reallocates the Cash Value in
the Sub-Accounts at the end of each period to match the Contract's currently
effective Net Premium allocation schedule. The Asset Rebalancing Program is
intended to transfer Cash Value from those Sub-
Accounts that have increased in value to those Sub-Accounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high. This investment method does not guarantee gains, nor does it assure that
any Sub-Account will not have losses.
To qualify for Asset Rebalancing, a minimum Cash Value of $10,000 for an
existing Policy, or a minimum Initial Premium of $10,000 for a new Policy, is
required. To participate in the Asset Rebalancing Program, a properly completed
Asset Rebalancing Request Form must be received by Western Reserve at its
Administrative Office. An Asset Rebalancing Form is available upon request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy Date. Following receipt of the Asset
Rebalancing Request Form, Western Reserve will effect the initial rebalancing of
Cash Value on the next such anniversary, in accordance with the Policy's
current Net Premium allocation schedule. The amounts transferred will be
credited at the unit value next determined on the dates the transfers are made.
If a day on which rebalancing would ordinarily occur falls on a day on which the
New York Stock Exchange is closed, rebalancing will occur on the next day the
New York Stock Exchange is open. The Asset Rebalancing Program is available only
before the Maturity Date, and is not available if the Policyowner has elected
Dollar Cost Averaging, or has elected an asset allocation service provided by a
third party. There is no charge for the Asset Rebalancing Program. However, each
reallocation which occurs under the Asset Rebalancing Program will be counted
towards the twelve free transfers allowed during each Policy year. (See
Allocation of Premiums and Cash Value - Transfers on p. 23.)
The Policyowner may terminate participation at any time in the Asset
Rebalancing Program by oral or written request to Western Reserve. Participation
in the Asset Rebalancing Program will terminate automatically if any transfer is
made to, or from, any Sub-Account, other than on account of a scheduled
rebalancing. If the Policyowner wishes to resume the Asset Rebalancing Program
after it has been canceled, a new Asset Rebalancing Request Form must be
completed and sent to Western Reserve. The Policyowner may start and stop
participation in the Asset Rebalancing Program at any time; however, Western
Reserve reserves the right to restrict entry into the Asset Rebalancing Program
to once per Policy year. Cash Value allocated to the Fixed Account may not be
included in the Asset Rebalancing Program.
Western Reserve may discontinue, modify, or suspend, the Asset Rebalancing
Program at any time following prior written notice to Policyowners.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will only occur where Net Surrender Value is insufficient on any Monthly
Anniversary to cover the monthly deductions, and a grace period expires without
a sufficient payment by the Policyowner. If the Net Surrender Value on any
Monthly Anniversary is not sufficient to cover the monthly deductions on such
day, Western Reserve will mail a notice to the last known address of the
Policyowner(s) and any assignee of record. A grace period of 61 days after the
mailing date of the notice will be allowed for the payment of premiums. The
notice will specify the minimum payment and the final date on which such payment
must be received by Western Reserve to keep the Policy In Force. (See Charges
and Deductions, p. 25.)
However, until the No Lapse Date as provided in the Policy, the Policy
will not lapse and no grace period will begin, provided: (1) no riders have been
added since the
24
<PAGE>
Policy Date, and (2) the total of the premiums received (minus any withdrawals
and any outstanding loans) equal or exceed the minimum monthly guarantee premium
shown in the Policy times the number of months since the Policy Date, including
the current month and, (3) the excess indebtedness (total of all Policy loans
less any unearned loan interest on Policy loans) does not exceed the Cash Value
(see Policy Rights - Loan Privileges, p. 29). Should the Policyowner(s) request
the addition of any rider after the Policy Date but prior to the No Lapse Date,
the Policyowner(s) will be notified as to the effect on grace period processing
prior to the date the rider is effective.
Essentially, the Policy will not lapse during the period from the Policy
Date until the No Lapse Date (the "No Lapse Period"), as long as the
conditions in (1), (2) and (3) immediately above have been met, and even though
Net Surrender Value at any point during the No Lapse Period is insufficient to
cover a monthly deduction and the grace period has expired without a payment
sufficient to cover the monthly deduction. Such a Lapse could happen if the
investment experience has been sufficiently unfavorable to have resulted in a
decrease in the Net Surrender Value, or the Net Surrender Value has decreased
because not enough premiums have been paid to offset the monthly charges.
When the conditions in (1), (2) and (3) above have not been met, or they
have been met, but the Policy is beyond the No Lapse Date, and Net Surrender
Value is insufficient to cover the monthly deduction, Western Reserve will
notify the Policyowner and any assignee of record of the minimum payment needed
to keep the Policy In Force. The Policyowner will then have a grace period of 61
days, measured from the date notice is mailed to the Policyowner, for Western
Reserve to receive sufficient payments. If Western Reserve does not receive a
sufficient payment within the grace period, Lapse of the Policy will result. If
a sufficient payment is received during the grace period, any resulting Net
Premium will be allocated among the Accounts, and any monthly deductions due
will be charged to such Accounts, in accordance with the Policyowner's then
current instructions. (See Allocation of Premiums and Cash Value - Allocation of
Net Premiums, p. 22, and Charges and Deductions - Cash Value Charges, p. 27.) If
the Surviving Insured dies during the grace period, the death benefit proceeds
will equal the amount of the death benefit proceeds immediately prior to the
commencement of the grace period, reduced by any due and unpaid charges.
The duration of the period of time between the Policy Date and the No
Lapse Date is selected by the Policyowner at time of application for the Policy,
and may be either, (1) the later of attained target premium age 65 or five
Policy years, or (2) the later of attained target premium age 75 or ten Policy
years. The amount of the minimum monthly guarantee premium will vary according
to whether (1) or (2) is chosen. Neither (1) nor (2) may exceed target premium
age 85. The target premium age equals the average of the ages of the Joint
Insureds at time of Policy issue, rounded down to the closer age, not to exceed
the younger Joint Insured's age, plus ten years. For example, if the ages of
the Joint Insureds at time of Policy issue are 46 and 48, the target premium age
is 47. If the ages at time of Policy issue are 45 and 48, the target premium age
is 46. If the ages at time of Policy issue are 50 and 80, the target premium age
is 60. The target premium attained age equals the target premium age plus the
number of completed Policy years.
REINSTATEMENT. A lapsed Policy may be reinstated any time within five
years after the date of lapse and before the Maturity Date by submitting the
following items to Western Reserve:
1. A written application for reinstatement from the Policyowner;
2. Evidence of insurability from each Joint Insured satisfactory to
Western Reserve; and
3. A premium that, after the deduction of premium expense charges, is
large enough to cover:
(a) one monthly deduction at the time of termination;
(b) the next two monthly deductions which will become due after the time
of reinstatement; and
(c) an amount sufficient to cover any surrender charge (as described
below) as of the date of reinstatement.
Western Reserve reserves the right to decline a reinstatement request. Any
indebtedness on the date of Lapse will not be reinstated. The Cash Value of the
Loan Reserve on the date of reinstatement will be zero. The amount of Net
Surrender Value on the date of reinstatement will be equal to the Net Premiums
paid at reinstatement, less the amounts paid in accordance with (a) and (c)
above.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Anniversary on or next following the
date Western Reserve approves the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Western Reserve for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering the
Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM EXPENSE CHARGES
Prior to allocation of Net Premiums among the Accounts, premiums paid will
be reduced by a premium expense charge consisting of a sales charge and a charge
for premium taxes.
SALES CHARGE. A sales charge equal to 3.5% of the premiums paid through
the end of the tenth Policy year will be deducted to compensate Western Reserve
for certain 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.
25
<PAGE>
PREMIUM TAXES. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium tax rates vary from state to state from
a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a particular
state, a deduction of an amount equal to 2.5% of the premium will be made from
each premium payment. Because of the retaliatory provisions of state premium tax
laws, Western Reserve is required to pay a minimum 2.5% premium tax regardless
of a state's actual premium tax rate.
CONTINGENT SURRENDER CHARGES
If the Policy is totally surrendered (or the Net Surrender Value is
applied under a settlement option) prior to the end of the fifteenth (15th)
Policy year, a surrender charge for the initial Specified Amount will be
deducted from the Policy's Cash Value. The surrender charge consists of: the
sum of
(a) an administrative component (DEFERRED ISSUE CHARGE), and
(b) a sales component (DEFERRED SALES CHARGE).
The sum of (a) and (b) are multiplied by (c), the applicable SURRENDER
CHARGE PERCENTAGE.
(a) DEFERRED ISSUE CHARGE. The deferred issue charge is a level charge of
$5.00 per thousand of initial Specified Amount. This charge is to assist Western
Reserve in recovering the underwriting, processing and start-up expenses
incurred in connection with the Policy and the Series Account. These expenses
include the cost of processing applications, conducting medical examinations,
determining insurability and the Joint Insured's rate class, and establishing
Policy records.
(b) DEFERRED SALES CHARGE. The deferred sales charge is (1) 26.5% of the
sum of all premiums paid up to the Guideline Premium shown in the Policy and,
(2) for the sum of all premiums paid in excess of the first Guideline Premium
("excess premium charge"), a percentage which varies by the Issue Age and
sex of the younger Joint Insured as follows:
<TABLE>
<CAPTION>
EXCESS PREMIUM ISSUE AGE RANGE
CHARGE (YOUNGER JOINT INSURED)
- - ----------------- -------------------------
<S> <C>
4.2% 1-55
3.7% 56-63
3.1% 64-68
2.5% 69-73
2.0% 74-76
1.6% 77-78
1.2% 79-80
</TABLE>
The deferred sales charge is designed to assist Western Reserve in
recovering distribution expenses incurred in connection with the Policy,
including agent sales commissions, the cost of printing prospectuses and sales
literature, and any advertising costs. The proceeds of the charge may not be
sufficient to cover these expenses. To the extent they are not, Western Reserve
will cover the shortfall from its General Account assets, which may include
profits from the mortality and expense risk charge under the Policy.
(c) SURRENDER CHARGE PERCENTAGE. As stated above, the percentage is
applied to the sum of the deferred issue charge and deferred sales charge due
upon any surrender of a Policy during the first fifteen Policy years. In Policy
years 1-10 this percentage is 100% for Joint Insureds when the age of the
younger of the Joint Insureds is between Ages 0-74, and then declines at the
rate of 20% per year until reaching zero at the end of the fifteenth (15th)
Policy year as shown below. For Joint Insureds when the age of the younger of
the Joint Insureds is between Issue Ages 75-80, this percentage is 100% until
the end of the sixth (6th) Policy year, and declines to 0% at the end of the
fifteenth (15th) Policy year. Therefore, application of the percentage to the
deferred issue charge and deferred sales charge in the event of any surrender
during the eleventh through fifteenth Policy year will result in reduced
surrender charges. If a surrender occurs after the fifteenth (15th) Policy year,
there are no deferred issue or deferred sales charges due. See Example (2) on p.
27.
SURRENDER CHARGE PERCENTAGES
<TABLE>
<CAPTION>
YOUNGER AGE
-----------------------
LESS 75 OR
END OF POLICY YEAR* THAN 75 ABOVE
- - -------------------- ---------- -------
<S> <C> <C>
At Issue 100% 100%
1-6 100% 100%
7 100% 97%
8 100% 88%
9 100% 80%
10 100% 73%
11 80% 66%
12 60% 60%
13 40% 40%
14 20% 20%
15+ 0% 0%
</TABLE>
* THE CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE INTERPOLATED BETWEEN
THE TWO END OF YEAR CHARGES.
(d) EXAMPLE (1) Assume a male non-tobacco user age 35 and a female
non-tobacco user age 35 purchase a Policy for $100,000 of Specified Amount,
paying the Guideline Premium of $806.11, and an additional premium amount of
$193.89 in excess of the Guideline Premium, for a total premium of $1,000 per
year for four years ($4,000 total for four years), and then surrenders the
Policy. The surrender charge would be calculated as follows:
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
(a) DEFERRED ISSUE CHARGE - [100 x $5.00]
($5.00/$1,000 of Initial Specified Amount) = $500.00
(b) DEFERRED SALES CHARGE:
(1) 26.5% of Guideline
Premium paid
[26.5% x $806.11], and = $213.62
(2) 4.2% of premiums paid in excess
of Guideline Premium
[4.2% x ( (4 x 1,000) - $806.11)] = $134.14
(c) APPLICABLE SURRENDER CHARGE = 100%
[(a)$500.00 + (b)($213.62 + $134.14)]
x 100%
SURRENDER CHARGE = 847.76 x 100% = $847.76
========
</TABLE>
EXAMPLE (2) - Assume the same facts as in Example (1), EXCEPT the Owner
surrenders the Policy on the 14th Policy Anniversary:
<TABLE>
<S> <C> <C> <C>
(a) DEFERRED ISSUE CHARGE - [100 x $5.00] = $500.00
(b) DEFERRED SALES CHARGE:
(1) [26.5% x $806.11], and = $213.62
(2) [4.2% x ( (14 x 1,000) - $806.11)] = $554.14
(c) APPLICABLE SURRENDER CHARGE = 20%
[(a)$500.00 + (b)($213.62 + $554.14)]
x 20%
SURRENDER CHARGE = $1,267.76 x 20% = $253.55
========
</TABLE>
If the Owner waits until the 15th Policy Anniversary or after, there will
be no surrender charge.
For Policies issued in the state of Pennsylvania, the following surrender
charge percentage table applies.
SURRENDER CHARGE PERCENTAGES
<TABLE>
<CAPTION>
ISSUE ISSUE ISSUED
POLICY YEAR AGES 20-69 AGES 70-74 AGES 75-80
- - -------------- ------------- ------------- -----------
<S> <C> <C> <C>
1 100% 100% 100%
2 100% 100% 96%
3 100% 100% 89%
4 100% 100% 83%
5 100% 95% 77%
6 100% 90% 73%
7 100% 85% 68%
8 100% 80% 65%
9 95% 76% 61%
10 90% 72% 58%
11 80% 68% 55%
12 60% 60% 51%
13 40% 40% 40%
14 20% 20% 20%
15 0% 0% 0%
</TABLE>
CASH VALUE CHARGES
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate Western Reserve for certain
administrative costs, the cost of insurance, the monthly death benefit guarantee
charge, and optional benefits added by rider. The monthly deduction will be
deducted on each Monthly Anniversary, and will be allocated among the Accounts
on the same basis as Net Premiums are allocated. If the value of any Account is
insufficient to pay its part of the monthly deduction, the monthly deduction
will be taken on a pro rata basis from all Accounts. Because portions of the
monthly deduction, such as the cost of insurance, can vary from month-to-month,
the monthly deduction itself will vary in amount from month-to-month.
COST OF INSURANCE. Western Reserve will determine the monthly cost of
insurance charge by multiplying the applicable cost of insurance rates by the
net amount at risk for each Policy Month. The net amount at risk for a Policy
Month is (a) the death benefit at the beginning of the Policy Month divided by
1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly earnings
at an annual rate of 4%), less (b) the Cash Value at the beginning of the Policy
Month.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the Joint Insureds, and the length of time a Policy has been In Force.
The actual monthly cost of insurance rates will be based on Western Reserve's
expectations as to future experience. They will not, however, be greater than
the guaranteed cost of insurance rates set forth in the Policy. These guaranteed
rates are based on the 1980 Commissioners Standard Ordinary ("1980
C.S.O."), age nearest birthday, Mortality Tables and the sex, Attained Age
and rate class of each Joint Insured. The rate class of each Joint Insured is
either Select (non-tobacco user), or Standard (tobacco user) or a class which
reflects some substandard classification. There is no rate discount for a
preferred class. For standard rate classes, i.e., either tobacco user or non-
tobacco user classes not rated, these rates will not exceed rates contained in
the 1980 C.S.O. Tables. Western Reserve also may guarantee that actual cost of
insurance rates will not be changed for a specified period of time (e.g., one
year). Any change in the cost of insurance rates will apply to all Joint
Insureds of the same age, sex, and rate class whose Policies have been In Force
for the same length of time.
The Policies offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Policy pays different
benefits to Joint Insureds who are either both men or women of the same age. The
State of Montana prohibits the use of actuarial tables that distinguish between
men and women in determining premiums and policy benefits for policies issued on
the lives of its residents. The State of Massachusetts formerly had a similar
prohibition and has introduced legislation which may reinstate such prohibition.
Therefore, Policies offered by this Prospectus to insure residents of the States
of Montana and Massachusetts
27
<PAGE>
may have premiums and benefits which are based on actuarial tables that do not
differentiate on the basis of sex.
The rate class of each Joint Insured will affect the cost of insurance
rate. For this Policy, Western Reserve currently places Joint Insureds into the
following three nonsub-standard rate classes: combination of two non-tobacco
users, combination of two tobacco users and the combination of a tobacco user
and a non-tobacco user; as well as various other sub-standard rate classes
involving a higher mortality risk. In an otherwise identical Policy, the cost of
insurance rate is generally higher for tobacco users than for non-tobacco users.
Western Reserve may also issue certain Policies on a "simplified" or
expedited basis to certain categories of individuals (for example, Policies
issued at a predetermined Specified Amount or underwritten on a group basis).
Policies issued on this basis will have guaranteed cost of insurance rates no
higher than the guaranteed rates for Select or Standard categories (as
appropriate); however, due to the special underwriting criteria established for
these issues, actual rates may be higher or lower than the current cost of
insurance rates charged under otherwise identical Policies that are underwritten
using standard underwriting criteria.
MONTHLY DEATH BENEFIT GUARANTEE CHARGE. Western Reserve will deduct a
monthly death benefit guarantee charge from each Policy to compensate Western
Reserve for the risk of guaranteeing the death benefit for the period chosen by
the Owner on the application provided a minimum level of premiums are received.
The amount of this charge is set forth on the Policy Schedule Page and will be
$0.04 per $1,000 of initial Specified Amount for all classes of Policies. This
charge will only be levied during the period between the Policy Date and the No
Lapse Date. (See Policy Lapse and Reinstatement - Lapse, p. 24.)
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. Western Reserve reserves the right to
increase this charge, but it is guaranteed not to exceed $10.00 per Policy
Month.
OPTIONAL CASH VALUE CHARGES
The following optional Cash Value charges will be deducted from the Policy
as the result of changes or elections made to the Policy and initiated by the
Policyowner.
OPTIONAL INSURANCE BENEFITS. The monthly deduction will include charges
for any optional insurance benefits added to the Policy by rider.
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.
CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of
the amount withdrawn will be deducted from amounts withdrawn from the Policy and
the balance will then be paid to the Policyowner. This fee will not be
increased.
CHARGES AGAINST THE SERIES ACCOUNT
Certain expenses will be deducted as a percentage of the value of the net
assets of the Series Account to compensate Western Reserve for certain risks
assumed in connection with the Policy.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily
charge from the Series Account at an annual rate of 0.90% of the average daily
net assets of the Series Account. Under Western Reserve's current procedures,
these amounts are paid to the General Account monthly.
The mortality risk assumed by Western Reserve is that the Surviving
Insured may live for a shorter time than projected. The expense risk assumed is
that expenses incurred in issuing and administering the Policies will exceed the
limits on administrative charges set in the Policies. Western Reserve also
assumes risks with respect to other contingencies including the incidence of
Policy loans, which may cause Western Reserve to incur greater costs than
anticipated when designing the Policies.
TAXES. Currently no charge is made to the Series Account for Federal
income taxes that may be attributable to the Series Account. Western Reserve
may, however, make such a charge in the future. Charges for other taxes, if any,
attributable to the Series Account may also be made. (See Federal Tax Matters,
p. 35.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Portfolios of the Fund,
the net assets of the Series Account will reflect the investment management fee
and other expenses incurred by the Fund. (See p. 7 for a table of the Fund
Annual Expenses and pp. 18-20 for a discussion of the investment management fees
of each Portfolio.)
Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and
pursuant to the Plan, has entered into a Distribution Agreement with ISI,
principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek payment
by the Fund of distribution expenses with respect to
28
<PAGE>
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 POLICIES
A different form of the Policy may be purchased under group or sponsored
arrangements ("Group/Sponsored Policies"). Under Group/Sponsored Policies,
a trustee, employer or similar entity purchases individual policies covering a
group of individuals on a group basis. Examples of such arrangements are
employer-sponsored benefit plans which are qualified under Section 401 of the
Internal Revenue Code and deferred compensation plans. A "sponsored
arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
For Group/Sponsored Policies the premium expense charges, contingent
surrender charges, minimum premium and minimum Specified Amount described in
"Charges and Deductions" and "Payment and Allocation of Premiums",
respectively, may be reduced. Western Reserve will issue Group/Sponsored
Policies in accordance with its rules in effect as of the date an application
for a Policy is approved. To qualify for Group/Sponsored Policies, a group or
sponsored arrangement must satisfy certain criteria as to, for example, size and
number of years in existence. Generally, the sales contacts and effort,
administrative costs and mortality cost for Group/Sponsored Policies take into
account such factors as the size of the group or sponsored arrangement, its
stability as indicated by its term of existence, the purposes for which
Group/Sponsored Policies are purchased and certain characteristics of its
members. The Group/Sponsored Policy's amount of reduction and the criteria for
qualification will reflect the reduced sales effort resulting from sales to
qualifying groups and sponsored arrangements. Group/Sponsored Policies may not
be available in certain states.
Western Reserve may modify from time to time on a uniform basis the
criteria for qualification for Group/Sponsored Policies. In no event, however,
will group or sponsored arrangements established for the sole purpose of
purchasing Group/Sponsored Policies, or which have been in existence for less
than six months, qualify for such Policies. Group/Sponsored Policies will not be
unfairly discriminatory against any person, including the affected Policyowners
and all other Policyowners of other forms of Policies funded by the Series
Account.
In 1983 the United States Supreme Court held that certain insurance
policies, the benefits under which vary based on sex, may not be used to fund
certain employer-sponsored benefit plans and fringe benefit programs. Western
Reserve recommends that any employer proposing to offer the Group/
Sponsored Policies to employees under a group or sponsored arrangement consult
his or her attorney before doing so. (See Federal Tax Matters -
Employment-Related Benefit Plans, p. 38.)
EMPLOYEE/ASSOCIATE POLICIES
Certain employees, field associates, directors and their relatives may
purchase a different form of the Policy ("Employee Policy") under which
Western Reserve, in addition to waiving or reducing the premium expense charges,
contingent surrender charges, minimum premium and minimum Specified Amount, may
waive or reduce the Monthly Policy Charge and the Surrender Charge. The Employee
Policy is available to (a) current and retired directors, officers, full-time
employees and agents of Western Reserve and its affiliates; (b) current and
retired directors, officers, full-time employees and registered representatives
of ISI and any broker-dealer which has a sales agreement with ISI; (c) any
Trust, pension, profit-sharing or other employee benefit plan of any of the
foregoing persons or entities; (d) current and retired directors, officers and
full-time employees of WRL Series Fund, Inc. and any IDEX mutual fund, and any
investment adviser or investment sub-adviser thereto; and (e) any member of a
family of any of the foregoing (e.g., spouse, child, sibling, parent-in-law).
Western Reserve reserves the right to modify or terminate this arrangement at
any time. The Employee Policy may not be available in certain states.
POLICY RIGHTS
LOAN PRIVILEGES
POLICY LOAN. After the first Policy year and so long as the Policy
remains In Force, the Policyowner may borrow money from Western Reserve using
the Policy as the only security for the loan. Western Reserve reserves the right
to permit a Policy loan prior to the first Policy Anniversary for Policies
issued pursuant to a transfer of cash values from another life insurance policy
under Section 1035(a) of the Internal Revenue Code of 1986, as amended. The
maximum amount that may be borrowed is 90% of the Cash Value, less any surrender
charge and any already outstanding Policy loan. Western Reserve reserves the
right to limit the amount of any Policy loan to no less than $500. Outstanding
loans have priority over the claims of any assignee or other person. The loan
may be repaid totally or in part before the Maturity Date of the Policy and
while the Policy is In Force. A loan which is taken from, or secured by, a
Policy may have Federal income tax consequences. (See Federal Tax Matters, p.
35.)
An amount equal to the loan plus interest in advance until the next Policy
Anniversary will be withdrawn from the Account or Accounts specified and
transferred to the Loan Reserve until the loan is repaid. The Loan Reserve is a
portion of the Fixed Account used as Collateral for a Policy loan. The
Sub-Accounts of the Series Account may be specified. If no Account is specified,
the loan amount will be withdrawn from each Account in the same manner as the
current allocation instructions.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. (See General
Provisions - Postponement of Payments, p. 32.) Under Western Reserve's
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current procedures, at each Anniversary, Western Reserve will compare the amount
of the outstanding loan (including loan interest in advance until the next
Policy Anniversary, if not paid) to the amount in the Loan Reserve (including
interest credited to the Loan Reserve during the previous Policy year). Western
Reserve will also make this comparison any time the Policyowner repays all or
part of the loan or makes a request to borrow an additional amount. At each such
time, if the amount of the outstanding loan exceeds the amount in the Loan
Reserve, Western Reserve will withdraw the difference from the Accounts and
transfer it to the Loan Reserve in the same manner as when a loan is made. If
the amount in the Loan Reserve exceeds the amount of the outstanding loan,
Western Reserve will withdraw the difference from the Loan Reserve and transfer
it to the Accounts in accordance with the Policyowner's current allocation
instructions. Western Reserve reserves the right to require the transfer of such
amounts to the Fixed Account, if such loans were originally transferred from the
Fixed Account. (See The Fixed Account, p. 34.) No charge will be imposed for
these transfers.
INTEREST RATE CHARGED. The interest rate charged on Policy loans will be
at the rate of 5.2% payable annually in advance. If unpaid when due, interest
will be added to the amount of the loan and will become part of the loan and
bear interest at the same rate. Interest paid on a Policy loan is generally not
tax deductible.
LOAN RESERVE INTEREST RATE CREDITED. The amount transferred to the Loan
Reserve will accrue interest at a minimum effective annual rate not less than
4%. Western Reserve may credit a higher rate, but is not obligated to do so.
Currently, Western Reserve is crediting an effective annual interest rate of
4.75% on all amounts borrowed during the first ten Policy years. On amounts
borrowed, after the tenth Policy year, that are part of the Cash Value in excess
of the cost basis (premiums less withdrawals) of the Policy the interest rate
credited is currently equal to the interest rate being charged on the total loan
while the remaining portion, if any, of the loan is credited the current rate of
4.75%.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy because the
death benefit and Net Surrender Value under the Policy are reduced by the amount
of the loan. Repayment of the loan causes the death benefit and Net Surrender
Value to increase by the amount of the repayment.
As long as a loan is outstanding, an amount equal to the loan plus
interest in advance until the next Policy Anniversary is held in the Loan
Reserve. This amount will not be affected by the Series Account's investment
performance. Amounts transferred from the Series Account to the Loan Reserve
will affect the Series Account value because such amounts will be credited with
an interest rate declared by Western Reserve rather than a rate of return
reflecting the investment performance of the Series Account. (See The Fixed
Account - Minimum Guaranteed and Current Interest Rates, p. 34.)
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. 36.)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If indebtedness exceeds the Cash Value less
the then applicable surrender charge, Western Reserve will notify the
Policyowner and any assignee of record. If a sufficient payment equal to excess
indebtedness is not received by Western Reserve within 61 days from the date
notice is sent, the Policy will lapse and terminate without value. The Policy,
however, may later be reinstated. (See Policy Lapse and Reinstatement, p. 24.)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Maturity Date of the Policy and while the Policy is In Force. Payments made by
the Policyowner while there is indebtedness will be treated as premium payments
unless the Policyowner indicates that the payment should be treated as a loan
repayment. (See Policy Rights - Benefits at Maturity, p. 32.) If not repaid,
Western Reserve may deduct indebtedness from any amount payable under the
Policy. As indebtedness is repaid, the Policy's value in the Loan Reserve
securing the indebtedness repaid will be transferred from the Loan Reserve to
the Accounts in the same manner as Net Premiums are allocated. However, Western
Reserve reserves the right to require the transfer to the Fixed Account. Western
Reserve will allocate the repayment of indebtedness at the end of the Valuation
Period during which the repayment is received.
SURRENDER PRIVILEGES
At any time before the earlier of the death of the Surviving Insured or
the Maturity Date, the Policyowner may totally surrender or, after the first
Policy year, make a cash withdrawal from the Policy by sending a written request
to Western Reserve. The amount available for surrender is the Net Surrender
Value at the end of the Valuation Period during which the surrender request is
received at Western Reserve's Office. The Net Surrender Value is equal to the
Cash Value as of the date of Surrender, less any surrender charge, and less any
outstanding Policy loan, plus any unearned loan interest. A Surrender Charge may
apply. (See Charges and Deductions - Contingent Surrender Charges, p. 26.)
Surrenders from the Series Account will generally be paid within seven days of
receipt of the written request. Postponement of payments may, however, occur in
certain circumstances. (See General Provisions - Postponement of Payments, p.
32.) Additional restrictions may be applied to surrenders from the Fixed
Account. (See The Fixed Account - Allocations, Transfers and Withdrawals, p.
34.) 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
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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. 35.)
TOTAL SURRENDERS. When 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. 32.)
CASH WITHDRAWALS. For a cash withdrawal, the amount available may be
limited to no less than $500 and to no more than 10% of the Net Surrender Value.
The amount paid plus a processing fee equal to the lesser of $25 or 2% of the
amount withdrawn will be deducted from the Policy's Cash Value at the end of
the Valuation Period during which the request is received. The amount will be
deducted from the Accounts in the same manner as the current allocation
instructions unless the Policyowner directs otherwise. Cash withdrawals are
allowed only once each Policy year.
Cash withdrawals will affect both the Policy's Cash Value and the death
benefit payable under the Policy. The Policy's Cash Value will be reduced by
the amount of the cash withdrawal. Moreover, the death benefit proceeds payable
under a Policy will generally be reduced by at least the amount of the cash
withdrawal.
In addition, when death benefit Option A is in effect, the Specified
Amount will be reduced by the cash withdrawal. No cash withdrawal will be
permitted which would result in a Specified Amount lower than the minimum
Specified Amount set forth in the Policy or would deny the Policy status as life
insurance under the Internal Revenue Code and applicable regulations. (See Cash
Value Charges - Cost of Insurance, p. 27; Death Benefit - Insurance Protection,
p. 16; and Federal Tax Matters - Tax Treatment of Policy Benefits, p. 36.)
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.
POLICY SPLIT OPTION
Subject to Western Reserve's evidence of insurability requirements, the
Policyowner may request to split the Policy, not including any riders, and
purchase two permanent individual Fixed Account life insurance policies offered
at the time of the request; one on the life of each Joint Insured. The Owner may
request this Split Option by notifying Western Reserve at its Office in writing
within 90 days following either:
1. The later of the enactment or the effective date of a change in the Federal
estate tax laws that would reduce or eliminate the unlimited marital
deduction; or
2. The date of entry of a final decree of divorce with respect to the Joint
Insureds; or
3. Written confirmation of a dissolution of a business partnership of which the
partners are the Joint Insureds.
The conditions listed above do not apply to Policies issued in the state of
Pennsylvania.
If more than one person owns this Policy, each Owner must agree to the
split. The initial specified amount for each new policy cannot be greater than
50% of the Policy's Specified Amount, not including the face amount of any
riders. The new policies will be subject to Western Reserve's minimum and
maximum specified amounts and issue ages for the plan of insurance selected. If
one of the Joint Insureds is older that the new policy's maximum issue age at
the time the Policy Split Option is requested, Western Reserve's approval must
be obtained to exercise the Policy Split Option.
Cash Value and indebtedness under the Policy will be allocated equally to
each of the new policies. If one Joint Insured does not meet Western Reserve's
insurability requirements, Western Reserve will pay the Policyowner one half of
the Policy's Net Surrender Value and issue only the policy covering that Joint
Insured who meets Western Reserve's insurability requirements; or the
Policyowner may elect to keep the Policy In Force on both Joint Insureds and no
new policies will be issued.
The premiums for the new policies will be based on each Joint Insured's
Attained Age and premium rate class as determined by current evidence of
insurability. Premiums will be payable as of the policy dates for each new
policy. The policy date for each new policy will be the Monthiversary following
notification to Western Reserve to execute the Policy Split Option. The owner
and beneficiary for the new policies will
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be those named in this Policy, unless otherwise specified. Any applicable
surrender charge will be deducted from the Policy's Cash Value prior to
allocation of the Cash Value to the new policies. Premium expense charges, if
any, under the new policies will not be deducted from the Cash Value allocated
to the new policies. Any new premium paid to the new policies will be subject to
the normal charges, if any, of the new policies at the time the premium is paid.
BENEFITS AT MATURITY
If either Joint Insured is living and the Policy is In Force, Western
Reserve will pay the Net Surrender Value of the Policy on the Maturity Date.
(See Cash Value - Net Surrender Value, p. 17.) The Policy will mature on the
Anniversary nearest the younger Joint Insured's 100th birthday, if either Joint
Insured is living and the Policy is In Force. Western Reserve is willing to
extend the Maturity Date provided the Policy is still In Force on the Maturity
Date and there are no unfavorable tax consequences. A tax advisor should be
consulted about the tax consequences associated with any Maturity Date
extension. Extension of the Maturity Date will be made upon mutual agreement
between Western Reserve and the Policyowner provided the Policyowner submits a
written request to Western Reserve between 90 and 180 days prior to the Maturity
Date, and provided the Policy may be extended with no unfavorable tax
consequences to the Policyowner.
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven days
after Western Reserve receives due proof of death of the Surviving Insured, and
Western Reserve receives proof that both Joint Insureds died while the Policy
was In Force, and verifies the validity of the claim. Other benefits will
ordinarily be paid within seven days of receipt of proper written request
(including an election as to tax withholding). Payments may be postponed in
certain circumstances. (See General Provisions - Postponement of Payments, p. 32
and The Fixed Account - Allocations, Transfers and Withdrawals, p. 34.) The
Policyowner may decide the form in which the benefits will be paid. During the
lifetime of either Joint Insured, the Policyowner may arrange for the death
benefits to be paid in a lump sum or under one or more of the settlement options
described below. These choices are also available if the Policy is surrendered
or matures. If no election is made, Western Reserve will pay the benefits in a
lump sum.
When death benefits are payable in a lump sum, the Beneficiary may select
one or more of the settlement options. If death benefits become payable under a
settlement option and the Beneficiary has the right to withdraw the entire
amount, the Beneficiary may name and change contingent Beneficiaries.
SETTLEMENT OPTIONS. Policyowners and Beneficiaries, subject to a prior
election of the Policyowner, may elect to have benefits paid in a lump sum or in
accordance with a variety of settlement options offered under the Policy. Once a
settlement option is in effect, there will no longer be value in the Series
Account or the Fixed Account. Western Reserve may make other settlement options
available on the Fixed Account in the future. The effective date of a settlement
provision will be either the date of surrender or the date of death of the
Surviving Insured. For additional information concerning these options, see the
Policy itself.
OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will
be paid in equal monthly installments for the period chosen until the fund has
been paid in full. The period chosen may not exceed 20 years.
OPTION B - LIFE INCOME. The proceeds will be paid in equal installments
for the guaranteed payment period elected and continue for the life of the
person on whose life the option is based. Such installments will be payable: (a)
during the lifetime of the payee or (b) during a fixed period certain and for
the remaining lifetime of the payee or (c) until the sum of installments paid
equals the proceeds applied and for the remaining life of the payee. Guaranteed
payment periods may be elected for 10 years, or the period in which the total
payments will equal the amount retained.
OPTION C - JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid
during the joint lifetime of two persons and continue upon the death of the
first payee for the remaining lifetime of the survivor.
GENERAL PROVISIONS
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount from the Series Account upon complete
surrender, cash withdrawal, Policy loan, or benefits payable at death or
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Series Account's net assets.
Transfers may also be postponed under these circumstances. For restrictions
applicable to payments from the Fixed Account, see The Fixed Account -
Allocations, Transfers and Withdrawals, p. 34.
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
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endorsement. Only the President or Secretary of Western Reserve can agree to
change or waive any provisions of the Policy.
SUICIDE
If either Joint Insured, while sane or insane, commits suicide within two
years from the Policy Date or two years from the effective date of any
reinstatement of a Policy, the Policy will terminate, and Western Reserve's
total liability, including all riders attached to the Policy, will be limited to
the total premiums paid within such two year period, less any loan and any prior
withdrawals during such period. In that event, such proceeds will be payable to
the Policyowner, if surviving, otherwise to the Policyowner's estate. No other
death benefit will be payable.
INCONTESTABILITY
Western Reserve cannot contest the Policy as to the initial Specified
Amount after it has been In Force while both Joint Insureds are still alive, for
two years from the Policy Date. At the end of the second Policy year, Western
Reserve will send the Policyowner a notice requesting to know whether either
Joint Insured has died. Failure to notify Western Reserve that a Joint Insured
has died will not avoid a contest, if Western Reserve has a basis to contest,
even if the Policy is still In Force. If a lapsed Policy is reinstated, a new
two year contestability period (apart from any remaining contestability period)
will apply from the date of the application for reinstatement and will apply
only to statements made in the application for reinstatement.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently
changed, will receive the Policy benefits at the Surviving Insured's death. If
the named Beneficiary dies before the Surviving Insured, the contingent
Beneficiary, if named, becomes the Beneficiary. If no Beneficiary survives the
Surviving Insured, the benefits payable at the Surviving Insured's death will
be paid to the Policyowner or the Policyowner's estate. As long as the Policy
is In Force, the Policyowner or Beneficiary may be changed by written request
from the Policyowner in a form acceptable to Western Reserve. The Policy need
not be returned unless requested by Western Reserve. The change will take effect
as of the date the request is signed, regardless of whether either or both Joint
Insureds are living when the request is received by Western Reserve. Western
Reserve will not, however, be liable for any payment made or action taken before
receipt of the request.
ASSIGNMENT
The Policy may be assigned by the Policyowner. Western Reserve will not be
bound by the assignment until a written copy has been received at its Office and
will not be liable with respect to any payment made prior to receipt. Western
Reserve assumes no responsibility for determining whether an assignment is valid
or the extent of the assignee's interest.
MISSTATEMENT OF AGE OR SEX
If the age or sex of either Joint Insured has been misstated, the death
benefit will be adjusted based on what the cost of insurance charge for the most
recent monthly deduction would have purchased based on the correct age and sex.
REPORTS AND RECORDS
Western Reserve will maintain all records relating to the Series Account
and the Fixed Account. Western Reserve will mail to each Policyowner, at the
last known address of record, reports required by applicable laws and or
regulations.
Western Reserve will send Policyowners written confirmation within seven
days of the following transactions: unplanned and certain planned premium
payments, Cash Value transfers, change in death benefit option or Specified
Amount, total surrender or cash withdrawals, and Policy loans or repayments.
Western Reserve will also send each Policyowner an annual statement at the end
of the Policy year showing for the year, among other things, the month and
amount of each: premium payment made, monthly deduction, transfer, cash
withdrawal and Policy loan or repayment. The annual statement will also show
Policy year-end Net Surrender Value, death benefit and Policy loan value, as
well as other Policy activity during the year.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy by rider. The cost of any optional
insurance benefits, including any applicable charge to provide a death benefit
guarantee, if any, for the optional insurance benefit until the No Lapse Date,
will be deducted as part of the monthly deduction. (See Charges and Deductions -
Optional Cash Value Charges, p. 28.)
JOINT INSURED TERM RIDER: Provides the payment of the face amount of the
rider to the Beneficiary for the rider upon receipt of due proof that both Joint
Insureds died while the rider was In Force. The cost of insurance rates for this
rider increase each year.
INDIVIDUAL INSURED RIDER: Provides additional life insurance on the life
of either Joint Insured, and for the payment of the face amount of the rider to
the Beneficiary for the rider upon receipt by Western Reserve of written notice
that the Insured's death occurred while the rider was In Force. On any
Monthiversary while the rider is In Force, the Policyowner may exchange the
rider without evidence of insurability for a new policy on the Insured's life.
Such new policy will be issued upon written request subject to the following:
(a) the rider has not reached the Anniversary nearest the Insured's 70th
birthday; (b) the new policy is on any permanent plan of insurance then offered
by Western Reserve; (c) the amount of insurance upon conversion will equal the
face amount then In Force under the rider; and (d) the payment of the premium
based on the Insured's rate class under the rider.
WEALTH PROTECTOR RIDER: Provides the payment of the face amount of the
rider to the Beneficiary for the rider upon
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receipt of due proof that both Joint Insureds died while the rider was In Force.
The rider has no conversion or exchange privilege. The rider terminates at the
earlier of (a) the date the Policy terminates, (b) the fourth Anniversary of the
Policy, or (c) the Monthiversary on which the rider is terminated by written
notice from the Policyowner to Western Reserve. The cost of insurance rates for
this rider do not increase while the rider is In Force.
THE FIXED ACCOUNT
A Policyowner may allocate Net Premiums and transfer Cash Value to the
Fixed Account, which is part of Western Reserve's General Account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and neither the Fixed Account
nor the General Account has been registered as an investment company under the
1940 Act. Accordingly, neither the Fixed Account, the General Account nor any
interests therein are generally subject to the provisions of these acts and
Western Reserve has been advised that the staff of the Commission has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Cash Value allocated to the Fixed Account (the
"Fixed Account Value") will be credited with rates of interest, as
described below. Because the Fixed Account Value becomes part of Western
Reserve's General Account, Western Reserve assumes the risk of investment gain
or loss on this amount. All assets in the General Account are subject to Western
Reserve's general liabilities from business operations.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Premium payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due;
minus
5. Any cash withdrawals or surrenders from the Fixed Account; minus
6. Any amounts transferred to a Sub-Account from the Fixed Account.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value, including the Loan Reserve, is guaranteed to
accumulate at a minimum effective annual interest rate of 4%. Western Reserve
presently credits the Fixed Account Value with current rates in excess of the
minimum guarantee but it is not obligated to do so. These current interest rates
are influenced by, but do not necessarily correspond to, prevailing general
market interest rates. Because Western Reserve, at its sole discretion,
anticipates changing the current interest rate from time to time, different
allocations to and from the Fixed Account Value will be credited different
current interest rates.
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
that any allocation of Net Premium received prior to the Policy Date will take
place on the Policy Date (or the Record Date, if later).
For transfers from the Fixed Account to a Sub-Account, Western Reserve
reserves the right to require that transfer requests be in writing and received
at Western Reserve's Office within 30 days of a Policy Anniversary. Under the
Policy, the maximum amount that may be transferred is limited to the greater of
(a) 25% of the amount in the Fixed Account, or (b) the amount transferred in the
prior Policy year from the Fixed Account, unless Western Reserve consents
otherwise. Currently, Western Reserve allows 100% of the amount in the Fixed
Account to be transferred within 30 days after each Anniversary. The transfer
will take place on the day Western Reserve receives the request. No transfer
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charge will apply to transfers from the Fixed Account to a Sub-Account. Amounts
may be withdrawn from the Fixed Account for Cash Withdrawals and Surrenders only
upon written request of the Policyowner and are subject to any applicable
requirement for a signature guarantee. (See Policy Rights - Surrender
Privileges, p. 30.) Western Reserve further reserves the right to defer payment
of transfers, Cash Withdrawals, or Surrenders from the Fixed Account for up to
six months. In addition, Policy provisions relating to transfers, Cash
Withdrawals or Surrenders from the Series Account will also apply to Fixed
Account transactions.
DISTRIBUTION OF THE POLICIES
The Policy will be sold by individuals who, in addition to being licensed
as life insurance agents for Western Reserve, are also registered
representatives of ISI, an affiliate of Western Reserve and the principal
underwriter of the Policies, or of broker-dealers who have entered into written
sales agreements with the principal underwriter. ISI is registered with the
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers, Inc. No amounts have
been retained by ISI for acting as principal underwriter for the Policies. The
maximum sales commission payable to Western Reserve agents during the first
Policy year is 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. During the second through the tenth Policy
years only, the maximum sales commission payable is 2.2% of all premium
payments. An additional sales commission of up to 0.10% (ten one-hundredths of
one percent) of the Policy's Cash Value is payable on the fifth Policy
Anniversary, and on each Anniversary thereafter, provided the Policy's Cash
Value at such times, minus any amounts attributable to Policy loans, is at least
$10,000. Certain production, persistency and managerial bonuses may also be
paid.
FEDERAL TAX MATTERS
INTRODUCTION
The ultimate effect of Federal income taxes on the Cash Value of a Policy
and on the economic benefit to the Policyowner or Beneficiary depends on Western
Reserve's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on Federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
applicable state or other tax laws. Because the discussion herein is based upon
Western Reserve's understanding of Federal income tax laws as they are
currently interpreted, Western Reserve cannot guarantee the tax status of any
Policy. Western Reserve makes no representations regarding the likelihood of
continuation of the current Federal income tax laws, Treasury Regulations, or of
the current interpretations by the Internal Revenue Service ("IRS").
Western Reserve reserves the right to make changes to the Policy in order to
assure that it will continue to qualify as life insurance for tax purposes.
TAX CHARGES
At the present time, Western Reserve makes no charge for any Federal,
state or local taxes (other than premium taxes) that the Company incurs that may
be attributable to such Account or to the Policies. Western Reserve, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Series Account or to the Policies.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal tax purposes,
a Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain
features of the Policy is not directly addressed by Section 7702. Nevertheless,
Western Reserve believes it is reasonable to conclude that the Policy will meet
the Section 7702 definition of a life insurance contract. In the absence of
final regulations or other pertinent interpretations of Section 7702, however,
there is necessarily some uncertainty as to whether a Policy will meet the
statutory life insurance contract definition, particularly if it insures
substandard risks. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide most of the
tax advantages normally provided by a life insurance contract.
If it is subsequently determined that a Policy does not satisfy Section
7702, Western Reserve will take whatever steps are appropriate and reasonable to
attempt to cause such a Policy to comply with Section 7702, including possibly
refunding any premiums paid that exceed the limitation allowable under Section
7702 (together with interest or other earnings on any such premiums refunded as
required by law). For these reasons, Western Reserve reserves the right to
modify the Policy as necessary to attempt to qualify it as a life insurance
contract under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Series Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Series Account, through the
Fund, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. sec. 1.817-5, which affect how the Fund's assets may be
invested. Western Reserve believes that the Fund will be operated in compliance
with the requirements prescribed by the Treasury.
In certain circumstances, owners of variable life insurance policies may
be considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the owner's
gross income. The IRS has stated in published rulings that the owner of a
variable life insurance policy will be considered the owner of separate account
assets
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if the owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning
the circumstances in which investor control of the investment of a segregated
asset account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating premium
payments and Policy values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the asset of the Series Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. IN GENERAL. Western Reserve believes that the proceeds and Cash Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for Federal income tax purposes. Thus, the
death benefit under the Policy should be excludable from the gross income of the
Beneficiary under Section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, the payment of an unscheduled
premium, the taking of a Policy loan, a cash withdrawal, a total surrender, a
change of insured, a Policy Lapse with an outstanding indebtedness, a change in
death benefit options, the exchange of a Policy, or the assignment of a Policy
may have tax consequences depending upon the circumstances. In addition, Federal
estate and state and local estate, inheritance, and other tax consequences of
ownership or receipt of Policy proceeds depend upon the circumstances of each
Policyowner or Beneficiary. A competent tax adviser should be consulted for
further information.
The Policy may also be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if a
Policyowner is contemplating the use of a Policy in any arrangement the value of
which depends in part on its tax consequences, that Policyowner should be sure
to consult a qualified tax adviser regarding the tax attributes of the
particular arrangement.
Generally, the Policyowner will not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, under the Policy until
there is a distribution. The tax consequences of distributions from, and loans
taken from, or secured by, a Policy depend on whether the Policy is classified
as a "modified endowment contract" under Section 7702A. Section 7702A
generally applies to Policies entered into or materially changed after June 20,
1988.
2. MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to the
death benefit provided under such Policy. The premium limitation rules for
determining whether such a Policy is a modified endowment contract are extremely
complex. In general, however, a Policy will be a modified endowment contract if
the accumulated premiums paid at any time during the first seven Policy years
exceed the sum of the net level premiums which would have been paid on or before
such time if the Policy provided for paid-up future benefits after the payment
of seven level annual premiums. In addition, if a Policy is "materially
changed," it may cause such Policy to be treated as a modified endowment
contract. The material change rules for determining whether a Policy is a
modified endowment contract are also extremely complex. In general, however, the
determination whether a Policy will be a modified endowment contract after a
material change depends upon the relationship of the death benefit at the time
of change to the Cash Value at the time of such change and the additional
premiums paid in the seven Policy years starting with the date on which the
material change occurs.
The manner in which the premium limitation and material change rules
should be applied to certain features of the Policy and its riders is unclear.
Nonetheless, under Western Reserve's current procedures, the Policyowner will
be notified at the time a Policy is issued whether, according to Western
Reserve's calculations, the Policy is or is not classified as a modified
endowment contract based on the premium then received. The Policyowner will also
be notified of the amount of the maximum annual premium which, according to,
Western Reserve's calculations, can be paid without causing a Policy to be
classified as a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a competent tax adviser
before purchasing a Policy to determine the circumstances under which the Policy
would be a modified endowment contract. In addition, a Policyowner should
contact a competent tax adviser before making any change to, including an
exchange of, a Policy to determine whether such change would cause the Policy
(or the new policy in the case of an exchange) to be treated as a modified
endowment contract.
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If a Policy becomes a modified endowment contract, distributions that
occur during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified endowment
contract. In addition, distributions from a Policy within two years before it
becomes a modified endowment contract will be taxed in this manner. This means
that a distribution made from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment contract.
3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Policies classified as modified endowment contracts are subject to
the following tax rules: First, all pre-death distributions from such a Policy
(including distributions upon surrender, distributions made in anticipation of
the Policy becoming a modified endowment contract, and benefits paid at
maturity) are treated as ordinary income subject to tax up to the amount equal
to the excess (if any) of the Cash Value immediately before the distribution
over the investment in the Policy (described below) at such time. Second, loans
taken from, or secured by, such a Policy are treated as distributions from such
a Policy and taxed accordingly. (Unpaid Policy loan interest will be treated as
a loan for these purposes.) Third, a 10% additional income tax is imposed on the
portion of any distribution from, or loan taken from, or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the Policyowner attains age 59-1/2, is attributable to the
Policyowner's becoming disabled, or is part of a series of substantially equal
periodic payments for the life (or life expectancy) of the Policyowner or the
joint lives (or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
4. DISTRIBUTION FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not classified as a modified
endowment contract are generally treated as first recovering the investment in
the Policy (described below) and then, only after the return of all such
investment in the Policy, as distributing taxable income. An exception to this
general rule occurs in the case of a cash withdrawal, a decrease in the
Policy's death benefit, or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and results in a cash
distribution to the Policyowner in order for the Policy to continue complying
with the Section 7702 definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a modified endowment
contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, distributions (including distributions upon surrender or lapse)
or loans from, or secured by, a Policy that is not a modified endowment contract
are not subject to the 10% additional income tax.
5. POLICY LOAN INTEREST. Interest paid on a Policy loan generally is not
tax deductible. Therefore, a Policyowner should consult a competent tax advisor
before deducting any Policy loan interest.
6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from the
gross income of the Policyowner (except that the amount of any loan from, or
secured by, a Policy that is a modified endowment contract, to the extent such
amount is excluded from gross income, will be disregarded), plus (iii) the
amount of any loan from, or secured by, a Policy that is a modified endowment
contract to the extent that such amount is included in the gross income of the
Policyowner.
7. MULTIPLE POLICIES. All modified endowment contracts that are issued by
Western Reserve (or its affiliates) to the same Policyowner during any calendar
year are treated as one modified endowment contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Code.
8. TAX TREATMENT OF POLICY SPLIT. The Policy Split Option permits a Policy
to be split into two other individual life insurance contracts upon the
occurrence of a divorce of the Joint Insureds, certain changes in Federal estate
tax law, or a dissolution of a business partnership of which the partners are
Joint Insureds. (See Policy Rights - Policy Split Option, p. 31.) A policy split
could have adverse tax consequences. For example, it is not clear whether a
policy split will be treated as a nontaxable exchange under Sections 1031
through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the Policy at the time of the split. In addition, it is not
clear whether the individual policies that result from a policy split would in
all circumstances be treated as life insurance contracts for Federal income tax
purposes and, if so treated, whether the individual policies would be classified
as modified endowment contracts. Before a Policyowner exercises rights provided
by the Policy Split Option, it is important that he or she consult with a
competent tax adviser regarding the possible consequences of a policy split.
9. TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. Pursuant to the
recently enacted Health Insurance Portability and Accountability Act of 1996,
Western Reserve believes that for Federal income tax purposes a Single Sum
Benefit payment made under the Terminal Illness Accelerated Death Benefit Rider
should be fully excludable from the gross income of the beneficiary, as long as
the beneficiary is the Insured under the Policy. However, a Policyowner should
consult a qualified tax advisor about the consequences of adding this Rider to a
Policy or requesting a Single Sum Benefit payment under this Rider.
10. OTHER TAX CONSIDERATIONS. The transfer of the Policy or the definition
of a beneficiary may have Federal, state and/or local transfer and inheritance
tax consequences,
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including the imposition of gift, estate and generation- skipping transfer
taxes. For example, the transfer of the Policy to, the designation as
beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the Policyowner, may have generation skipping transfer tax considerations under
Section 2601 of the Code.
The individual situation of each Policyowner or beneficiary will determine
the extent, if any, to which Federal, state and local transfer taxes may be
imposed. Consult with your tax adviser for specific information in connection
with these taxes.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The Policy described in this
Prospectus contains guaranteed cost of insurance rates and guaranteed purchase
rates for certain payment options that distinguish between men and women.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS, and Title VII generally,
on any employment-related insurance or benefit program for which a Policy may be
purchased.
SAFEKEEPING OF THE
SERIES ACCOUNT'S ASSETS
Western Reserve holds the assets of the Series Account. The assets are
kept physically segregated and held separate and apart from the General Account.
Western Reserve maintains records of all purchases and redemptions of Fund
shares by each of the Sub-Accounts. Additional protection for the assets of the
Series Account is provided by a blanket bond issued to AEGON U.S. Holding
Corporation ("AEGON U.S.") in the amount of $5 million (subject to a $1
million deductible), covering all of the employees of AEGON U.S. and its
affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to
AEGON U.S.A. Securities, Inc. provides additional fidelity coverage to a limit
of $12 million, subject to a $50,000 deductible.
VOTING RIGHTS OF THE SERIES ACCOUNT
To the extent required by law, Western Reserve will vote the Fund shares
held in the Series Account at shareholder meetings of the Fund in accordance
with instructions received from persons having voting interests in the
corresponding Sub-Accounts of the Series Account. Except as required by the 1940
Act, the Fund does not hold regular or special shareholder meetings. If the 1940
Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Western Reserve determines
that it is permitted to vote the Fund shares in its own right, it may elect to
do so.
The number of votes which a Policyowner has the right to instruct will be
calculated separately for each Sub-Account. The number of votes which each
Policyowner has the right to instruct will be determined by dividing a Policy's
Cash Value in that Sub-Account by $100. Fractional shares will be counted. The
number of votes of the Portfolio which the Policyowner has the right to instruct
will be determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Fund. Voting instructions will be solicited by written communications prior to
such meeting in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions
are received and Fund shares which are not attributable to Policyowners in
proportion to the voting instructions which are received with respect to all
Policies participating in that Portfolio. Voting instructions to abstain on any
item to be voted upon will reduce the votes eligible to be cast by Western
Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, Western Reserve itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment adviser of a Portfolio of the Fund if Western Reserve
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Western Reserve determined that the change would have an adverse
effect on its General Account in that the proposed investment policy for a
Portfolio may result in overly speculative or unsound investments. In the event
Western Reserve does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next annual report to
Policyowners.
STATE REGULATION OF WESTERN RESERVE
As a life insurance company organized and operated under Ohio law, Western
Reserve is subject to provisions governing such companies and to regulation by
the Ohio Commissioner of Insurance.
Western Reserve's books and Accounts are subject to review and
examination by the Ohio Insurance Department at all times and a full examination
of its operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
REINSURANCE
Western Reserve intends to reinsure a portion of the risks assumed under
the Policies.
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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 of Directors (September, 1996 - present), WRL Investment Management,
Inc.; Chairman of the Board of Directors (September, 1996 - present), WRL
Investment Services, Inc.; Chairman of the Board of Directors (February,
1997 - present), AEGON Asset Management Services, Inc., Largo, Florida;
Chairman of the Board of Directors and Chief Executive Officer (1988 -
February, 1991), President (1988 - 1989), Director (1976 - February, 1991),
Executive Vice President (1972 - 1988), Pioneer Western Corporation
(financial services), Largo, Florida; President and Director (1985 -
September, 1990) and Director (December, 1990 - present) Idex Management,
Inc. (investment adviser), Largo, Florida; Trustee (1987 - present),
Chairman (December, 1989 - September, 1990 and November, 1990 - present)
and President and Chief Executive Officer (November, 1986 - September,
1990), of IDEX Series Fund; former President and Chief Executive Officer of
IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all
of Largo, Florida.
ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL
OFFICER. Executive Vice President (June, 1993 - present), Chief Financial
Officer (December, 1995 - present), Senior Vice President (1981 - June,
1993) and Actuary (1972 - present), Western Reserve Life Assurance Co. of
Ohio; Director (September, 1996 - present), WRL Investment Management,
Inc.; Director (September, 1996 - present), WRL Investment Services, Inc.;
Executive Vice President (September, 1993 - present), WRL Series Fund, Inc.
WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL.
Senior Vice President, Secretary and General Counsel (July, 1990 -
present), Western Reserve Life Assurance Co. of Ohio; Vice President,
Secretary and General Counsel of Pioneer Western Corporation (financial
services) and Secretary of its subsidiaries (May, 1990 - February, 1991);
Vice President and Assistant Secretary (November, 1990 - present) and
Secretary (June, 1990 - September, 1990) of IDEX Series Fund; former
Secretary of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment
companies), all of Largo, Florida.
G. JOHN HURLEY(1), EXECUTIVE VICE PRESIDENT. Executive Vice President (June,
1993 - present), Western Reserve Life Assurance Co. of Ohio; Executive Vice
President (June, 1993 - present), Director (March, 1994 - present) WRL
Series Fund, Inc.; Director (September, 1996 - present), WRL Investment
Management, Inc.; Director (September, 1996 - present), WRL Investment
Services, Inc.; Director, President and Chief Executive Officer (February,
1997 - present), AEGON Asset Management Services, Inc., Largo, Florida;
President and Chief Executive Officer (September, 1990 - present), Trustee
(June, 1990 - present) and Executive Vice President (June, 1988 -
September, 1990) of IDEX Series Fund; former Trustee and Executive Vice
President of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment
companies); Assistant Vice President of AEGON USA Managed Portfolios, Inc.
(September, 1991 - August, 1992); Vice President of Pioneer Western
Corporation (May, 1988 - February, 1991).
ALLAN J. HAMILTON(1), VICE PRESIDENT, TREASURER AND CONTROLLER. Vice President
and Controller (1987 - present), Treasurer (February, 1997 - present),
Assistant Vice President and Assistant Controller (1983 - 1987), Western
Reserve Life Assurance Co. of Ohio; Treasurer and Principal Financial
Officer (February, 1997 - present), WRL Series Fund, Inc.; Vice President
and Controller (1988 - February, 1991), Pioneer Western Corporation
(financial services), Largo, Florida.
PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52499,
Director (February, 1991 - present), Western Reserve Life Assurance Co. of
Ohio; Vice President and Chief Tax Officer (1984 - present), Chief
Financial Officer (1992 - present), AEGON USA, Inc., formerly known as Life
Investors, Inc., (financial services holding company), Cedar Rapids, Iowa.
JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429,
Director (1987 - present), Western Reserve Life Assurance Co. of Ohio;
Trustee, of 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
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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 Associate General Counsel of Western Reserve.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Series Account is a party or
to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account.
EXPERTS
The financial statements of WRL Series Life Account as of December 31,
1996 and for the year then ended have been included herein in reliance upon the
report of Price Waterhouse LLP, independent accountants, and upon the authority
of that firm as experts in accounting and auditing.
The financial statements of Western Reserve Life Assurance Co. of Ohio at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, 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. 70) should be considered only as bearing on the ability of
Western Reserve to meet its obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Series Account.
Financial statements for Western Reserve for the years ended December 31,
1996, 1995 and 1994, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
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APPENDIX A
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a Policy operates.
They show how the death benefit, Cash Value and Net Surrender Value of a Policy
issued to Joint Insureds of given ages and a given premium could vary over an
extended period of time assuming hypothetical gross rates of return equivalent
to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the
Policy values that would result based on the assumptions that the premium is
paid as indicated, that the Policyowner has not requested a decrease in the
Specified Amount of the Policy, that no cash withdrawals or Policy loans have
been made, and that less than twelve transfers per year have been made.
The death benefits, Cash Values and Net Surrender Values under a Policy
would be different from those shown if the actual rate of return averages 0%, 6%
or 12% over a period of years, but fluctuated above and below those averages for
individual Policy years. They would also differ if any Policy loans were made
during the period of time illustrated.
The illustration on p. 42 is based on a Policy for Joint Insureds who are
a 55 year old male and a 55 year old female, both in the Select rate class,
annual premiums of $4,000, a $250,000 Specified Amount and death benefit Option
B. The illustrations on that page also assume cost of insurance charges based on
Western Reserve's CURRENT cost of insurance rates.
The illustration on p. 43 is based on the same factors as those on p. 42,
except that cost of insurance charges are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table). The illustration on page 44 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 42, 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 0.93% of the
average daily net assets of the Portfolios of the Fund; and (3) all applicable
premium expense charges and Cash Value charges. The 0.93% average Portfolio
expense level assumes an equal allocation of amounts among the fifteen
Sub-Accounts and is based on an average 0.76% investment advisory fee and
estimated 1996 average normal operating expenses of 0.17% for each of the
Portfolios in operation during 1996. Calculation of the average annual expense
level utilized annualized actual audited expenses incurred during 1996 as
adjusted for anticipated expense modifications incurring in 1997 for the Money
Market (0.52%), Bond (0.64%), Growth (0.88%), Short-to- Intermediate Government
(0.76%), Strategic Total Return (0.91%), Global (0.99%), Emerging Growth
(0.94%), Aggressive Growth (0.98%), Balanced (0.97%), Growth & Income (1.00%),
C.A.S.E. Growth (1.00%), and Tactical Asset Allocation (0.90%). 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 the International Equity Portfolio had not commenced operations as of
December 31, 1996, the estimated average annual Portfolio expense level reflects
estimated expenses for these three Portfolios at 1.00%, 1.05% and 1.30%,
respectively, for 1997. During 1996, Western Reserve had undertaken to pay Fund
expenses for each Portfolio to the extent normal operating expenses of a
Portfolio exceeded a stated percentage of the Portfolio's average daily net
assets. WRL Management has undertaken until April 30, 1998 to pay expenses to
the extent normal operating expenses of a Portfolio exceed a stated percentage
of the Portfolio's average daily net assets. Taking into account the assumed
charges of 1.83%, the gross annual investment return rates of 0%, 6% and 12% are
equivalent to net annual investment return rates of -1.83%, 4.17%, and 10.17%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account because Western Reserve is not
currently making such charges. In order to produce after tax returns of 0%, 6%
or 12% if such charges are made in the future, the Series Account would have to
earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
(See Charges Against the Series Account - Taxes, p. 28.)
The "Premium Accumulated at 5%" column of each table shows the
amount which would accumulate if an amount equal to the premium were invested to
earn interest at 5% per year, compounded annually.
Western Reserve will furnish, upon request, a comparable illustration
reflecting each proposed Joint Insured's age, sex, risk classification and
desired plan features.
41
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION B - INCREASING DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- - -------- -------------- --------------------------------- ------------------------------ -------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
---------- ---------- ----------- -------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 253,501 253,721 253,940 1,191 1,411 1,630 3,501 3,721 3,940
2 8,610 256,911 257,568 258,251 4,261 4,918 5,601 6,911 7,568 8,251
3 13,241 260,224 261,540 262,965 7,406 8,722 10,147 10,224 11,540 12,965
4 18,103 263,435 265,636 268,115 10,449 12,650 15,128 13,435 15,636 18,115
5 23,208 266,539 269,852 273,736 13,385 16,698 20,581 16,539 19,852 23,736
6 28,568 269,533 274,190 279,872 16,211 20,868 26,550 19,533 24,190 29,872
7 34,196 272,410 278,643 286,566 18,920 25,153 33,075 22,410 28,643 36,566
8 40,106 275,158 283,204 293,859 21,500 29,546 40,201 25,158 33,204 43,859
9 46,312 277,762 287,858 301,795 23,936 34,032 47,968 27,762 37,858 51,795
10 52,827 280,204 292,588 310,415 26,210 38,594 56,421 30,204 42,588 60,415
15 90,630 291,615 319,280 368,584 41,615 69,280 118,584 41,615 69,280 118,584
20 138,877 300,062 349,734 460,327 50,062 99,734 210,327 50,062 99,734 210,327
25 200,454 303,171 381,911 603,404 53,171 131,911 353,404 53,171 131,911 353,404
30 279,043 296,043 409,940 822,554 46,043 159,940 572,554 40,043 159,940 572,554
35 379,345 272,667 424,953 1,156,233 22,667 174,953 906,233 22,667 174,953 906,233
40 507,359 * 414,713 1,665,422 * 164,713 1,415,422 * 164,713 1,415,422
45 670,741 * 302,156 2,384,400 * 52,156 2,134,400 * 52,156 2,134,400
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
END OF HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- - -------- --------------------------- ----------------------------- -----------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
--------- -------- -------- --------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.48 -6.98 -1.50 -70.23 -64.73 -59.25 6,237.53 6,243.03 6,248.50
2 -9.37 -3.64 2.08 -35.32 -28.37 -21.54 652.98 654.00 655.06
3 -7.80 -1.94 3.92 -22.26 -15.13 -8.16 263.87 264.55 265.29
4 -6.87 -0.92 5.03 -16.34 -9.18 -2.23 152.74 153.35 154.03
5 -6.27 -0.25 5.76 -13.10 -5.96 0.96 103.49 104.09 104.79
6 -5.86 0.23 6.29 -11.12 -3.98 2.89 76.47 77.09 77.83
7 -5.57 0.57 6.68 -9.82 -2.68 4.17 59.66 60.31 61.11
8 -5.37 0.82 6.97 -8.92 -1.78 5.05 48.31 48.99 49.86
9 -5.25 1.00 7.20 -8.30 -1.13 5.69 40.18 40.90 41.86
10 -5.18 1.14 7.38 -7.86 -0.65 6.17 34.11 34.87 35.91
15 -4.73 1.78 8.13 -4.73 1.78 8.13 18.15 19.13 20.69
20 -4.72 2.06 8.51 -4.72 2.06 8.51 11.41 12.64 14.82
25 -5.30 2.07 8.72 -5.30 2.07 8.72 7.74 9.21 12.06
30 -7.20 1.79 8.81 -7.20 1.79 8.81 5.33 7.07 10.64
35 -14.96 1.20 8.84 -14.96 1.20 8.84 3.44 5.52 9.87
40 * 0.14 8.86 * 0.14 8.86 * 4.19 9.44
45 * 1.20 8.78 * -6.80 8.78 * 2.11 9.12
<FN>
- - ----------------
* In the absence of an additional payment, the Policy would lapse.
The Hypothetical Investment Rates of Return Shown Above and Elsewhere in this
Prospectus Are Illustrative Only and Should Not Be Deemed A Representation of
Past or Future Investment Rates of Return.
Actual Investment Rates of Return May be More or Less Than Those Shown And Will
Depend on a Number of Factors, Including the Investment Allocations By An Owner
and Different Investment Rates of Return For the Fund. The Death Benefit, Cash
Value and Net Surrender Value for a Policy Would be Different From Those Shown
if the Actual Investment Rates of Return Averaged 0%, 6%, and 12% Over a Period
of Years, But Fluctuated Above or Below that Average for Individual Policy
Years. No Representation Can Be Made by Western Reserve or the Fund that These
Hypothetical Investment Rates of Return Can Be Achieved For Any One Year or
Sustained Over Any Period of Time. This Illustration Must Be Preceded or
Accompanied By A Current Prospectus.
</FN>
</TABLE>
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION B - INCREASING DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- - -------- -------------- -------------------------------- --------------------------- ----------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
---------- ---------- ---------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 253,501 253,721 253,940 1,191 1,411 1,630 3,501 3,721 3,940
2 8,610 256,911 257,568 258,251 4,261 4,918 5,601 6,911 7,568 8,251
3 13,241 260,224 261,540 262,965 7,406 8,722 10,147 10,224 11,540 12,965
4 18,103 263,435 265,636 268,115 10,449 12,650 15,128 13,435 15,636 18,115
5 23,208 266,539 269,852 273,736 13,385 16,698 20,581 16,539 19,852 23,736
6 28,568 269,527 274,183 279,865 16,204 20,861 26,542 19,527 24,183 29,865
7 34,196 272,387 278,619 286,540 18,896 25,129 33,050 22,387 28,619 36,540
8 40,106 275,104 283,147 293,798 21,446 29,489 40,140 25,104 33,147 43,798
9 46,312 277,659 287,747 301,674 23,833 33,921 47,848 27,659 37,747 51,674
10 52,827 280,027 292,394 310,201 26,033 38,399 56,207 30,027 42,394 60,201
15 90,630 289,274 316,618 365,544 39,274 66,618 115,544 39,274 66,618 115,544
20 138,877 287,550 334,763 442,204 37,550 84,763 192,204 37,550 84,763 192,204
25 200,454 262,044 329,659 535,430 12,044 79,659 285,430 12,044 79,659 285,430
30 279,043 * 270,641 626,610 * 20,641 376,610 * 20,641 376,610
35 379,345 * * 668,819 * * 418,819 * * 418,819
40 507,359 * * 590,818 * * 340,818 * * 340,818
45 670,741 * * * * * * * * *
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
END OF HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- - -------- --------------------------- ----------------------------- -----------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
--------- -------- -------- --------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.48 -6.98 -1.50 -70.23 -64.73 -59.25 6,237.53 6,243.03 6,248.50
2 -9.37 -3.64 2.08 -35.32 -28.37 -21.54 652.98 654.00 655.06
3 -7.80 -1.94 3.92 -22.26 -15.13 -8.16 263.87 264.55 265.29
4 -6.87 -0.92 5.03 -16.34 -9.18 -2.23 152.74 153.35 154.03
5 -6.27 -0.25 5.76 -13.10 -5.96 0.96 103.49 104.09 104.79
6 -5.87 0.22 6.28 -11.13 -3.99 2.88 76.47 77.08 77.83
7 -5.60 0.55 6.66 -9.85 -2.70 4.15 59.66 60.30 61.11
8 -5.42 0.78 6.94 -8.98 -1.82 5.02 48.30 48.99 49.86
9 -5.32 0.95 7.16 -8.39 -1.19 5.64 40.18 40.89 41.85
10 -5.29 1.05 7.32 -7.99 -0.74 6.10 34.10 34.86 35.90
15 -5.51 1.30 7.83 -5.51 1.30 7.83 18.06 19.04 20.60
20 -7.93 0.55 7.77 -7.93 0.55 7.77 11.07 12.29 14.50
25 -24.90 -1.80 7.35 -24.90 -1.80 7.35 6.79 8.28 11.33
30 * -16.20 6.62 * -16.20 6.62 * 4.83 9.27
35 * * 5.45 * * 5.45 * * 7.54
40 * * 3.39 * * 3.39 * * 5.60
45 * * * * * * * * *
<FN>
- - ----------
* In the absence of an additional payment, the Policy would lapse.
The Hypothetical Investment Rates of Return Shown Above and Elsewhere in this
Prospectus Are Illustrative Only and Should Not Be Deemed A Representation of
Past or Future Investment Rates of Return.
Actual Investment Rates of Return May be More or Less Than Those Shown And Will
Depend on a Number of Factors, Including the Investment Allocations By An Owner
and Different Investment Rates of Return For the Fund. The Death Benefit, Cash
Value and Net Surrender Value for a Policy Would be Different From Those Shown
if the Actual Investment Rates of Return Averaged 0%, 6%, and 12% Over a Period
of Years, But Fluctuated Above or Below that Average for Individual Policy
Years. No Representation Can Be Made by Western Reserve or the Fund that These
Hypothetical Investment Rates of Return Can Be Achieved For Any One Year or
Sustained Over Any Period of Time. This Illustration Must Be Preceded or
Accompanied By A Current Prospectus.
</FN>
</TABLE>
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT
$250,000 SPECIFIED AMOUNT
OPTION B - INCREASING DEATH BENEFIT
CURRENT COST OF INSURANCE RATES
[GRAPHIC OMITTED]
44
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the average annual returns of common
stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is a historical record and is not
intended as a projection of future performance. Charges associated with a
variable life insurance policy are not reflected.
The data indicates that, historically, the investment performance of
common stocks over long periods of time has been positive and has generally been
superior to that of long-
term, high grade debt securities. Common stocks have, however, been subject to
more dramatic market adjustments over short periods of time. These trends
indicate the potential advantages of holding a variable life insurance policy
for a long period of time.
The following chart illustrates the average annual returns of the Standard
& Poor's Index of 500 Common Stocks ("S&P 500 Stock Index") for each of
the 20 year periods shown. These returns are compared to the average annual
returns of high grade corporate bonds and U.S. Treasury bills for the same
periods. (The 20-year periods selected for the chart begin in 1936 and have
ending periods at five year intervals.)
AVERAGE ANNUAL RETURNS
TWENTY YEAR HOLDING PERIODS
[GRAPHIC OMITTED]
* Source: (c) Stocks, Bonds, Bills and Inflation 1997 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
45
<PAGE>
Over the 52 20-year time periods beginning in 1927 and ending in 1996
(I.E. 1927-1946, 1928-1947, and so on through 1977-1996):
- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 48 of the 52 periods.
- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 52 periods.
- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 52 periods.
From 1927 through 1996 the average annual return for common stocks was
10.7%, compared to 5.6% for high grade, long-term corporate bonds, 3.7% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1927 and ending 1996.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more likely
was the chance of a loss. The chart also shows that shorter term results tend to
be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
---------------------
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1987-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ......... 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 14.4% 15.3%
Small Company ......... -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.6 13.0
Long-Term Corp. ........ 5.2 6.9 2.7 1.0 1.7 6.2 13.0 9.8 9.5
Long-Term Govt. ........ 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 10.0 9.4
Inter-Term Govt. ....... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.0 7.8
Treasury Bills ......... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 5.5
Inflation ............ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.3 3.7
<FN>
- - ----------------
* Based on the period 1926-1929.
** Based on the period 1990-1996.
Source: (c) Stocks, Bonds, Bills and Inflation 1997 Yearbook(TM), 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 WEALTH PROTECTOR-
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
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- - ------------------- --------------- -----------
<S> <C> <C>
$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
</TABLE>
46
<PAGE>
Total Value of 87.5 shares @ $15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method ONLY works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
How does the dollar cost averaging method relate to the WRL Freedom Wealth
Protector(R)? A Policyowner may invest his or her Net Premium in a Sub-Account,
and although a Policy's value in a Sub-Account or Sub-Accounts is affected by
several factors other than investment experience (E.G., Cash Value charges and
charges against the Series Account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the Policyowner pays a
Planned Periodic Premium on a regular basis and he or she allocates Net Premium
resulting from those Planned Periodic Premiums to the Sub-Accounts in relatively
constant amounts.
INDEX TO FINANCIAL STATEMENTS
WRL Series Life Account:
Report of Independent Accountants dated January 31, 1997
Statements of assets, liabilities and equity accounts and statements of
operations for the year ended December 31, 1996
Statements of changes in equity accounts for the years ended December 31,
1996 and 1995
Selected per unit data and ratios for the years ended December 31, 1996,
1995, 1994, 1993 and 1992
Notes to Financial Statements
Western Reserve Life Assurance Co. of Ohio:
Report of Independent Auditors dated February 21, 1997
Statutory-basis balance sheets at December 31, 1996 and 1995
Statutory-basis statements of operations for the years ended December 31,
1996, 1995 and 1994
Statutory-basis statements of changes in capital and surplus for the years
ended December 31, 1996, 1995 and 1994
Statutory-basis statements of cash flows for the years ended December 31,
1996, 1995 and 1994
Notes to Statutory-basis financial statements
Statutory-basis financial statement schedules
WRL00053-05/97
47
<PAGE>
WRL SERIES LIFE ACCOUNT
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Policyholders of the WRL Series Life Account
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of each of the Sub-Accounts
constituting the WRL Series Life Account (a separate account of Western Reserve
Life Assurance Co. of Ohio, hereafter referred to as the "Life Account") at
December 31, 1996, the results of each of their operations, the changes in each
of their equity accounts and the selected per unit data and ratios for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and selected per unit data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Life Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1997
48
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ....................... 12,430,543.580 1,081,304.989 9,980,909.027
============== ============== ================
Cost ......................... $ 12,430,544 $ 11,856,263 $ 268,315,218
============== ============== ================
Investments, at net
asset value ................. $ 12,430,544 $ 11,577,785 $ 349,344,591
Accrued transfers from
(to) depositor - net......... 309,485 6,763 146,685
-------------- -------------- ----------------
Total assets ................. 12,740,029 11,584,548 349,491,276
-------------- -------------- ----------------
LIABILITIES: .................... 0 0 0
-------------- -------------- ----------------
Total net assets ............. $ 12,740,029 $ 11,584,548 $ 349,491,276
============== ============== ================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ........................ 824,579.964824 593,289.952352 7,208,481.980640
============== ============== ================
Unit value ................... $ 15.450326 $ 19.525946 $ 48.483339
============== ============== ================
Policy Owners' equity ........ $ 12,740,029 $ 11,584,548 $ 349,491,276
-------------- -------------- ----------------
Depositor's equity:
Units ........................ N/A N/A N/A
============== ============== ================
Unit value ................... $ N/A $ N/A $ N/A
============== ============== ================
Depositor's equity ........... $ N/A $ N/A $ N/A
-------------- -------------- ----------------
Total equity ................. $ 12,740,029 $ 11,584,548 $ 349,491,276
============== ============== ================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ........................... 166,836.195 4,589,097.306 3,994,063.092
============== ================== ==================
Cost ............................. $ 1,727,550 $ 74,042,621 $ 48,072,935
============== ================== ==================
Investments, at net
asset value ..................... $ 1,709,208 $ 83,132,258 $ 55,805,919
Accrued transfers from
(to) depositor - net ............ 629 26,825 93,808
-------------- ------------------ ------------------
Total assets ..................... 1,709,837 83,159,083 55,899,727
-------------- ------------------ ------------------
LIABILITIES: ........................ 0 0 0
-------------- ------------------ ------------------
Total net assets ................. $ 1,709,837 $ 83,159,083 $ 55,899,727
============== ================== ==================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ............................ 144,300.578938 5,497,026.869725 3,569,906.038362
============== ================== ==================
Unit value ....................... $ 11.849133 $ 15.128011 $ 15.658599
============== ================== ==================
Policy Owners' equity ............ $ 1,709,837 $ 83,159,083 $ 55,899,727
-------------- ------------------ ------------------
Depositor's equity:
Units ............................ N/A N/A N/A
============== ================== ==================
Unit value ....................... $ N/A $ N/A $ N/A
============== ================== ==================
Depositor's equity ............... $ N/A $ N/A $ N/A
-------------- ------------------ ------------------
Total equity ..................... $ 1,709,837 $ 83,159,083 $ 55,899,727
============== ================== ==================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EMERGING AGGRESSIVE
GROWTH GROWTH BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ................. 5,847,526.379 3,834,189.958 560,844.519 467,360.223
================= ================= =============== ===============
Cost ................... $ 85,429,168 $ 50,800,484 $ 5,826,446 $ 5,161,533
================= ================= =============== ===============
Investments, at net
asset value ........... $ 107,952,036 $ 54,361,199 $ 6,390,648 $ 5,497,485
Accrued transfers from
(to) depositor - net .. (26,863) 47,041 27,266 3,225
----------------- ----------------- --------------- ---------------
Total assets ........... 107,925,173 54,408,240 6,417,914 5,500,710
----------------- ----------------- --------------- ---------------
LIABILITIES: .............. 0 0 0 0
----------------- ----------------- --------------- ---------------
Total net assets ....... $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
================= ================= =============== ===============
EQUITY ACCOUNTS:
Policy Owners' equity:
Units .................. 5,531,857.748031 3,702,244.184822 525,703.773282 422,239.257570
================= ================= =============== ===============
Unit value ............. $ 19.509752 $ 14.696016 $ 12.208232 $ 13.027472
================= ================= =============== ===============
Policy Owners' equity .. $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
----------------- ----------------- --------------- ---------------
Depositor's equity:
Units .................. N/A N/A N/A N/A
================= ================= =============== ===============
Unit value ............. $ N/A $ N/A $ N/A $ N/A
================= ================= =============== ===============
Depositor's equity ..... $ N/A $ N/A $ N/A $ N/A
----------------- ----------------- --------------- ---------------
Total equity ........... $ 107,925,173 $ 54,408,240 $ 6,417,914 $ 5,500,710
================= ================= =============== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series
Fund, Inc.:
Shares ............... 1,416,731.210 330,995.828 787,552.975
================== ================== ==================
Cost ................. $ 16,400,180 $ 4,219,207 $ 8,339,630
================== ================== ==================
Investments, at net
asset value .......... $ 17,865,991 $ 4,440,951 $ 8,872,975
Accrued transfers from
(to) depositor - net . 79,843 25,364 14,247
------------------ ------------------ ------------------
Total assets .......... 17,945,834 4,466,315 8,887,222
------------------ ------------------ ------------------
LIABILITIES: ............. 0 0 0
------------------ ------------------ ------------------
Total net assets ...... $ 17,945,834 $ 4,466,315 $ 8,887,222
================== ================== ==================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................. 1,329,562.261984 410,689.701539 769,884.882222
================== ================== ==================
Unit value ............ $ 13.497551 $ 10.809358 $ 11.251288
================== ================== ==================
Policy Owners' equity . $ 17,945,834 $ 4,439,292 $ 8,662,196
------------------ ------------------ ------------------
Depositor's equity:
Units ................. N/A 2,500.000000 20,000.000000
================== ================== ==================
Unit value ............ $ N/A $ 10.809358 $ 11.251288
================== ================== ==================
Depositor's equity .... $ N/A $ 27,023 $ 225,026
------------------ ------------------ ------------------
Total equity .......... $ 17,945,834 $ 4,466,315 $ 8,887,222
================== ================== ==================
</TABLE>
49
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
For the year or period ended December 31, 1996
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 599,024 $ 648,087 $ 3,365,272
Capital gain distributions ......... 0 0 18,714,436
----------- ----------- -----------
599,024 648,087 22,079,708
EXPENSES:
Mortality and expense risk ......... 107,839 95,075 2,769,209
----------- ----------- -----------
Net investment income
(loss) .......................... 491,185 553,012 19,310,499
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 0 (182,715) 5,591,331
Change in unrealized
appreciation
(depreciation) .................. 0 (431,243) 21,327,329
----------- ----------- -----------
Net gain (loss) on
investments .................... 0 (613,958) 26,918,660
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 491,185 $ (60,946) $46,229,159
=========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 81,747 $ 847,718 $ 1,181,014
Capital gain distributions ......... 0 6,217,741 1,886,627
----------- ----------- -----------
81,747 7,065,459 3,067,641
EXPENSES:
Mortality and expense risk ......... 13,774 541,245 421,973
----------- ----------- -----------
Net investment income
(loss) .......................... 67,973 6,524,214 2,645,668
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 27,823 885,817 353,541
Change in unrealized
appreciation
(depreciation) .................. (56,871) 5,488,447 3,281,994
----------- ----------- -----------
Net gain (loss) on
investments .................... (29,048) 6,374,264 3,635,535
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 38,925 $12,898,478 $ 6,281,203
=========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EMERGING AGGRESSIVE
GROWTH GROWTH BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 3,998 $ 614,817 $ 143,613 $ 139,429
Capital gain distributions ......... 4,733,022 918,863 54,644 141,611
----------- ----------- ----------- -----------
4,737,020 1,533,680 198,257 281,040
EXPENSES:
Mortality and expense risk ......... 802,068 394,888 44,467 35,416
----------- ----------- ----------- -----------
Net investment income
(loss) .......................... 3,934,952 1,138,792 153,790 245,624
----------- ----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 1,314,430 2,253,657 89,518 119,018
Change in unrealized
appreciation
(depreciation) .................. 7,969,623 543,490 251,603 90,989
----------- ----------- ----------- -----------
Net gain (loss) on
investments .................... 9,284,053 2,797,147 341,121 210,007
----------- ----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $13,219,005 $ 3,935,939 $ 494,911 $ 455,631
=========== =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT(a) SUB-ACCOUNT(a)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................... $ 385,057 $ 14,793 $ 29,100
Capital gain distributions ......... 322,411 66,911 12,295
----------- ----------- -----------
707,468 81,704 41,395
EXPENSES:
Mortality and expense risk ......... 123,426 11,458 22,671
----------- ----------- -----------
Net investment income
(loss) .......................... 584,042 70,246 18,724
----------- ----------- -----------
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss)
from securities
transactions .................. 328,835 6,058 70,390
Change in unrealized
appreciation
(depreciation) .................. 850,092 221,745 533,344
----------- ----------- -----------
Net gain (loss) on
investments .................... 1,178,927 227,803 603,734
----------- ----------- -----------
Net increase (decrease)
in equity accounts
resulting from
operations ..................... $ 1,762,969 $ 298,049 $ 622,458
=========== =========== ===========
(a) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
</TABLE>
50
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN EQUITY ACCOUNTS
For the year or period ended
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....... $ 491,185 $ 397,410 $ 553,012 $ 459,977
Net gain (loss) on investments ..... 0 0 (613,958) 1,080,157
----------- ----------- ------------ -----------
Net increase (decrease) in equity
accounts resulting from operations 491,185 397,410 (60,946) 1,540,134
----------- ----------- ------------ -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) 5,217,298 3,139,280 3,451,573 3,749,029
----------- ----------- ------------ -----------
Less cost of units redeemed:
Administrative charges ............ 2,639,279 1,356,484 1,314,254 916,494
Policy loans ...................... 285,757 219,767 191,268 197,829
Surrender benefits ................ 776,305 899,893 338,599 357,384
Death benefits .................... 25,737 7,670 28,090 10,202
----------- ----------- ------------ -----------
3,727,078 2,483,814 1,872,211 1,481,909
----------- ----------- ------------ -----------
Increase (decrease) in equity
accounts from capital unit
transactions .................... 1,490,220 655,466 1,579,362 2,267,120
----------- ----------- ------------ -----------
Net increase (decrease) in
equity accounts ................. 1,981,405 1,052,876 1,518,416 3,807,254
Depositors' equity contribution
(redemption) ..................... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period ................ 10,758,624 9,705,748 10,066,132 6,258,878
----------- ----------- ------------ -----------
End of period ...................... $12,740,029 $10,758,624 $ 11,584,548 $10,066,132
=========== =========== ============ ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............... $ 19,310,499 $ 23,250,380
Net gain (loss) on investments ............. 26,918,660 54,801,782
------------ ------------
Net increase (decrease) in equity
accounts resulting from operations ....... 46,229,159 78,052,162
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ........ 91,555,979 61,850,933
------------ ------------
Less cost of units redeemed:
Administrative charges .................... 29,331,415 23,714,204
Policy loans .............................. 8,442,970 5,518,596
Surrender benefits ........................ 12,385,662 8,982,170
Death benefits ............................ 600,920 711,078
------------ ------------
50,760,967 38,926,048
------------ ------------
Increase (decrease) in equity
accounts from capital unit
transactions ............................ 40,795,012 22,924,885
------------ ------------
Net increase (decrease) in
equity accounts ......................... 87,024,171 100,977,047
Depositors' equity contribution
(redemption) ............................. 0 0
EQUITY ACCOUNTS:
Beginning of period ........................ 262,467,105 161,490,058
------------ ------------
End of period .............................. $349,491,276 $262,467,105
============ ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE
GOVERNMENT GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------------------ -------------------------- -------------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....... $ 67,973 $ 62,086 $ 6,524,214 $ 1,187,745 $ 2,645,668 $ 1,756,089
Net gain (loss) on investments ..... (29,048) 68,387 6,374,264 4,626,003 3,635,535 4,992,475
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in equity
accounts resulting from operations 38,925 130,473 12,898,478 5,813,748 6,281,203 6,748,564
---------- ---------- ----------- ----------- ----------- -----------
QUITY TRANSACTIONS:
Proceeds from units sold (redeemed) 442,872 679,242 43,696,555 15,012,786 16,832,424 14,236,727
---------- ---------- ----------- ----------- ----------- -----------
Less cost of units redeemed:
Administrative charges ............ 178,533 141,954 6,463,101 4,017,781 4,528,541 3,380,854
Policy loans ...................... 33,708 52,521 1,465,510 666,264 920,628 657,750
Surrender benefits ................ 77,704 41,967 2,225,874 721,584 1,300,527 918,863
Death benefits .................... 0 144 62,009 44,234 112,479 28,153
---------- ---------- ----------- ----------- ----------- -----------
289,945 236,586 10,216,494 5,449,863 6,862,175 4,985,620
---------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in equity
accounts from capital unit
transactions .................... 152,927 442,656 33,480,061 9,562,923 9,970,249 9,251,107
---------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
equity accounts ................. 191,852 573,129 46,378,539 15,376,671 16,251,452 15,999,671
Depositors' equity contribution
(redemption) ..................... 0 0 (268,153) 0 0 0
QUITY ACCOUNTS:
Beginning of period ................ 1,517,985 944,856 37,048,697 21,672,026 39,648,275 23,648,604
---------- ---------- ----------- ----------- ----------- -----------
End of period ...................... $1,709,837 $1,517,985 $83,159,083 $37,048,697 $55,899,727 $39,648,275
========== ========== =========== =========== =========== ===========
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
-------------------------- -------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........... $ 3,934,952 $ 2,356,904 $ 1,138,792 $ 663,994
Net gain (loss) on investments ......... 9,284,053 16,180,870 2,797,147 4,424,350
------------ ----------- ----------- -----------
Net increase (decrease) in equity
accounts resulting from operations ... 13,219,005 18,537,774 3,935,939 5,088,344
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .... 40,944,477 21,556,186 26,224,213 23,169,917
------------ ----------- ----------- -----------
Less cost of units redeemed:
Administrative charges ................ 9,201,102 5,846,452 6,412,799 2,568,298
Policy loans .......................... 2,095,860 1,387,434 863,340 627,821
Surrender benefits .................... 2,754,328 1,602,690 1,349,932 712,307
Death benefits ........................ 91,972 38,971 29,810 80,922
------------ ----------- ----------- -----------
14,143,262 8,875,547 8,655,881 3,989,348
------------ ----------- ----------- -----------
Increase (decrease) in equity
accounts from capital unit
transactions ........................ 26,801,215 12,680,639 17,568,332 19,180,569
------------ ----------- ----------- -----------
Net increase (decrease) in
equity accounts ..................... 40,020,220 31,218,413 21,504,271 24,268,913
Depositors' equity contribution
(redemption) ......................... 0 0 0 (274,290)
EQUITY ACCOUNTS:
Beginning of period .................... 67,904,953 36,686,540 32,903,969 8,909,346
------------ ----------- ----------- -----------
End of period .......................... $107,925,173 $67,904,953 $54,408,240 $32,903,969
============ =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BALANCED
SUB-ACCOUNT
DECEMBER 31
------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 153,790 $ 102,635
Net gain (loss) on investments .................... 341,121 401,549
---------- ----------
Net increase (decrease) in equity
accounts resulting from operations ............... 494,911 504,184
---------- ----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ............... 3,089,782 1,545,514
---------- ----------
Less cost of units redeemed:
Administrative charges ........................... 575,594 327,290
Policy loans ..................................... 77,586 29,025
Surrender benefits ............................... 84,857 27,726
Death benefits ................................... 3,961 14,811
---------- ----------
741,998 398,852
---------- ----------
Increase (decrease) in equity
accounts from capital unit
transactions .................................... 2,347,784 1,146,662
---------- ----------
Net increase (decrease) in
equity accounts ................................. 2,842,695 1,650,846
Depositors' equity contribution
(redemption) ..................................... (220,175) 0
EQUITY ACCOUNTS:
Beginning of period ............................... 3,795,394 2,144,548
---------- ----------
End of period ..................................... $6,417,914 $3,795,394
========== ==========
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. VALUE
UTILITY TACTICAL ASSET ALLOCATION GROWTH EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------- --------------------------- ----------- -----------
1996 1995 1996 1995(a) 1996(b) 1996(b)
---------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........ $ 245,624 $ 88,634 $ 584,042 $ 314,171 $ 70,246 $ 18,724
Net gain (loss) on investments ...... 210,007 336,528 1,178,927 733,874 227,803 603,734
---------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in equity
accounts resulting from operations . 455,631 425,162 1,762,969 1,048,045 298,049 622,458
---------- ---------- ----------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) . 3,245,136 1,368,262 9,061,824 9,081,189 4,302,715 8,292,350
---------- ---------- ----------- ---------- ---------- ----------
Less cost of units redeemed:
Administrative charges ............. 439,973 221,419 1,134,737 434,848 140,145 152,948
Policy loans ....................... 72,641 26,862 306,304 145,685 7,028 36,190
Surrender benefits ................. 82,531 126,576 865,689 70,630 12,276 38,448
Death benefits ..................... 3,350 2,896 18,086 22,440 0 0
---------- ---------- ----------- ---------- ---------- ----------
598,495 377,753 2,324,816 673,603 159,449 227,586
---------- ---------- ----------- ---------- ---------- ----------
Increase (decrease) in equity
accounts from capital unit
transactions ...................... 2,646,641 990,509 6,737,008 8,407,586 4,143,266 8,064,764
---------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in
equity accounts ................... 3,102,272 1,415,671 8,499,977 9,455,631 4,441,315 8,687,222
Depositors' equity contribution
(redemption) ....................... (232,644) 0 0 (9,774) 25,000 200,000
EQUITY ACCOUNTS:
Beginning of period ................. 2,631,082 1,215,411 9,445,857 0 0 0
---------- ---------- ----------- ---------- ---------- ----------
End of period ....................... $5,500,710 $2,631,082 $17,945,834 $9,445,857 $4,466,315 $8,887,222
========== ========== =========== ========== ========== ==========
<FN>
(a) The inception date of this sub-account was January 3, 1995.
(b) The inception date of this sub-account was May 1, 1996.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
52
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
DECEMBER 31
------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .......................... $ 14.83 $ 14.19 $13.84 $13.63 $13.33
Income from operations:
Net investment income (loss) ....... 0.62 0.64 0.35 0.21 0.30
Net realized and unrealized gain
(loss) on investments ........... 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------
Total income (loss) from
operations ..................... 0.62 0.64 0.35 0.21 0.30
------- ------- ------ ------ ------
Accumulation unit value,
end of period ...................... $ 15.45 $ 14.83 $14.19 $13.84 $13.63
======= ======= ====== ====== ======
Total return (a) ..................... 4.17% 4.49% 2.58% 1.52% 2.24%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $12,740 $10,759 $9,706 $4,985 $4,619
Ratio of net investment income (loss)
to average net assets (b) ......... 4.07% 4.37% 2.66% 1.51% 2.12%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BOND
SUB-ACCOUNT
DECEMBER 31
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .......................... $ 19.67 $ 16.14 $17.50 $15.57 $14.68
Income from operations:
Net investment income (loss) ....... 0.99 1.05 0.89 2.11 1.00
Net realized and unrealized gain
(loss) on investments ............ (1.13) 2.48 (2.25) (0.18) (0.11)
-------- -------- ------ ------ ------
Total income (loss) from
operations ..................... (0.14) 3.53 (1.36) 1.93 0.89
-------- -------- ------ ------ ------
Accumulation unit value,
end of period ...................... $ 19.53 $ 19.67 $16.14 $17.50 $15.57
======== ======== ====== ====== ======
Total return (a) ..................... (0.75%) 21.89% (7.77%) 12.40% 6.08%
Ratios and supplemental data:
Net assets at end of period
(in thousands) .................... $ 11,585 $ 10,066 $6,259 $6,985 $4,558
Ratio of net investment income (loss)
to average net assets (b) ......... 5.34% 5.80% 5.57% 12.92% 6.69%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 41.47 $ 28.44 $ 31.30 $ 30.37 $ 29.95
Income from operations:
Net investment income (loss) ...... 2.88 3.89 0.04 0.46 1.09
Net realized and unrealized gain
(loss) on investments ........... 4.13 9.14 (2.90) 0.47 (0.67)
-------- -------- -------- -------- --------
Total income (loss) from
operations .................... 7.01 13.03 (2.86) 0.93 0.42
-------- -------- -------- -------- --------
Accumulation unit value,
end of period ..................... $ 48.48 $ 41.47 $ 28.44 $ 31.30 $ 30.37
======== ======== ======== ======== ========
Total return (a) .................... 16.91% 45.81% (9.13%) 3.06% 1.41%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $349,491 $262,467 $161,490 $169,757 $146,053
Ratio of net investment income (loss)
to average bet assets (b) ........ 6.41% 11.05% 0.16% 1.56% 3.84%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE GOVERNMENT
SUB-ACCOUNT
DECEMBER 31
-------------------------------------------------
1996 1995 1994 1993 1992(C)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $11.55 $10.27 $10.40 $10.04 $10.00
Income from operations:
Net investment income (loss) ...... 0.51 0.61 0.40 0.14 0.01
Net realized and unrealized gain
(loss) on investments ........... (0.21) 0.67 (0.53) 0.22 0.03
------ ------ ------ ------ ------
Total income (loss) from
operations .................... 0.30 1.28 (0.13) 0.36 0.04
------ ------ ------ ------ ------
Accumulation unit value,
end of period ..................... $11.85 $11.55 $10.27 $10.40 $10.04
====== ====== ====== ====== ======
Total return (a) .................... 2.56% 12.53% (1.32%) 3.64% 0.38%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $1,710 $1,517 $ 945 $1,408 $ 803
Ratio of net investment income (loss)
to average bet assets (b) ........ 4.53% 5.53% 4.06% 1.39% 1.92%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL EQUITY-INCOME
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
-------------------------------- -----------------------------------------
1996 1995 1994(E) 1996 1995 1994 1993(D)
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ................................. $ 11.95 $ 9.80 $ 10.00 $ 13.74 $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss) .............. 1.50 0.45 0.71 0.82 0.68 0.18 0.19
Net realized and unrealized gain
(loss) on investments ..................... 1.68 1.70 (0.91) 1.10 1.94 (0.34) 1.09
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations ................................ 3.18 2.15 (0.20) 1.92 2.62 (0.16) 1.28
------- ------- ------- ------- ------- ------- -------
Accumulation unit value,
end of period ............................. $ 15.13 $ 11.95 $ 9.80 $ 15.66 $ 13.74 $ 11.12 $ 11.28
======= ======= ======= ======= ======= ======= =======
Total return (a) .......................... 26.60% 21.96% (2.02%) 13.97% 23.55% (1.42%) 12.81%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ............................ $83,159 $37,049 $21,672 $55,900 $39,648 $23,649 $13,343
Ratio of net investment income (loss)
to average net assets (b) ................. 11.09% 4.25% 8.86% 5.76% 5.47% 1.93% 2.27%
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
DECEMBER 31
------------------------------------------
1996 1995 1994 1993(D)
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 16.56 $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss) ...... 0.82 0.65 (0.09) (0.09)
Net realized and unrealized gain
(loss) on investments ........... 2.13 4.53 (0.93) 2.49
-------- ------- ------- -------
Total income (loss) from
operations .................... 2.95 5.18 (1.02) 2.40
-------- ------- ------- -------
Accumulation unit value,
end of period ..................... $ 19.51 $ 16.56 $ 11.38 $ 12.40
======== ======= ======= =======
Total return (a) .................... 17.82% 45.49% (8.18%) 23.96%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $107,925 $67,905 $36,687 $18,620
Ratio of net investment income (loss)
to average net assets (b) ........ 4.51% 4.66% (0.86%) (0.92%)
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
----------------------------- ---------------------------
1996 1995 1994(E) 1996 1995 1994(E)
------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $ 13.43 $ 9.82 $10.00 $11.13 $ 9.37 $10.00
Income from operations:
Net investment income (loss) ...... 0.36 0.37 (0.06) 0.36 0.37 0.22
Net realized and unrealized gain
(loss) on investments ........... 0.91 3.24 (0.12) 0.72 1.39 (0.85)
------- ------- ------ ------ ------ ------
Total income (loss) from
operations .................... 1.27 3.61 (0.18) 1.08 1.76 (0.63)
------- ------- ------ ------ ------ ------
Accumulation unit value,
end of period ..................... $ 14.70 $ 13.43 $ 9.82 $12.21 $11.13 $ 9.37
======= ======= ====== ====== ====== ======
Total return (a) .................... 9.46% 36.79% (1.85%) 9.73% 18.73% (6.29%)
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................... $54,408 $32,904 $8,909 $6,418 $3,795 $2,145
Ratio of net investment income (loss)
to average net assets (b) ........ 2.65% 2.93% (0.72%) 3.18% 3.59% 3.06%
<FN>
- - ------------
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios on page 8.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
54
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
<TABLE>
<CAPTION>
TACTICAL ASSET
UTILITY ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
--------------------------- ------------------
1996 1995 1994(E) 1996 1995(F)
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ......................... $11.77 $ 9.49 $10.00 $ 11.90 $10.00
Income from operations:
Net investment income (loss) ... 0.76 0.49 0.29 0.53 0.61
Net realized and unrealized gain
(loss) on investments .......... 0.50 1.79 (0.80) 1.07 1.29
------ ------ ------ ------- ------
Total income (loss) from
operations .................... 1.26 2.28 (0.51) 1.60 1.90
------ ------ ------ ------- ------
Accumulation unit value,
end of period ..................... $13.03 $11.77 $ 9.49 $ 13.50 $11.90
====== ====== ====== ======= ======
Total return (a) .................... 10.64% 24.14% (5.15%) 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ................. $5,501 $2,631 $1,215 $17,946 $9,446
Ratio of net investment income (loss)
to average net assets (b) ........ 6.38% 4.57% 3.71% 4.35% 5.47%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
C.A.S.E.
GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
----------- ------------
1996(G) 1996(G)
----------- ------------
<S> <C> <C>
Accumulation unit value, beginning
of period ............................ $10.00 $10.00
Income from operations:
Net investment income (loss) ...... 0.37 0.05
Net realized and unrealized gain
(loss) on investments .............. 0.44 1.20
------ ------
Total income (loss) from
operations ....................... 0.81 1.25
------ ------
Accumulation unit value,
end of period ....................... $10.81 $11.25
====== ======
Total return (a) ....................... 8.09% 12.51%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ..................... $4,466 $8,887
Ratio of net investment income (loss)
to average net assets (b) ........... 6.11% 0.77%
</TABLE>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios below.
NOTES TO SELECTED PER UNIT DATA AND RATIOS
- - ------------------------------------------
(a) For periods less than one year the total return is not annualized.
(b) For periods less than one year the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was December 3, 1992.
(d) The inception date of this sub-account was March 1, 1993.
(e) The inception date of this sub-account was March 1, 1994.
(f) The inception date of this sub-account was January 3, 1995.
(g) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
55
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
WRL Series Life Account (the "Life Account") was established as a variable
life insurance separate account of Western Reserve Life Assurance Co. of Ohio
("WRL") and is registered as a unit investment trust ("Trust") under the
Investment Company Act of 1940, as amended. The Life Account contains thirteen
investment options referred to as sub-accounts. Each sub-account invests in the
corresponding portfolio of the WRL Series Fund, Inc. (the "Fund"), a registered
management company under the Investment Company Act of 1940, as amended. These
portfolios and their respective investment management organizations are as
follows:
PORTFOLIO INVESTMENT MANAGER
- - --------- ------------------
Money Market J.P. Morgan Investment
Management Inc.
Bond Janus Capital Corporation
("JCC")
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc. ("AEGON
Management")
Global JCC
Equity-Income Luther King Capital Management
Corporation
Emerging Growth Van Kampen American Capital
Asset Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AEGON Management
Utility Federated Investment Counseling
Tactical Asset Allocation Dean Investment Associates
C.A.S.E. Growth C.A.S.E. Management, Inc.
Value Equity NWQ Investment Management
Company, Inc.
WRL and AEGON Management are indirect wholly-owned subsidiaries of AEGON
USA, Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a
Netherlands Corporation.
On May 1, 1996 WRL made an initial contribution to the Life Account. The
amount of the contribution and units received from the corresponding
sub-accounts are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
- - ----------- ------------ -----
C.A.S.E. Growth $ 25,000 2,500.000000
Value Equity $200,000 20,000.000000
The Life Account holds assets to support the benefits under flexible
premium variable universal life insurance policies (the "Policies") issued by
WRL, which issued the first of such Policies on October 3, 1986. The Life
Account's equity transactions are accounted for using the appropriate
effective date at the corresponding accumulation unit value.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles for unit investment trusts,
have been consistently used in preparation of the Trust's financial
statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on December 31, 1996.
Investment transactions are accounted for on the trade date, using the
Fund NAV next determined after receipt of sale or redemption orders
without sales charges. Dividend income and capital gain distributions are
recorded on the ex-dividend date. The cost of investments sold is
determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has
been made.
56
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, sales and other administrative charges
are deducted by WRL prior to allocation of policyowner payments to the
sub-accounts. Thereafter, monthly administrative charges are deducted from
the sub-accounts, some of which continue only during the first policy
year. Contingent surrender charges may also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial
premium payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE-ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net assets
of the Life Account is assessed to compensate WRL for assumption of mortality
and expense risks in connection with issuance and administration of the
Policies. This charge (not assessed at the individual policy level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are typically
declared and reinvested semi-annually, while capital gain distributions are
typically declared and reinvested annually. Dividends and distributions of
the Fund are generally paid to and reinvested by the Life Account the next
business day after declaration.
NOTE 4 - OTHER MATTERS
As of December 31, 1996 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
SUB-ACCOUNT
- - -----------
Money Market $ N/A
Bond (278,478)
Growth 81,029,373
Short-to-Intermediate Government (18,342)
Global 9,089,637
Equity-Income 7,732,984
Emerging Growth 22,522,868
Aggressive Growth 3,560,715
Balanced 564,202
Utility 335,952
Tactical Asset Allocation 1,465,811
C.A.S.E Growth 221,744
Value Equity 533,345
57
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1996 and 1995, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Western Reserve Life Assurance Co. of Ohio at December 31, 1996 and 1995, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1996.
58
<PAGE>
Also, in our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic statutory-basis financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
February 21, 1997
59
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
---------- ----------
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 2,480 $ 4,999
Bonds 359,579 452,474
Common stocks at market (cost:
$302 in 1996 and $473 in 1995) 597 834
Mortgage loans on real estate 6,049 6,181
Home office properties, at cost
less accumulated depreciation
($0 in 1996 and $1,505 in 1995) 7,962 5,121
Policy loans 52,604 37,125
---------- ----------
Total cash and invested assets 429,271 506,734
Premiums deferred and uncollected 1,943 1,787
Accrued investment income 5,940 7,565
Receivable from affiliates 1,165 4,337
Transfers from separate accounts 204,181 --
Other assets 3,962 4,264
Separate account assets 3,527,145 2,419,205
---------- ----------
Total admitted assets $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
60
<PAGE>
DECEMBER 31
1996 1995
---------- ----------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 155,166 $ 72,032
Annuity 332,230 319,353
Policy and contract claim reserves 8,584 6,612
Other policyholders' funds 3,104 2,633
Remittances and items not allocated 9,107 5,136
Federal income taxes payable 1,266 1,417
Asset valuation reserve 5,710 5,590
Interest maintenance reserve 7,451 6,392
Payable to affiliate 20,463 --
Other liabilities 13,082 10,984
Separate account liabilities 3,521,888 2,415,804
---------- ----------
Total liabilities 4,078,051 2,845,953
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 26,041 28,424
---------- ----------
Total capital and surplus 95,556 97,939
---------- ----------
Total liabilities and capital and surplus $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
61
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations,
net of reinsurance:
Life $ 293,590 $191,508 $150,991
Annuity 740,125 378,390 449,141
Net investment income 36,067 40,891 40,139
Amortization of interest maintenance reserve 1,335 882 726
Commissions and expense allowances on
reinsurance ceded
11 11 12
Other income 13,398 8,237 6,354
---------- -------- --------
1,084,526 619,919 647,363
Benefits and expenses:
Benefits paid or provided for:
Life 21,256 17,844 15,921
Surrender benefits 286,406 206,250 196,169
Other benefits 23,270 19,530 18,403
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 80,139 (15,132) (11,618)
Annuity 12,877 5,229 (78,590)
Other 422 109 286
---------- -------- --------
424,370 233,830 140,571
Insurance expenses:
Commissions 140,261 82,903 78,168
General insurance expenses 47,406 37,246 33,100
Taxes, licenses and fees 10,848 8,919 5,931
Transfer to separate accounts 452,471 242,427 386,174
Other expenses 60 34 18
---------- -------- --------
651,046 371,529 503,391
---------- -------- --------
1,075,416 605,359 643,962
---------- -------- --------
Gain from operations before federal
income taxes and realized capital
losses on investments 9,110 14,560 3,401
Federal income tax expense 9,297 8,917 3,406
---------- -------- --------
Gain (loss) from operations before
realized capital losses on investments (187) 5,643 (5)
Netrealized capital losses on investments
(net of related federal income taxes
and amounts transferred to interest
maintenance reserve) (811) (1,678) (1,133)
---------- -------- --------
Net income (loss) $ (998) $ 3,965 $ (1,138)
========== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $1,500 $23,015 $24,894 $49,409
Capital contribution -- 45,000 -- 45,000
Net loss for 1994 -- -- (1,138) (1,138)
Net unrealized capital losses -- -- (9) (9)
Decrease in non-admitted assets -- -- 368 368
Decrease in asset valuation reserves
-- -- 4,321 4,321
Decrease in surplus in separate accounts
-- -- (748) (748)
Other adjustments -- -- (2,183) (2,183)
------ ------- ------- -------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 -- -- 3,965 3,965
Net unrealized capital losses -- -- (500) (500)
Decrease in non-admitted assets -- -- 903 903
Decrease in asset valuation reserve -- -- 2,901 2,901
Increase in surplus in separate accounts
-- -- 541 541
Change in reserve valuation -- -- (3,496) (3,496)
Other adjustments -- -- (1,395) (1,395)
------ ------- ------- -------
Balance at December 31, 1995 1,500 68,015 28,424 97,939
Net loss for 1996 -- -- (998) (998)
Net unrealized capital gains -- -- 1,294 1,294
Decrease in non-admitted assets -- -- 199 199
Increase in asset valuation reserve -- -- (120) (120)
Increase in surplus in separate accounts
-- -- 237 237
Change in reserve valuation -- -- (2,995) (2,995)
------ ------- ------- -------
Balance at December 31, 1996 $1,500 $68,015 $26,041 $95,556
====== ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
63
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations,
net of reinsurance $1,033,565 $569,934 $ 600,405
Net investment income 38,666 42,359 41,977
Other income 12,983 8,052 6,311
---------- -------- ---------
1,085,214 620,345 648,693
Life claims (20,655) (16,759) (14,660)
Surrender benefits and other
fund withdrawals (286,406) (206,250) (196,169)
Other benefits to policyholders (22,129) (19,041) (18,251)
Commissions, other expenses and taxes (196,329) (128,314) (119,755)
Net transfers to separate accounts (658,326) (242,427) (386,174)
Dividends to policyholders (44) (26) (22)
Federal income taxes (9,449) (7,531) (3,378)
---------- -------- ---------
Net cash used in operations (108,124) (3) (89,716)
Proceeds from investments sold,
matured or repaid:
Bonds and redeemable preferred stock 122,820 108,554 99,241
Common stocks 175 2,108 80,066
Mortgage loans on real estate 132 1,954 132
Real estate 4,304 -- --
Miscellaneous proceeds -- -- (28)
---------- -------- ---------
Total cash from investments 127,431 112,616 179,411
Capital contribution -- -- 45,000
Other sources 31,546 2,830 6,135
---------- -------- ---------
Total sources of cash 50,853 115,443 140,830
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 26,826 139,402 47,214
Common stocks 4 589 65,911
Mortgage loans on real estate -- 6 1,004
Real estate 7,837 449 37
Net increase in policy loans 15,479 9,605 4,496
Miscellaneous applications 5 -- --
---------- -------- ---------
Total investments acquired 50,151 150,051 118,662
Other applications, net 3,221 7,115 6,086
---------- -------- ---------
Total applications of cash 53,372 157,166 124,748
---------- -------- ---------
Net change in cash and
short-term investments (2,519) (41,723) 16,082
Cash and short-term investments
at beginning of year 4,999 46,722 30,640
---------- -------- ---------
Cash and short-term investments
at end of year $ 2,480 $ 4,999 $ 46,722
========== ======== =========
</TABLE>
SEE ACCOMPANYING NOTES.
64
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (carried at amortized cost), available-for-sale (carried
at fair value), and trading (carried at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding receivable or payable rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for the
difference between the financial statement amounts and income tax bases of
assets and liabilities; (g) net realized gains or losses attributed to
65
<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)
changes in the level of interest rates in the market are deferred and amortized
over the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (h)
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(carried as a liability) changes to which are charged directly to surplus,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (i) certain
assets designated as "non-admitted assets" have been charged to surplus rather
than being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; and (k) pension expense is
recorded as amounts are paid rather than accrued and expensed during the periods
in which the employers provide service. The effects of these variances have not
been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The impact of any such changes
on the Company's statutory surplus cannot be determined at this time and could
be material.
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount included $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and
66
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other asset backed securities at regular intervals and adjusts amortization
rates prospectively when such assumptions are changed due to experience and/or
expected future patterns. Investments in preferred stocks in good standing are
reported at cost. Investments in preferred stocks not in good standing are
reported at the lower of cost or market. Common stocks are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without any
adjustment for federal income taxes. Real estate is reported at cost less
allowances for depreciation. Depreciation is computed principally by the
straight-line method. Policy loans are reported at unpaid principal. Other
"admitted assets" are valued, principally at cost, as required or permitted by
Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1996, 1995 and 1994, net realized capital gains of $2,394, $554 and $436,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$1,335, $882 and $726 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1996, 1995 and 1994, the
Company excluded investment income due and accrued of $0, $1 and $237,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by the laws of the State of Ohio.
67
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using interest
rates ranging from 2.25 to 5.50 percent and are computed principally on the Net
Level Premium Valuation and the Commissioners' Reserve Valuation Methods.
Reserves for universal life policies are based on account balances adjusted for
the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 9.25 percent and mortality rates, where appropriate, from a variety
of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $997,513, $466,822 and $534,372
in 1996, 1995 and 1994, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge. Separate account
contractholders have no claim against the assets of the general account.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
68
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparisons to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
69
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 359,579 $ 372,319 $ 452,474 $ 479,656
Common stocks 597 597 834 834
Mortgage loans on real estate 6,049 6,134 6,181 6,536
Policy loans 52,604 52,604 37,125 37,125
Cash and short-term investments 2,480 2,480 4,999 4,999
Separate account assets 3,527,145 3,527,145 2,419,205 2,419,205
LIABILITIES
Investment contract liabilities 321,293 314,748 309,556 279,347
Separate account annuities 2,692,614 2,647,266 1,930,590 1,930,590
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies $ 11,422 $ 13 $ 292 $ 11,143
State, municipal and other
government 5,504 274 -- 5,778
Public utilities 14,808 848 80 15,576
Industrial and miscellaneous 173,097 8,889 910 181,076
Mortgage-backed securities 154,748 4,617 619 158,746
-------- ------- ------ --------
Total bonds $359,579 $14,641 $1,901 $372,319
======== ======= ====== ========
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government
Public utilities 15,079 940 - 16,019
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
-------- ------- ---- --------
Total bonds $452,474 $28,101 $919 $479,656
======== ======= ==== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1996 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
Due in one year or less $ 25,420 $ 25,667
Due one through five years 91,070 94,377
Due five through ten years 53,798 57,060
Due after ten years 34,543 36,468
-------- --------
204,831 213,572
Mortgage and other asset backed securities 154,748 158,747
-------- --------
$359,579 $372,319
========= ========
71
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Interest on bonds $33,969 $38,624 $37,495
Dividends on equity investments - 30 700
Interest on mortgage loans 559 573 616
Rental income on real estate 919 1,014 1,014
Interest on policy loans 3,339 2,353 1,830
Other investment income 9 328 611
------- ------- -------
Gross investment income 38,795 42,922 42,266
Investment expenses (2,728) (2,031) (2,127)
------- ------- --------
Net investment income $36,067 $40,891 $40,139
======= ======== =======
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- -------- -------
Proceeds $122,820 $108,554 $99,241
======= ======== =======
Gross realized gains $ 2,984 $ 1,631 $ 2,019
Gross realized losses 791 1,346 1,362
------- -------- -------
Net realized gains $ 2,193 $ 285 $ 657
======= ======== =======
At December 31, 1996, bonds with an aggregate carrying value of $5,409 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
72
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
REALIZED
--------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Debt securities $ 2,193 $ 285 $ 657
Equity securities -- -- (1,579)
Mortgage loans -- (1,409) --
Real estate (606) -- --
Other invested assets (4) -- --
------- ------- -------
1,583 (1,124) (922)
Tax effect -- -- 225
Transfer to interest maintenance
reserve (2,394) (554) (436)
------- ------- -------
Net realized losses $ (811) $(1,678) $(1,133)
======= ======= =======
UNREALIZED
---------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
Debt securities $(14,442) $ 36,399 $ 43,354
Common stock (66) (236) 1,009
-------- -------- --------
Change in unrealized appreciation
(depreciation) $(14,508) $ 36,163 $(42,345)
======== ======== ========
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
Unrealized gains $295 $361 $597
Unrealized losses -- -- --
---- ---- ----
Net unrealized gains $295 $361 $597
==== ==== ====
The Company issued no mortgage loans during 1996. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
73
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
During 1996, 1995 and 1994, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1996, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
1996 1995 1994
----------- ----------- -----------
Direct premiums $ 1,034,757 $ 570,413 $ 600,608
Reinsurance assumed 2,063 1,569 1,232
Reinsurance ceded (3,105) (2,084) (1,708)
----------- ----------- -----------
Net premiums earned $ 1,033,715 $ 569,898 $ 600,132
=========== =========== ===========
The Company received reinsurance recoveries in the amount of $2,156, $512 and
$1,146 during 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $974 and $601, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1996 and 1995 of $1,140 and $848,
respectively.
74
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES
The Company files a separate federal income tax return.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
1996 1995 1994
------- ------- -------
Computed tax at federal statutory rate (35%) $ 3,189 $ 5,096 $ 1,190
Deferred acquisition costs - tax basis 7,172 4,241 4,043
Tax reserve valuation (696) (34) (1,353)
Excess tax depreciation (65) (49) (258)
Amortization of IMR (467) (309) (254)
Other, net 164 (28) 38
------- ------- -------
Federal income tax expense $ 9,297 $ 8,917 $ 3,406
======= ======= =======
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1996). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment. An examination is currently underway for years 1994 through 1995.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service, which resulted in a charge to surplus of $1.8 million as a
prior period adjustment.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $11,101 which expire through 2001.
75
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately .04% and 7.7% of life
insurance in force at December 31, 1996 and 1995, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products, primarily
separate accounts, that are not subject to significant mortality or morbidity
risk; however, there may be certain restrictions placed upon the amount of funds
that can be withdrawn without penalty. The amount of reserves on these products,
by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 14,881 1% $ 13,422 1%
Subject to discretionary withdrawal at
book value less surrender charge 63,619 2 60,970 3
Subject to discretionary withdrawal at
market value 2,692,614 89 1,930,590 85
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 239,204 7 227,549 10
Not subject to discretionary withdrawal
provision 17,603 1 20,034 1
----------- -------- ----------- --------
3,027,921 100% 2,252,565 100%
======== ========
Less reinsurance ceded - -
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities $3,027,921 $2,252,565
========== ==========
</TABLE>
76
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts $ 997,513 $ 466,882 $ 534,372
Transfers from separate accounts 339,523 224,416 148,582
--------- --------- ---------
Net transfers to separate accounts 657,990 242,466 385,790
Reconciling adjustments - change in accruals for
investment management, administration fees
and contract guarantees (205,519) (39) 384
========= ========= =========
Transfers as reported in the summary of
operations of the life, accident and health
annual statement $ 452,471 $ 242,427 $ 386,174
========= ========= =========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1996 and 1995, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
GROSS LOADING NET
------- ------- -------
DECEMBER 31, 1996
Ordinary direct first year business $ 40 $ 9 $ 31
Ordinary direct renewal business 1,431 225 1,206
Group life direct business 622 -- 622
Annuity renewal business 94 10 84
------- ------- -------
$ 2,187 $ 244 $ 1,943
======= ======= =======
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 -- 379
Reinsurance ceded (100) -- (100)
------- ------- -------
$ 2,033 $ 246 $ 1,787
======= ======= =======
77
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
At December 31, 1996 and 1995, the Company had insurance in force aggregating
$1,904 and $2,374, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $27 and $32 to cover these deficiencies at December 31, 1996 and
1995, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $2,995 and $3,496
was made for the years ended December 31, 1996 and 1995, respectively, related
to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $581, $505 and $397 for the years ended
December 31, 1996, 1995 and 1994, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $184, $305 and $250 for the years ended
December 31, 1996, 1995 and 1994, respectively.
78
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $98, $86 and
$70 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996, 1995
and 1994, the Company paid $10,038, $8,825 and $7,497, respectively, for such
services, which approximates their costs to the affiliates. The Company provides
office space, marketing and administrative services to certain affiliates.
During 1996, 1995 and 1994, the Company received $3,271, $4,545 and $3,261,
respectively, for such services, which approximates their cost. The Company had
a net receivable (payable) with affiliates of $(19,298) and $4,337 at December
31, 1996 and 1995, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.48% at December 31, 1996. During 1996,
1995 and 1994, the Company paid (received) net interest of $138, $(294) and $49,
respectively, to affiliates.
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<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company received capital contributions of $45,000 from its immediate parent,
First AUSA Life Insurance Company, in 1994.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,344 and $4,445 and an offsetting premium tax benefit of $1,218 and
$1,319 at December 31, 1996 and 1995, respectively, for its estimated share of
future guaranty fund assessments related to several major insurer insolvencies.
The guaranty fund expense was $212, $1,950 and $618 at December 31, 1996, 1995
and 1994, respectively.
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WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
SCHEDULE I
AMOUNT AT
WHICH SHOWN
MARKET IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
------------------- --------- -------- -------------
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 91,807 $ 93,675 $ 91,581
State, municipalities and political
subdivisions 1,498 1,533 1,497
Foreign governments 4,006 4,245 4,006
Public utilities 14,852 15,576 14,808
All other corporate bonds 249,093 257,290 247,687
-------- -------- --------
Total fixed maturities 361,256 372,319 359,579
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 302 597 597
-------- -------- --------
Total equity securities 302 597 597
Mortgage loans on real estate 6,049 6,049
Real estate 7,962 7,962
Policy loans 52,604 52,604
Cash and short-term investments 2,480 2,480
-------- --------
Total investments $430,653 $429,271
======== ========
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
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<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
FUTURE POLICY POLICY AND NET BENEFITS OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT AND CLAIMS OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
------------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Individual life $145,964 $7,017 $ 289,375 $ 8,228 $ 47,051 $124,181
Group life and 9,202 713 4,215 3,940 2,529 2,818
health
Annuity 332,230 854 740,125 23,899 281,352 71,576
----------- ------ ---------- ------- -------- --------
$487,396 $8,584 $1,033,715 $36,067 $330,932 $198,575
=========== ====== ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1995
Individual life $ 64,128 $5,811 $ 188,143 $ 9,470 $ 36,032 $ 83,709
Group life 7,904 701 3,365 1,054 2,217 946
Annuity 319,353 100 378,390 30,367 205,375 44,447
----------- ------ ---------- -------- -------- --------
$391,385 $6,612 $ 569,898 $40,891 $243,624 $129,102
=========== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1994
Individual life $ 76,345 $4,501 $ 147,282 $10,146 $ 29,254 $ 71,825
Group life 7,323 481 3,709 372 1,754 1,329
Annuity 314,124 137 449,141 29,621 199,485 44,063
----------- ------ ---------- ------- -------- --------
$397,792 $5,119 $ 600,132 $40,139 $230,493 $117,217
=========== ======= ========== ======= ======== ========
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
82
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Life insurance in force $28,168,880 $ 4,463,986 $ 2,210,601 $25,915,495 8.5%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 292,239 $ 2,863 $ -- $ 289,376 0.0%
Group life and health 2,393 242 2,063 4,214 49.0
Annuity 740,125 -- -- 740,125 0.0
----------- ----------- ----------- ----------- ----------
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1995
Life insurance in force $19,438,203 $ 1,365,119 $ 1,619,378 $19,692,462 8.2%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 189,870 $ 1,727 $ -- $ 188,143 0.0%
Group life 2,153 357 1,569 3,365 46.6
Annuity 378,390 -- -- 378,390 0.0
----------- ----------- ----------- ----------- ----------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $ 1,090,845 $ 1,271,402 $14,501,943 8.8%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 148,766 $ 1,484 $ -- $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 -- -- 449,141 0.0
----------- ----------- ----------- ----------- ----------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=========== =========== =========== =========== ==========
</TABLE>
83
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(E)(2)(A)
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify certain
persons against certain payments incurred by such persons. The following
excerpts contain the substance of these provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or
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<PAGE>
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any of
the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final
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<PAGE>
disposition of the action, suit, or proceeding upon receipt of an undertaking by
or on behalf of the director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or
II-3
<PAGE>
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise, against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendre or its
equivalent, shall not, of itself create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under sections (1) and (2) of this article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
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<PAGE>
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination that a written undertaking
need not be submitted to the corporation shall in no way affect the entitlement
of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any proceeding
against any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such person may also
be an agent of this corporation. The corporation may indemnify such named
fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of
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<PAGE>
any other corporation in which this Corporation owns shares of capital stock or
of which this Corporation is a creditor (and his heirs, executors and
administrators) shall be indemnified by the Corporation against all expenses,
costs, judgments, decrees, fines or penalties as provided by, and to the extent
allowed by, Article Eighth of the Corporation's Articles of Incorporation, as
amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 83 pages
The undertaking to file reports
Representation pursuant to section 26(e)(2)(A)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Alan Yaeger
(b) Thomas E. Pierpan, Esq.
(c) Sutherland, Asbill & Brennan, L.L.P.
(d) Ernst & Young LLP
(e) Price Waterhouse LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western Reserve
establishing the Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Master Service and Distribution Compliance
Agreement (5)
(b) (i) Form of Broker/Dealer Supervisory and Service
Agreement (4)
(ii) Form of Broker/Dealer Supervisory and Service
Agreement (4)
(c) See Exhibit 1.A.(3)(b)(ii)
(4) Not Applicable
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<PAGE>
(5) (a) Specimen Flexible Premium Variable Life Insurance Policy (8)
(b) Joint Insured Term Rider (8)
(c) Individual Insured Rider (8)
(d) Wealth Protector Rider (8)
(e) Terminal Illness Accelerated Death Benefit Rider
(Form Nos. ACCDB-10/94, ACCDB-CT-10/94, ACCDBIN-10/94,
ACCDB-10/94MN, ACCDBMS-01/95, ACCDBSC-02/95,
ACCDBIL-10/94) (12)
(6) (a) Second Amended Articles of Incorporation of Western
Reserve (3)
(b) Amended Code of Regulations (By-Laws) of Western
Reserve (5)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (6)
(b) Sub-Advisory Agreements (6)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy (8)
(11) Memorandum describing issuance, transfer and redemption
procedures (9)
2. See Exhibit 1.A.(5)
3. Opinion of Counsel as to the legality of the securities being
registered (7)
4. No financial statement will be omitted from the Prospectus pursuant
to Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining
to the securities being registered (10)
7. Consent of Thomas E. Pierpan, Esq. (12)
8. Consent of Sutherland, Asbill & Brennan, L.L.P.
9. Consent of Ernst & Young LLP
10. Consent of Price Waterhouse LLP
11.(a) Powers of Attorney (12)
(b) Power of Attorney - James R. Walker (13)
- - ---------------
(1) This exhibit was previously filed on Form S-6 Registration Statement dated
September 27, 1985 (File No. 33-506) and is incorporated herein by
reference.
(2) This exhibit was previously filed on Form S-6 Registration Statement dated
September 25, 1989 (File No. 33-31140) and is incorporated herein by
reference.
(3) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form
S-6 Registration Statement dated May 1, 1989 (File No. 33-24856) and is
incorporated herein by reference.
(4) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
S-6 Registration Statement dated December 19, 1989 (File No. 33-31140) and
is incorporated herein by reference.
(5) This exhibit was previously filed on Post-Effective Amendment No. 3 to Form
N-4 Registration Statement dated March 1, 1991 (File No. 33-24856) and is
incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 25 to
Form N-1A Registration Statement dated October 17, 1997 (File No. 33-507)
and is incorporated herein by reference.
II-7
<PAGE>
(7) This exhibit was previously filed on Post-Effective Amendment No. 2 to Form
S-6 Registration Statement dated May 1, 1991 (File No. 33-31140) and is
incorporated herein by reference.
(8) This exhibit was previously filed on Form S-6 Registration Statement dated
September 20, 1993 (File No. 33-69138) and is incorporated herein by
reference.
(9) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
S-6 Registration Statement dated December 20, 1993 (File No. 33-69138) and
is incorporated herein by reference.
(10) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form
S-6 Registration Statement dated February 22, 1994 (File No. 33-69138) and
is incorporated herein by reference.
(11) This exhibit was previously filed on Post-Effective Amendment No. 3 to Form
S-6 Registration Statement dated December 30, 1994 (File No. 33-69138) and
is incorporated herein by reference.
(12) This exhibit was previously filed on Post-Effective Amendment No. 5 to Form
S-6 Registration Statement dated April 26, 1995 (File No. 33-69138) and is
incorporated herein by reference.
(13) This exhibit was previously filed on Post-Effective Amendment No. 13 to
Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140)
and is incorporated herein by reference.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, WRL Series Life Account, certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 9 to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Largo, County of Pinellas, Florida on this 16th day
of April, 1997.
(SEAL) WRL SERIES LIFE ACCOUNT
-----------------------
Registrant
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
---------------------
Depositor
ATTEST:
/s/ THOMAS E. PIERPAN By: /s/ JOHN R. KENNEY
- - --------------------- ----------------------
Thomas E. Pierpan John R. Kenney
Vice President and Chairman of the Board,
Associate General Counsel Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 9 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/s/ JOHN R. KENNEY April 16, 1997
- - ---------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President
/s/ ALLAN J. HAMILTON April 16, 1997
- - ----------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ ALAN M. YAEGER April 16, 1997
- - ---------------------
Alan M. Yaeger, Executive Vice
President, Actuary & Chief Financial Officer*
- - ---------------
*Principal Financial Officer
<PAGE>
/s/ KENNETH P. BEIL April 16, 1997
- - ---------------------
Kenneth P. Beil, Vice President &
Principal Accounting Officer**
/s/ PATRICK S. BAIRD April 16, 1997
- - ---------------------
Patrick S. Baird, Director ***
/s/ LYMAN H. TREADWAY April 16, 1997
- - ---------------------
Lyman H. Treadway ***
/s/ JACK E. ZIMMERMAN April 16, 1997
- - ---------------------
Jack E. Zimmerman, Director ***
/s/ JAMES R. WALKER April 16, 1997
- - ---------------------
James R. Walker, Director ***
** Principal Accounting Officer
*** /s/ THOMAS E. PIERPAN
---------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
EXHIBIT 99.C1
Exhibit 8
Consent of Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
S.A.B. letterhead
April 18, 1997
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Life Account
201 Highland Avenue
Largo, Florida 33770
RE: WRL Series Life Account
FILE NO. 33-69138
Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters"
in the Prospectus for the WRL Freedom Wealth Protector contained in
Post-Effective Amendment No. 9 to the Registration Statement on Form S-6 (File
No. 33-69138) of the WRL Series Life Account filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ STEPHEN E. ROTH
--------------------
Stephen E. Roth
EXHIBIT 99.C2
Exhibit 9
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 21, 1997, with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in Post-Effective Amendment No. 9 to the Registration Statement (Form
S-6 No. 33-69138) and related Prospectus of WRL Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 17, 1997
EXHIBIT 99.C3
Exhibit 10
Consent of Price Waterhouse LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the WRL
Freedom Wealth Protector Post-Effective Amendment No. 9 to the Registration
Statement on Form S-6 of our report dated January 31, 1997, relating to the
financial statements and selected per unit data and ratios of the sub-accounts
comprising the WRL Series Life Account, which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Kansas City, Missouri
April 18, 1997
