WRL
FREEDOM
ATTAINER/REGISTERED TRADEMARK/
Flexible Payment
Variable Accumulation
Deferred Annuity
Contract
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
201 HIGHLAND AVENUE
LARGO, FLORIDA 33770
(800) 851-9777
(813) 585-6565
This Prospectus describes the WRL Freedom
Attainer/registered trademark/ Variable Annuity
(the "Contract"), a tax deferred variable annuity
contract issued by Western Reserve Life Variable
Assurance Co. of Ohio ("Western Reserve").
The Contract provides for accumulation of Contract
values on a variable basis, a fixed basis, or a
combination of both. The Contract also provides for
the payment of periodic annuity payments on a
variable basis or a fixed basis. If the variable
basis is chosen, Contract values will be held in
the WRL Series Annuity Account (the "Series
Account") and will vary according to the investment
performance of the underlying investment portfolios
of the WRL Series Fund, Inc. (the "Fund"). If the
fixed basis is chosen, Contract values will be
allocated to the Fixed Account and earn interest at
no less than the minimum guaranteed rate.
There are currently sixteen Sub-Accounts of the
Series Account (in addition to the Fixed Account)
available through this Contract during the
Accumulation Period and after the Maturity Date.
Each Sub-Account invests in one investment
portfolio of the Fund and Net Purchase Payments
will be allocated to one or more of these
Sub-Accounts or the Fixed Account as directed by
the Owner. These sixteen investment portfolios of
the Fund are: the Aggressive Growth Portfolio, the
Emerging Growth Portfolio, the Growth Portfolio,
the Global Portfolio, the Balanced Portfolio, the
Equity-Income Portfolio, the Bond Portfolio, the
Short-to-Intermediate Government Portfolio, the
Utility Portfolio, the Money Market Portfolio, the
Tactical Asset Allocation Portfolio, the Value
Equity Portfolio, the C.A.S.E. Growth Portfolio,
the Global Sector Portfolio, the International
Equity Portfolio and the U.S. Equity Portfolio.
PROSPECTUS DATED This Prospectus sets forth information about the
May 1, 1996, as Supplemented Contract that a prospective investor should know
January 1, 1997 before investing. Additional information about the
Series Account has been filed with the Securities
and Exchange Commission in a Statement of
Additional Information, dated May 1, 1996, as
supplemented January 1, 1997, which is incorporated
herein by reference. The Statement of Additional
Information is available upon written or oral
request and without charge from Western Reserve,
P.O. Box 9051, Clearwater, FL 34618-9051; telephone
number (800) 851-9777. The table of contents for
the Statement of Additional Information appears on
page 28.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, A BANK OR DEPOSITORY
INSTITUTION, AND THE CONTRACT 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 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS OF SPECIAL TERMS ...................................... 1
SUMMARY ........................................................... 3
CONDENSED FINANCIAL INFORMATION ................................... 6
CALCULATION OF YIELDS AND TOTAL RETURNS ........................... 7
OTHER PERFORMANCE DATA ............................................ 8
PUBLISHED RATINGS ................................................. 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ................ 10
/bullet/ Western Reserve Life Assurance Co. of Ohio ............. 10
/bullet/ WRL Series Annuity Account ............................. 10
/bullet/ WRL Series Fund, Inc ................................... 10
CHARGES AND DEDUCTIONS ............................................ 12
/bullet/ Withdrawal Charge ...................................... 12
/bullet/ Transfer Charge ........................................ 13
/bullet/ Mortality and Expense Risk Charge ...................... 13
/bullet/ Annual Contract Charge ................................. 13
/bullet/ Administrative Charge .................................. 13
/bullet/ Premium Taxes .......................................... 13
/bullet/ Deductions for Other Taxes ............................. 14
/bullet/ Expenses of the Fund ................................... 14
THE CONTRACT ...................................................... 14
ACCUMULATION PROVISIONS ......................................... 14
/bullet/ Purchase Payments ...................................... 14
/bullet/ Net Purchase Payments .................................. 15
/bullet/ Accumulation Unit Value ................................ 15
/bullet/ Experience Factor ...................................... 15
/bullet/ Computing Sub-Account Value ............................ 15
/bullet/ Transfers to and from, and among Allocation Options ... 15
/bullet/ Dollar Cost Averaging .................................. 16
/bullet/ Asset Rebalancing Program .............................. 16
/bullet/ Partial Withdrawals and Surrenders ..................... 17
/bullet/ Contract Loans For 401(a), 401(k), and 403(b) Contracts 18
/bullet/ Death Benefits during the Accumulation Period ......... 19
ANNUITY PROVISIONS .............................................. 20
/bullet/ Maturity Date and Selection of Annuity Options ........ 20
/bullet/ Fixed Account Annuity Options .......................... 21
/bullet/ Series Account Annuity Options ......................... 21
/bullet/ Death Benefits after the Maturity Date ................. 21
/bullet/ Improved Annuity Rates ................................. 22
/bullet/ Proof of Age, Sex, and Survival ........................ 22
OTHER MATTERS RELATING TO THE CONTRACT ............................ 22
/bullet/ Changes in Purchase Payments ........................... 22
/bullet/ Right To Examine Contract .............................. 22
/bullet/ Contract Payments ...................................... 22
/bullet/ Ownership .............................................. 22
/bullet/ Annuitant .............................................. 22
/bullet/ Beneficiary ............................................ 22
/bullet/ Modification or Waiver ................................. 23
FEDERAL TAX MATTERS ............................................... 23
/bullet/ Introduction ........................................... 23
/bullet/ Company Tax Status ..................................... 23
/bullet/ Taxation of Annuities .................................. 23
/bullet/ Qualified Plans ........................................ 25
THE FIXED ACCOUNT ................................................. 26
/bullet/ Minimum Guaranteed and Current Interest Rates ......... 27
/bullet/ Fixed Account Value .................................... 27
/bullet/ Allocations, Transfers and Partial Withdrawals ........ 27
DISTRIBUTION OF THE CONTRACTS ..................................... 27
VOTING RIGHTS ..................................................... 27
LEGAL PROCEEDINGS ................................................. 28
STATEMENT OF ADDITIONAL INFORMATION ............................... 28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFINITIONS OF SPECIAL TERMS
<S> <C>
ACCUMULATION PERIOD The period between the Contract Date and the Maturity Date while the Contract is In Force.
ACCUMULATION UNIT An accounting unit of measure used to calculate Sub-Account values during the Accumulation
VALUE Period.
ADMINISTRATIVE OFFICE Western Reserve's administrative office for variable annuity products, the address of which
is P.O. Box 9051, Clearwater, Florida 34618-9051. Telephone number: 1-800-851-9777; Fax
number:1-800-572-0159.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive annuity payments.
The Annuitant may be changed as provided in the Contract's death benefit provisions and annuity
provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the Annuity Value
on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain Sub-Accounts
after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the Contract remains
In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and any Withdrawal Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT The person named in the application, or subsequently designated, to become the new Beneficiary
BENEFICIARY upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the date that
the properly completed application is received at Western Reserve's Administrative Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any Anniversary
thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that provides for
accumulation of Net Purchase Payments, and options for annuity payments on a fixed basis.
For Contracts issued in the State of Washington, the Fixed Account is used solely for Contract
loans, and is not available for allocation of Net Purchase Payments or transfers of Annuity
Value from the Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Account.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise all rights
under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to commence.
NET PURCHASE The Purchase Payment less any applicable premium taxes.
PAYMENT
NON-QUALIFIED Contracts issued other than in connection with retirement plans. Non-Qualified Contracts
CONTRACTS do not qualify for special Federal income tax treatment under the Code.
OWNER The person(s) entitled to exercise all rights under the Contract. The Annuitant is the Owner
unless the application states otherwise, or unless a change of ownership is made at a later
time.
</TABLE>
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<TABLE>
<CAPTION>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<S> <C>
PORTFOLIO A separtate investment portfolio of the Fund.
PURCHASE PAYMENTS Amounts paid by an Owner or on the Owner's behalf to Western Reserve as consideration for
the benefits provided by the Contract.
QUALIFIED CONTRACTS Contracts issued in connection with retirement plans that qualify for special Federal income
tax treatment under the Code.
SERIES ACCOUNT (OR WRL Series Annuity Account, a separate investment account composed of several Sub-Accounts
SEPARATE ACCOUNT) established to receive and invest Net Purchase Payments not allocated to the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a Contract,
which value is equal to the total of the values allocable to a Contract in each of the Sub-Accounts
during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a specified
Portfolio and supports the Contracts. Sub-Accounts corresponding to each applicable Portfolio
hold assets under the Contract during the Accumulation Period. Other Sub-Accounts corresponding
to each applicable Portfolio will hold assets after the Maturity Date if a Series Account
annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
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.
</TABLE>
2
<PAGE>
SUMMARY
This summary provides you with an overview of the tax deferred variable
annuity contract offered by Western Reserve and funded by the Series Account
and the Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be
purchased by submitting a completed application to Western Reserve for its
approval. The Contract provides for accumulation of Annuity Values on a
variable basis, a fixed basis, or a combination of both. The Contract also
provides for the payment of periodic annuity payments on a variable basis or
a fixed basis. (See "THE CONTRACT ACCUMULATION PROVISIONS" on page 14 and
"--ANNUITY PROVISIONS" on page 20.) (For information about tax status, see
"FEDERAL TAX MATTERS" on pages 23-26.)
RIGHT TO EXAMINE CONTRACT
If an Owner is not satisfied with the Contract, it may be cancelled by
returning it within ten days after receipt together with a written request
for cancellation. In such event, Western Reserve will pay the Owner an amount
equal to the sum of: (i) the Purchase Payments received; plus (or minus) (ii)
the accumulated gains (or losses), if any, in the Series Account for the
Contract as of the date Western Reserve receives the returned Contract. (In
certain states, Western Reserve will refund the Purchase Payments.) (See
"OTHER MATTERS RELATING TO THE CONTRACT-Right to Examine Contract" on page
22.)
THE FUND
The underlying variable investments for the Contracts are shares of several
of the Portfolios of the Fund, namely: the Aggressive Growth Portfolio, the
Emerging Growth Portfolio, the Growth Portfolio, the Global Portfolio, the
Balanced Portfolio, the Equity-Income Portfolio, the Bond Portfolio, the
Short-to-Intermediate Government Portfolio, the Utility Portfolio, the Money
Market Portfolio, the Tactical Asset Allocation Portfolio, the Value Equity
Portfolio, the C.A.S.E. Growth Portfolio, the Global Sector Portfolio, the
International Equity Portfolio and the U.S. Equity Portfolio. Western Reserve
reserves the right to offer additional investment portfolios or other mutual
funds with differing investment objectives. (See "WESTERN RESERVE, THE SERIES
ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 10.)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects.
The initial Purchase Payment generally must accompany the application, and
for Non-Qualified Contracts must be at least $5,000; however, a minimum
initial Purchase Payment of $1,000 is allowed provided the application
reflects anticipated additional monthly periodic Purchase Payments of at
least $100, via electronic funds transfer from the Owner's bank account. For
Individual Retirement Annuities ("IRAs"), the minimum initial Purchase
Payment is $1,000. For Qualified Contracts other than IRAs, the minimum
initial Purchase Payment is $50. For all Contracts, subsequent Purchase
Payments must be at least $50, unless Western Reserve consents to a smaller
amount. The maximum amount of Purchase Payments that may be made in any
Contract Year is $1,000,000, unless Western Reserve consents to a larger
amount. Western Reserve reserves the right to reject any Purchase Payment for
any reason permitted by law. (See "ACCUMULATION PROVISIONS--Purchase
Payments" on page 14.)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $10,000. (See "THE
CONTRACT--Partial Withdrawals and Surrenders" on page 17.) For Qualified
Contracts issued under Code Section 403(b), certain restrictions will apply.
Moreover, a partial withdrawal or Surrender may have Federal income tax
consequences. (See "FEDERAL TAX MATTERS--Qualified Plans" on page 24.)
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A
Withdrawal Charge, which is a contingent deferred sales charge, may, however,
be assessed against Annuity Value when partially withdrawn or surrendered.
The length of time from receipt of a Purchase Payment to the time of a
partial withdrawal or Surrender of that Purchase Payment determines whether
the Withdrawal Charge will be deducted. The charge is a percentage of the
amount of each Purchase Payment partially withdrawn or surrendered within
five years of its payment. Purchase Payments are considered withdrawn or
surrendered on a first-in, first-out basis and Contract value in excess of
aggregate Purchase Payments is considered withdrawn or surrendered before any
Purchase Payments. The charge is as follows:
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- ------ --------------------
6% 0-2
4% 3
3% 4
2% 5
0% Over 5
For the first withdrawal or series of Systematic Partial Withdrawals during
each Contract Year, the Withdrawal Charge is waived for the first 10% of the
Annuity Value that otherwise would be subject to the Withdrawal Charge. No
Withdrawal Charge will be assessed if Annuity Values are applied to any
annuity option under the Contract. (See "CHARGES AND DEDUCTIONS--Withdrawal
Charge" on page 12.) Additionally, a 10% penalty tax under Code Section 72(q)
is currently imposed on partial withdrawals or Surrenders from Non-Qualified
Contracts if such partial withdrawals or Surrenders are made prior to age 59-1/2
and other exceptions do not apply. (See "FEDERAL TAX MATTERS" on page 23.)
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, during the
Accumulation Period, Western Reserve imposes a 1.10% per annum charge against
all Annuity Value held in the Series Account. After the Maturity Date, the
charge will equal 1.25% per annum of all Annuity
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<PAGE>
Value held in the Series Account. (See "CHARGES AND DEDUCTIONS--Mortality and
Expense Risk Charge" on page 13.)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $30 is deducted annually on each Contract
Anniversary. (See "CHARGES AND DEDUCTIONS--Annual Contract Charge", page 13.)
ADMINISTRATIVE CHARGE
Western Reserve imposes a daily Administrative Charge equal to an annual rate
of 0.15% against all Annuity Value held in the Series Account. (See "CHARGES
AND DEDUCTIONS--Administrative Charge" on page 13.)
PREMIUM TAXES
No deduction is made for premium taxes unless Western Reserve incurs a
premium tax under state law. Certain states impose premium taxes ranging up
to 3.5% of Purchase Payments, (See "CHARGES AND DEDUCTIONS--Premium Taxes" on
page 13.)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 10
and the Prospectus for the Fund.)
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract
during the Accumulation Period, as well as the fees and expenses of the Fund.
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases ............... None
Maximum Withdrawal Charge
(as a % of each Purchase Payment surrendered
or partially withdrawn received within the
previous 5 years) ............................ 6%
Transfer Charge
On first 12 transfers each year .............. None
On each transfer thereafter .................. $10.00
ANNUAL CONTRACT CHARGE ......................... $30.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average account value)
DURING ACCUMULATION PERIOD
Mortality and Expense Risk Charge ............. 1.10%
Other Account Fees and Expenses (See
"Administrative Charge," page 13) ............ 0.15%
Total Separate Account Annual Expenses ....... 1.25%
AFTER ACCUMULATION PERIOD
Mortality and Expense Risk Charge ............. 1.25%
Other Account Fees and Expenses
(See "Administrative Charge," page 19) ...... 0.15%
Total Separate Account Annual Expenses ....... 1.40%
- -----------------------------------------------------------------------------
FUND ANNUAL EXPENSES* (as a % of Fund average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING GLOBAL C.A.S.E.
GROWTH GROWTH GROWTH GLOBAL BALANCED SECTOR VALUE EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO** PORTFOLIO**
----------- --------- --------- --------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .............. 0.80% 0.80% 0.80% 0.80% 0.80% 1.10% 0.80% 0.80%
Other Expenses (after
reimbursement) 0.12% 0.11% 0.06% 0.19% 0.17% 0.20% 0.20% 0.20%
TOTAL Fund Annual Expenses ... 0.92% 0.91% 0.86% 0.99% 0.97% 1.30% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO- TACTICAL
INTERMEDIATE EQUITY- MONEY ASSET INTERNATIONAL
BOND GOVERNMENT INCOME UTILITY MARKEY ALLOCATION EQUITY U.S. EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO**
--------- ------------ --------- --------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees ............ 0.50% 0.60% 0.80% 0.75% 0.40% 0.80% 1.00% 0.80%
Other Expenses (after
reimbursement) 0.11% 0.18% 0.07% 0.25% 0.06% 0.13% 0.30% 0.25%
Total Fund Annual Expenses . 0.61% 0.78% 0.87% 1.00% 0.46% 0.93% 1.30% 1.05%
<FN>
- --------------
* Effective January 1, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12B-1 under the 1940 ACT ("Distribution Plan") and
pursuant to the Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under
the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundreths
of one percent) on an annualized basis of the average daily net assets.
This fee is measured and accrued daily and paid monthly. ISI has
determined that it will not seek payment by 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 and Global Sector Portfolios commenced operations
on May 1, 1996, and the International Equity and U.S. Equity Portfolios
will commence operations on January 2, 1997, the percentages set forth as
"Other Expenses" and "Total Fund Annual Expenses" are estimates. Because
the C.A.S.E Growth Portfolio commenced operations on May 1, 1995, the
"Other Expenses" and "Total Fund Annual Expenses" are annualized.
</FN>
</TABLE>
The purpose of the preceding Table is to assist the Owner in understanding
the various costs and expenses that an Owner 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,
1995, except that the "Other Expenses" and "Total Fund Annual Expenses" for
the Value Equity, Global Sector, International Equity and U.S. Equity
Portfolios are estimates. Because the C.A.S.E. Growth Portfolio commenced
operations on May 1, 1995, the "Other Expenses" and "Total Fund Annual
Expenses" are annualized. Expenses of the Fund may be higher or lower in the
future. Certain states and other
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governmental entities may impose a premium tax, which the Table does no
include. For more information on the charges described in this Table, see
"CHARGES AND DEDUCTIONS" on page 12 and the Prospectus for the Portfolios of
the Fund which accompany this Prospectus.
In 1995, Western Reserve had undertaken to pay Fund expenses for each
Portfolio to the extent normal operating expenses of a Portfolio exceed a
stated percentage of the Portfolio's average daily net assets. In 1995,
Western Reserve reimbursed the Utility Portfolio in the amount of $14,417,
and the C.A.S.E. Growth Portfolio in the amount of $23,832. Without such
reimbursement, the total annual Fund expenses during 1995 for the Utility
Portfolio and the C.A.S.E. Growth Portfolio would have been 1.08% and 4.15%,
respectively. See each Portfolio's prospectus for a description of the
expense limitation applicable to that Portfolio.
EXAMPLES
1. If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $83 $111 $142 $261
Emerging Growth Sub-Account ................. 83 111 141 260
Growth Sub-Account .......................... 82 109 139 255
Global Sub-Account .......................... 84 113 145 268
Balanced Sub-Account ........................ 84 113 144 266
Equity-Income Sub-Account ................... 83 109 139 256
Bond Sub-Account ............................ 80 102 126 229
Short-to-Intermediate Government Sub-Account 82 107 135 246
Utility Sub-Account ......................... 84 113 146 269
Money Market Sub-Account .................... 78 97 118 213
Tactical Asset Allocation Sub-Account ...... 83 111 142 262
Value Equity Sub-Account .................... 84 113 146 269
C.A.S.E. Growth Sub-Account ................. 84 113 146 269
Global Sector Sub-Account ................... 87 122 161 298
International Equity Sub-Account ............ 87 122 161 299
U.S. Equity Sub-Account ..................... 84 115 148 274
</TABLE>
2. If you annuitize or do not surrender at the end of the applicable time
period (note that annuitization is not available prior to a Contract's
fifth Anniversary):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $23 $71 $122 $261
Emerging Growth Sub-Account ................. 23 71 121 260
Growth Sub-Account .......................... 22 69 119 255
Global Sub-Account .......................... 24 73 125 268
Balanced Sub-Account ........................ 24 73 124 266
Equity-Income Sub-Account ................... 23 69 119 256
Bond Sub-Account ............................ 20 62 106 229
Short-to-Intermediate Government Sub-Account 22 67 115 246
Utility Sub-Account ......................... 24 73 126 269
Money Market Sub-Account .................... 18 57 98 213
Tactical Asset Allocation Sub-Account ...... 23 71 122 262
Value Equity Sub-Account .................... 24 73 126 269
C.A.S.E. Growth Sub-Account ................. 24 73 126 269
Global Sector Sub-Account ................... 27 82 141 298
International Equity Sub-Account ............ 27 82 141 299
U.S. Equity Sub-Account ..................... 24 75 128 274
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $30 ANNUAL CONTRACT CHARGE BASED ON AN
AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $29,513, WHICH CONVERTS THAT
CHARGE TO AN ANNUAL RATE OF 0.10% OF THE SERIES ACCOUNT VALUE.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
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DEATH BENEFIT
If the Annuitant is also the Owner or if the Owner is not a natural person,
and the Annuitant dies at any time before the Maturity Date, a death benefit
will be provided, unless certain elections have been made that would keep the
Contract In Force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 19 and
"ANNUITY PROVISIONS--Death Benefits after the Maturity Date" on page 22.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution of
the Annuity Proceeds after the Maturity Date. The Maturity Date may not be
earlier than the end of the fifth Contract Year and cannot be deferred beyond
the Annuitant reaching Attained Age 90. Subject to these limitations, the
default Maturity Date may be changed by the Owner, at any time prior to that
date, by delivering a written request to Western Reserve. (See "ANNUITY
PROVISIONS--Maturity Date and Selection of Annuity Options" on page 20.)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the Annuity
Value from a Sub-Account to the Fixed Account, from the Fixed Account to a
Sub-Account (subject to certain restrictions), or among the Sub-Accounts.
(For Contracts issued in the State of Washington, the Fixed Account is not
available for transfers of Annuity Value from the Sub-Accounts.) (See "THE
CONTRACT--ACCUMULATION PROVISIONS--Transfers to and from, and among
Allocation Options" on page 16.) Twelve transfers are permitted without
charge in a Contract Year. Each additional transfer will be subject to a
transfer charge of $10. This charge will not be increased. Certain
restrictions apply to transfers from the Fixed Account. Western Reserve may,
at any time, revoke or modify the transfer privilege. (See "ACCUMULATION
PROVISIONS--Transfers to and from, and among Allocation Options" on page 16
and "THE FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on
page 27.)
FIXED ACCOUNT
Fixed Account Values will be held in the general account of Western Reserve
and earn interest at no less than the minimum guaranteed rate. The Fixed
Account is discussed in the section entitled "THE FIXED ACCOUNT" beginning on
page 26.
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
Growth ........ $20.848 $21.071 26,351,578
Bond .......... 13.894 14.650 3,565,475
Money Market . 11.681 11.888 3,459,934
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 3, 1992* TO DECEMBER 31, 1992
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Global ......... 10.000 10.152 25,000
Short-to-
Intermediate
Government ... 10.000 10.036 85,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Growth ......... $21.071 $21.640 51,102,682
Bond ........... 14.650 16.400 10,252,041
Money Market .. 11.888 12.030 6,109,073
Global ......... 10.152 13.540 16,946,574
Short-to-
Intermediate
Government ... 10.036 10.360 4,497,755
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1993* TO DECEMBER 31, 1993
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Emerging Growth $10.000 $12.370 12,707,276
Equity-Income . 10.000 11.250 11,975,467
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Growth ......... $21.640 $19.595 3,115,147
Bond ........... 16.400 15.076 744,082
Money Market .. 2.030 12.294 1,443,347
Global ......... 3.540 13.403 3,414,543
Short-to-
Intermediate
Government ... 10.360 10.192 454,524
Emerging
Growth ........ 12.370 11.315 2,416,688
Equity-Income . 11.250 11.055 3,041,559
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1994* TO DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Growth ....... $10.000 $9.792 403,363
Balanced ..... 10.000 9.348 382,988
Utility ...... 10.000 9.463 243,051
<FN>
- --------------
* Commencement of operations for these Sub-Accounts.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
Growth ........... $19.595 $28,471 3,502,872
Bond ............. 15.076 18,312 782,376
Money Market ..... 12.294 12,799 1,155,403
Global ........... 13.403 16,289 3,252,745
Short-to-
Intermediate
Government ...... 10.192 11.429 469,460
Emerging Growth . 11.315 16.403 2,705,009
Equity-Income ... 11.055 13.610 3,629,843
Aggressive Growth 9.792 13.347 1,805,793
Balanced ......... 9.348 11.060 499,597
Utility .......... 9.463 11.705 547,514
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 3, 1995* TO DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ----------------- ------------------
<S> <C> <C> <C>
Tactical Asset
Allocation .. $10.000 $11.861 1,261,509
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MAY 1, 1995* TO DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ----------- ------------------- ----------------- ------------------
<S> <C> <C> <C>
C.A.S.E. Growth $10,000 $11.964 0
<FN>
- --------------
* Commencement of operations for these Sub-Accounts.
</FN>
</TABLE>
Because the Value Equity and Global Sector Sub-Accounts did not commence
operations until May 1, 1996, and the International Equity and U.S. Equity
Sub-Accounts will commence operations on January 2, 1997, there is no
condensed financial information for these Sub-Accounts for the year ended
December 31, 1995.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Western Reserve may disclose in advertisements and sales
literature yields and total returns for the Sub-Accounts representing the
Accumulation Period under a Contract. In addition, Western Reserve may, on
the same basis, advertise the effective yield of the Money Market Sub-Account
under a Contract. THESE YIELDS AND TOTAL RETURNS ARE BASED ON THE
SUB-ACCOUNTS' HISTORICAL PERFORMANCE ONLY AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. For more detailed information about the performance data
calculations described below, see the Statement of Additional Information.
YIELD
The yield of the Money Market Sub-Account refers to the annualized income
produced by a hypothetical Series Account Value in the Money Market
Sub-Account under a Contract over a specified seven day period. The yield
calculation assumes that the same amount of income produced for that seven
day period is also produced for each seven day period over a fifty-two week
period and is shown as a percentage of the Series Account Value. The
effective yield is calculated similarly but, when annualized, the income
earned by the Series Account Value in the Money Market Sub-Account is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment of income.
Based on the method of calculation described in the Statement of Additional
Information, for the seven-day period ended December 31, 1995, the current
yield and effective yield for the Money Market Sub-Account were as follows:
Current Yield = 4.05%
Effective Yield = 4.13%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Accounts"), refers to the income produced by a hypothetical Series
Account Value in the other Sub-Accounts over a specified thirty day period
expressed as a percentage rate of return for that period. The yield is
calculated by assuming that the income produced by the investment during that
thirty day period is produced each thirty day period over a twelve month
period and is shown as a percentage of the Series Account Value. Based on the
method of calculation described in the Statement of Additional Information,
for the thirty day period ended December 31, 1995, the yield for the
following Sub-Account(s) was as follows:
Bond Sub-Account = 4.53%
Short-to-Intermediate
Government Sub-Account = 4.36%
TOTAL RETURN
The total return of a Sub-Account for a Contract refers to return quotations
assuming a hypothetical Series Account Value in the Sub-Account has been held
for various periods of time including, but not limited to, a period measured
from the date the Sub-Account commenced operations. When a Sub-Account has
been in operation for one, five, and ten years, respectively, the total
return for these periods will be provided. The total return quotations for a
hypothetical Series Account Value will represent the average annual
compounded rates of return that would equate an initial Series Account Value
of $1,000 under a Contract to the redemption value of that investment as of
the last day of each of the periods for which total return quotations are
provided. FOR PURPOSES OF THE TOTAL RETURN QUOTATIONS, THE CALCULATIONS TAKE
INTO ACCOUNT ALL FEES AND CHARGES THAT ARE CHARGED TO ALL CONTRACTS DURING
THE ACCUMULATION PERIOD. Such fees and charges include the $30 Annual
Contract Charge, calculated on the basis of an estimated Series Account Value
per Contract of $29,513, which converts that charge to an annual rate of
0.10% of the Series Account Value. The calculations also assume a complete
surrender as of the end of the period and deduction of the Withdrawal Charge.
THE CALCULATIONS DO NOT INCLUDE A DEDUCTION FOR ANY PREMIUM TAXES THAT MAY BE
APPLICABLE TO A PARTICULAR CONTRACT.
Based on the method of calculation described above and in more detail in the
Statement of Additional Information, the average annual total returns for
periods beginning with the commencement of each Sub-Account to December 31,
1995 were as follows:
7
<PAGE>
<TABLE>
<CAPTION>
PERIOD FIVE YEAR THREE YEAR ONE YEAR
FROM PERIOD PERIOD PERIOD
2/24/89* ENDED ENDED ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95 12/31/95 12/31/95
- ----------- -------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Growth ........ 16.43% 16.27% 9.26% 39.05%
Bond .......... 9.15% 8.74% 6.41% 15.29%
Money Market . 3.57% 2.17% 1.09% (2.01)%
</TABLE>
<TABLE>
<CAPTION>
PERIOD THREE YEAR ONE YEAR
FROM PERIOD PERIOD
12/3/92* ENDED ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95 12/31/95
- ----------- -------------- ------------- ----------
<S> <C> <C> <C>
Global ............... 16.18% 15.99% 15.38%
Short-to-Intermediate
Government ......... 3.14% 3.09% 6.02%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ONE YEAR
FROM PERIOD
3/1/93* ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95
- ----------- ------------- -----------
<S> <C> <C>
Emerging Growth 17.46% 38.83%
Equity-Income . 9.65% 16.98%
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR
PERIOD
PERIOD FROM ENDED
SUB-ACCOUNT 3/1/94* TO 12/31/95 12/31/95
- ----------- -------------------- -----------
<S> <C> <C>
Aggressive Growth 14.08% 30.18%
Balanced ......... 2.39% 12.21%
Utility .......... 5.80% 17.59%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 1/3/95* TO 12/31/95
- ----------- -------------------
<S> <C>
Tactical Asset Allocation 12.50%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 5/1/95* TO 12/31/95
- ----------- -------------------
<S> <C>
C.A.S.E. Growth 13.52%
<FN>
- --------------
* Commencement of Operations for these Sub-Accounts.
</FN>
</TABLE>
Because the Value Equity, Global Sector, International Equity and U.S. Equity
Sub-Accounts had not yet commenced operations as of December 31, 1995, no
performance information is provided for these Sub-Accounts.
OTHER PERFORMANCE DATA
Western Reserve may from time to time disclose in advertisements and sales
literature average annual total return in non-standard formats and cumulative
total return for Contracts funded by the Sub-Accounts.
Western Reserve may from time to time also disclose in advertisements and
sales literature yields and non-standard total returns for the Sub-Accounts
(some of which do not include Contract and Series Account fees and charges)
including such disclosure for periods prior to the date the Series Account
commenced operations.
For periods prior to the date each Sub-Account commenced operations,
performance information will be calculated based on the performance of the
Fund's corresponding Portfolios and the assumption that the Sub-Accounts were
in existence for the same periods as those indicated for the corresponding
Fund's Portfolios, with a level of fees and charges approximately equal to
those currently assessed against the applicable Sub-Accounts or against
Owner's Contract Values under the Contract.
For example, Western Reserve may present hypothetical illustrations
representing past performance of one or more Sub-Accounts for a hypothetical
Contract. Such a hypothetical Contract illustration would present average
total return performance information for the hypothetical Contract, assuming
allocation of initial and subsequent net premiums to one or more
Sub-Accounts, which reflects the performance of those Sub-Accounts for the
duration of the allocations under the hypothetical Contract. The information
presented may be compared to various indices.
NON-STANDARD PERFORMANCE DATA WILL ONLY BE DISCLOSED IF THE STANDARD
PERFORMANCE DATA FOR THE REQUIRED PERIODS IS ALSO DISCLOSED.
Based on the method of calculation described above and in more detail in the
Statement of Additional Information, the average annual total returns of the
Emerging Growth, Growth, Global, Equity-Income, Bond, Short-to-Intermediate
Government, Money Market, Aggressive Growth, Balanced, Utility, Tactical
Asset Allocation and C.A.S.E. Growth Sub-Accounts for the periods ended
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
PERIOD FIVE YEAR THREE YEAR ONE YEAR
FROM PERIOD PERIOD PERIOD
10/2/86* ENDED ENDED ENDED
SUB-ACCOUNT TO 12/31/95** 12/31/95** 12/31/95** 12/31/95**
- ----------- ---------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Growth ........ 16.04% 16.27% 9.26% 39.05%
Bond .......... 7.01% 8.74% 6.41% 15.29%
Money Market . 3.56% 2.17% 1.09% (2.01)%
</TABLE>
<TABLE>
<CAPTION>
PERIOD THREE YEAR ONE YEAR
FROM PERIOD PERIOD
12/3/92*** ENDED ENDED
SUB-ACCOUNT TO 12/31/95** 12/31/95** 12/31/95**
- ----------- ---------------- ------------- ------------
<S> <C> <C> <C>
Global ............... 16.18% 15.99% 15.38%
Short-to-Intermediate
Government ......... 3.14% 3.09% 6.02%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ONE YEAR
FROM PERIOD
3/1/93*** ENDED
SUB-ACCOUNT TO 12/31/95** 12/31/95**
- ----------- ---------------- -------------
<S> <C> <C>
Emerging Growth 17.46% 38.83%
Equity-Income . 9.65% 16.98%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ONE YEAR
FROM PERIOD
3/1/94*** ENDED
SUB-ACCOUNT TO 12/31/95** 12/31/95**
- ----------- ---------------- -------------
<S> <C> <C>
Aggressive Growth 14.08% 30.18%
Balanced ......... 2.39% 12.21%
Utility .......... 5.80% 17.59%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 1/3/95*** TO 12/31/95**
- ----------- -----------------------
<S> <C>
Tactical Asset Allocation 12.50%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 5/1/95*** TO 12/31/95**
- ----------- -----------------------
<S> <C>
C.A.S.E. Growth 13.52 %
<FN>
- --------------
* Commencement of Operations of the Fund's Portfolio.
** For purposes of the calculation of the performance data for the Growth,
Bond and Money Market Sub-Accounts prior to February 24, 1989, the
deductions for the mortality and expense risk charge are made on a
monthly basis, rather than a daily basis. The monthly deduction is made
at the beginning of each month and generally approximates the performance
which would have resulted if the Sub-Accounts had actually been in
existence since the inception of the Sub-Accounts. FOR ALL SUB-ACCOUNTS
ILLUSTRATED ABOVE, PERFORMANCE DATA FOR PERIODS OF LESS THAN SIX YEARS
REFLECT DEDUCTIONS OF THE WITHDRAWAL CHARGE.
*** Commencement of Operations for these Sub-Accounts.
</FN>
</TABLE>
8
<PAGE>
The average annual total returns set forth below are calculated in exactly
the same way as the average annual total returns set forth immediately above,
except that the AVERAGE ANNUAL TOTAL RETURNS ILLUSTRATED BELOW DO NOT TAKE
INTO ACCOUNT ANY CHARGE ON AMOUNTS SURRENDERED OR PARTIALLY WITHDRAWN.
<TABLE>
<CAPTION>
PERIOD FIVE YEAR THREE YEAR ONE YEAR
FROM PERIOD PERIOD PERIOD
10/2/86* ENDED ENDED ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95 12/31/95 12/31/95
- ----------- -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Growth ........ 16.04% 16.49% 10.37% 45.05%
Bond .......... 7.01% 9.02% 7.58% 21.29%
Money Market . 3.56% 2.53% 2.37% 3.99%
</TABLE>
<TABLE>
<CAPTION>
PERIOD THREE YEAR ONE YEAR
FROM PERIOD PERIOD
12/3/92** ENDED ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95 12/31/95
- ----------- -------------- ------------- ----------
<S> <C> <C> <C>
Global ............... 17.13% 16.97% 21.38%
Short-to-Intermediate
Government ......... 4.35% 4.33% 12.02%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ONE YEAR
FROM PERIOD
3/1/93** ENDED
SUB-ACCOUNT TO 12/31/95 12/31/95
- ----------- -------------- -----------
<S> <C> <C>
Emerging Growth 19.02% 44.83%
Equity-Income . 11.41% 22.98%
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR
PERIOD
PERIOD FROM ENDED
SUB-ACCOUNT 3/1/94** TO 12/31/95 12/31/95
- ----------- --------------------- -----------
<S> <C> <C>
Aggressive Growth 16.99% 36.18%
Balanced ......... 5.56% 18.21%
Utility .......... 8.89% 23.59%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 1/3/95** TO 12/31/95
- ----------- --------------------
<S> <C>
Tactical Asset Allocation 18.50%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
SUB-ACCOUNT 5/1/95** TO 12/31/95
- ----------- --------------------
<S> <C>
C.A.S.E. Growth 19.52%
<FN>
- --------------
* Commencement of Operations of the Fund's Portfolio.
** Commencement of Operations for these Sub-Accounts.
</FN>
</TABLE>
Because the Value Equity, Global Sector, International Equity and U.S. Equity
Sub-Accounts had not yet commenced operations as of December 31, 1995, no
performance information is provided for these Sub-Accounts.
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable annuity
issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, or investment series of mutual funds,
with investment objectives similar to each of the Sub-Accounts. For this
purpose, Western Reserve may use as sources of performance comparison such
organizations as Lipper Analytical Services, Inc. ("Lipper"), Variable
Annuity Research & Data Service ("VARDS"), CDA Investment Technologies, Inc.
("CDA") and Morningstar, Inc. ("Morningstar"), or 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, VARDS, CDA and Morningstar
are independent services which monitor and rank the performances of variable
annuity issuers in each of the major categories of investment objectives on
an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS and CDA rankings compare only
variable annuity issuers. The performance analysis prepared by Lipper, VARDS,
CDA and Morningstar each rank such issuers 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. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
Western Reserve may also compare, as appropriate, the performance of each
Sub-Account in advertising and sales literature to widely used measures of
market performance, such as the Standard and Poor's Index of 500 Common
Stocks, Dow Jones Industrials Average, Value Line (Arithmetic) Index,
CDA/Wiesenberger Long Term Growth Average-VA, Wilshire 5000, FT World Index
Ex-USA (Financial Times), Morgan Stanley Capital International World Index,
FT World Index, Lehman Brothers Government/Corporate Bond Index, Dow Jones
Utilities Average, Donoghue's Taxable Money Fund Average and others.
Unmanaged indices may assume the reinvestment of dividends, but usually do
not reflect any "deduction" for the expense of operating or managing an
investment portfolio.
In addition, Western Reserve may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate
and inflation indices, such as the Consumer Price Index, which is published
by the U.S. Department of Labor and measures the average change in prices
over time of a fixed "market basket" of certain specified goods and services.
Similar comparisons of Sub-Account performance may also be made with
appropriate indices measuring the performance of a defined group of
securities widely recognized by investors as representing a particular
segment of the securities markets. For example, Sub-Account performance may
be compared with Donoghue Money Market Institutional Averages (money market
rates), Lehman Brothers Corporate Bond Index (corporate bond interest rates)
or Lehman Brothers Government Bond Index (long-term U.S. Government
obligation interest rates).
PUBLISHED RATINGS
Western Reserve may from time to time publish in advertisements, sales
literature and reports to Owners, 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 on the relative financial
9
<PAGE>
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).
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND
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 Administrative Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O.
Box 9051, Clearwater, FL 34618-9051. Western Reserve is wholly-owned by 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.
WRL SERIES ANNUITY ACCOUNT
The Series Account was established by Western Reserve as a separate account
and a unit investment trust on April 12, 1988. The Series Account meets the
definition of a separate account under the Federal securities laws. The
Series Account will receive and invest Net Purchase Payments paid under the
Contracts. In addition, the Series Account may be used for other variable
annuity contracts issued by Western Reserve.
Although the assets of the Series Account belong to Western Reserve, Ohio
insurance law provides that the assets in the Series Account attributable to
variable annuity contracts are not chargeable with liabilities arising out of
any other business of Western Reserve. However, the assets of the Series
Account are available to cover the liabilities of the general asset account
of Western Reserve to the extent that the Series Account's assets exceed the
liabilities arising under variable annuity contracts supported by it.
The Series Account is currently divided into twenty-two Sub-Accounts, sixteen
of which are offered under this Contract. 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
are credited to or charged against that Sub-Account without regard to income,
gains or losses from any other Sub-Account or arising out of any other
business of Western Reserve. Western Reserve may add, delete or substitute
investments held by the Sub-Accounts, and Western Reserve reserves the right
to add or remove Sub-Accounts. Western Reserve further reserves the right to
change the investment objective of any Sub-Account, subject to applicable law
as described in the Statement of Additional Information.
WRL SERIES FUND, INC.
The Series Account currently invests only in shares of the Fund, a series
mutual fund that is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act")
as an open-end diversified management investment company.
The Fund currently has twenty-two Portfolios, sixteen of which are offered
under this Contract: the Aggressive Growth Portfolio, Emerging Growth
Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Equity-Income Portfolio, Bond Portfolio, Short-to-Intermediate Government
Portfolio, Utility Portfolio, Money Market Portfolio, Tactical Asset
Allocation Portfolio, Value Equity Portfolio, C.A.S.E. Growth Portfolio,
Global Sector Portfolio, International Equity Portfolio and U.S. Equity
Portfolio. The assets of each Portfolio are held separate from the assets of
the other Portfolios, and each Portfolio has different investment objectives
and policies. Thus, each Portfolio operates as a separate investment vehicle,
and the income or losses of one Portfolio are unrelated to that of any other
Portfolio.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any Portfolio will achieve its stated
objective. More detailed information, including a description of risks, can
be found in the Prospectus for the Fund, which should be read carefully.
AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities.
EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by
investing primarily in common stocks of small and medium sized companies.
GROWTH PORTFOLIO: This Portfolio's objective is growth of capital.
GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital, primarily through investments
in common stocks of foreign and domestic issuers.
BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced
volatility, and superior long-term risk-adjusted returns by investing
primarily in common stock, convertible securities and fixed-income
securities.
EQUITY-INCOME PORTFOLIO: This Portfolio seeks to provide current income,
long-term growth of income and capital appreciation by investing primarily in
common stocks, income producing securities convertible into common stocks,
and fixed-income securities.
BOND PORTFOLIO: This Portfolio seeks the highest possible current income
within the confines of the primary goal of insuring the protection of capital
by investing in debt securities issued by the U.S. Government and its
agencies and in medium to high-quality corporate debt securities.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO: This Portfolio seeks as high a
level of current income as is consistent with preservation of capital,
primarily through investments
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in U.S. Government securities, including repurchase agreements with respect
to U.S. Government securities.
UTILITY PORTFOLIO: This Portfolio's objective is to achieve high current
income and moderate capital appreciation by investing primarily in a
professionally managed and diversified portfolio of equity and debt
securities of utility companies.
MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum
current income consistent with preservation of principal and maintenance of
liquidity.
TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of
capital and competitive investment returns by investing primarily in stocks,
United States Treasury bonds, notes and bills, and money market funds.
VALUE EQUITY PORTFOLIO: This Portfolio's objective is to achieve maximum
consistent total return with minimum risk to principal.
C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth
through investments in small to medium-sized companies.
GLOBAL SECTOR PORTFOLIO: This Portfolio's investment objective is growth of
capital by following an asset allocation strategy that shifts among a wide
range of asset categories and within them, market sectors.
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"), a wholly-owned subsidiary
of Western Reserve, serves as investment adviser to the Fund and manages its
assets in accordance with policies, programs and guidelines established by
the Board of Directors of the Fund.
Janus Capital Corporation ("Janus") serves as sub-adviser to the Growth,
Bond, and Global Portfolios of the Fund. Janus, located at 100 Fillmore
Street, Denver, Colorado 80206, has been engaged in the management of the
Janus funds since 1969.
AEGON USA Investment Management, Inc. ("AEGON Management") is sub-adviser to
the Short-to-Intermediate Government and Balanced Portfolios of the Fund.
AEGON Management, located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499, is a wholly-owned subsidiary of AEGON and thus is an affiliate of
Western Reserve.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen American
Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van
Kampen American Capital, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, is an indirect wholly-owned subsidiary of VK/AC Holding, Inc.
("VK/AC Holding"). VK/AC Holding is a wholly-owned subsidiary of MSAM
Holdings II, Inc., which, in turn, is a wholly-owned subsidiary of Morgan
Stanley Group, Inc.
Luther King Capital Management Corporation ("Luther King"), located at 301
Commerce Street, Suite 1600, Fort Worth, Texas 76102, is sub-adviser to the
Equity-Income Portfolio of the Fund. Ultimate control of Luther King is
exercised by J. Luther King, Jr.
Federated Investment Counseling ("Federated") is sub-adviser to the Utility
Portfolio of the Fund. Federated, located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, is a Delaware business trust organized
on April 11, 1989 and is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors.
Fred Alger Management, Inc. ("Fred Alger") is sub-adviser to the Aggressive
Growth Portfolio of the Fund. Fred Alger, located at 75 Maiden Lane, New
York, NY 10038, is a wholly-owned subsidiary of Fred Alger & Company,
Incorporated, which, in turn, is a wholly-owned subsidiary of Alger
Associates, Inc., a financial services holding company controlled by Fred M.
Alger.
Dean Investment Associates, a Division of C.H. Dean and Associates, Inc.
("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the
Fund. Dean, located at 2480 Kettering Tower, Dayton, Ohio 45423-2480, is a
registered investment adviser with the SEC. Dean is wholly-owned by C.H. Dean
and Associates, Inc.
NWQ Investment Management Company, Inc. ("NWQ Investment") is sub-adviser to
the Value Equity Portfolio of the Fund. NWO Investment, located at 655 South
Hope Street, llth Floor, Los Angeles, California 90017, is a wholly-owned
subsidiary of United Asset Management Corporation.
C.A.S.E. Management, Inc. ("C.A.S.E. Management") is sub-adviser to the
C.A.S.E. Growth Portfolio of the Fund. C.A.S.E. Management, located at 2255
Glades Road, Suite 221-A, Boca Raton, Florida 33431, is a registered
investment advisory firm and a wholly-owned subsidiary of C.A.S.E. Inc.
C.A.S.E. Inc. is indirectly controlled by William Edward Lange, president and
chief executive officer of C.A.S.E. Management.
Meridian Investment Management Corporation ("Meridian") and INVESCO Global
Asset Management Limited ("INVESCO") serve as co-sub-advisers to the Global
Sector Portfolio of the Fund. Meridian, located at 12835 East Arapahoe Road,
Tower 11, 7th Floor, Englewood, Colorado 80112, is a wholly-owned subsidiary
of Meridian Management & Research Corporation. INVESCO, located at Rosebank,
12 Bermudiana Road, Hamilton, Bermuda HM11, is an indirect wholly-owned
subsidiary of INVESCO PLC.
J.P. Morgan Investment Management Inc. ("J. P. Morgan") is sub-adviser to the
Money Market Portfolio of the Fund. J. P. Morgan, located at 522 Fifth
Avenue, New York, New York 10036, is a wholly-owned subsidiary of J. P.
Morgan & Co. Incorporated.
Scottish Equitable Investment Management Limited ("Scottish Equitable") is a
co-sub-adviser to the International Equity Portfolio of the Fund. Scottish
Equitable, located at Edinburgh Park, Edinburgh EH12 9SE, Scotland, is a
wholly-owned subsidiary of Scottish Equitable plc. Scottish Equitable plc is
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.
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GE Investment Management Incorporated ("GE Investment") is a co-sub-adviser
of the International Equity Portfolio and is sub-adviser to the U.S. Equity
Portfolio of the Fund. GE Investment, located at 3003 Summer Street,
Stamford, Connecticut 06905, is a Delaware corporation. GE Investment is a
wholly-owned subsidiary of General Electric Company.
Shares of other Portfolios of the Fund are sold through different variable
annuity contracts offered through the Series Account. In addition to the
Series Account, shares of certain Portfolios of the Fund are sold to the WRL
Series Life Account, a separate account established by Western Reserve for
its variable life insurance policies, 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 and to the AUSA Series Life Account, separate accounts of AUSA Life
Insurance Company, Inc., all affiliates of Western Reserve. Shares of the
Fund may in the future be sold to other separate accounts, including separate
accounts established for variable life insurance policies or variable annuity
contracts issued by Western Reserve or its affiliates. It is conceivable
that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest
in the Fund simultaneously. Although neither Western Reserve nor the Fund
currently foresees any such disadvantages, either to variable life insurance
policyowners or to variable annuity contract owners, the Fund's Board of
Directors intends to monitor events in order to identify any material
conflicts between the interests of such variable life insurance policyowners
and variable annuity contract owners and to determine what action, if any, it
should take. Such action could include the sale of Fund shares by one or more
of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example, (1) changes in state insurance
laws, (2) changes in Federal income tax laws, or (3) differences in voting
instructions between those given by variable life insurance policyowners and
those given by variable annuity contract owners. If the Board of Directors
were to conclude that separate funds should be established for variable life
and variable annuity separate accounts, Western Reserve will bear the
attendant expenses, but variable life insurance policyowners and variable
annuity contract owners would no longer have the economies of scale resulting
from a larger combined fund.
CHARGES AND DEDUCTIONS
Certain charges will be deducted in connection with the Contracts to
compensate Western Reserve for (1) administering the Contracts; (2) assuming
certain risks in connection with the Contracts; and (3) incurring expenses in
distributing the Contracts. The nature and amount of these charges are
described more fully below.
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A
Withdrawal Charge, which is a contingent deferred sales charge, may be
assessed against Annuity Values when partially withdrawn or surrendered. No
Withdrawal Charge will be assessed if Annuity Values are applied to an
annuity option provided under the Contract.
For the first partial withdrawal or Systematic Partial Withdrawal (see "THE
CONTRACT--ACCUMULATION PROVISIONS--Partial Withdrawals and Surrenders," page
17), during each Contract Year, any applicable Withdrawal Charge is currently
waived on that portion of the amount withdrawn which equals 10% of the
Contract's Annuity Value on the date of the withdrawal. For example, if the
amount of the first partial withdrawal during a Contract Year is $2,000, and
the Contract's Annuity Value on the date of the withdrawal is $25,000, then
10% of $25,000 equals $2,500, and the Withdrawal Charge is waived on the
entire $2,000 withdrawn. Thereafter, the full amount of any subsequent
partial withdrawal or Systematic Partial Withdrawal during the remainder of
that Contract Year will be subject to the Withdrawal Charge. However, no
waiver of a Withdrawal Charge will be made in connection with a Surrender. In
determining which amounts withdrawn are subject to the Withdrawal Charge,
partial withdrawals and Surrenders will be deemed made first from Purchase
Payments on a first-in, first-out basis, and then from any Contract earnings.
The length of time from receipt of a Purchase Payment to the time of a
partial withdrawal or surrender determines whether the Withdrawal Charge will
be deducted. The charge is a percentage of the amount of each Purchase
Payment partially withdrawn or surrendered within five years of its payment.
The charge is as follows:
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- ------ --------------------
6% ........ 0-2
4% ........ 3
3% ........ 4
2% ........ 5
0% ........ Over 5
For Contracts issued with an appropriate endorsement, if the Owner is
confined to a nursing care facility (as defined in the endorsement) for
thirty (30) consecutive days or longer, Western Reserve will also waive the
Withdrawal Charge on partial withdrawals or Surrenders as follows. Such
confinement must begin after the Contract Date. Western Reserve must receive
satisfactory written evidence of such confinement within two (2) months after
the confinement ends. Western Reserve will waive the Withdrawal Charge under
the endorsement only for Surrenders and partial withdrawals made during such
confinement or within two (2) months after the confinement ends. The
endorsement is not available in all states.
The Withdrawal Charge is deducted from the Annuity Value by cancelling the
number of units equal to the charge. The amount of the Withdrawal Charge will
be determined as of the date the partial withdrawal or Surrender payment is
processed. In the event of a partial withdrawal, the Owner will receive the
full amount requested and an amount equal to the Withdrawal Charge will also
be withdrawn in order for the Owner to receive the amount requested. For
example, if the Owner requests a distribution in the amount of $100 during
the second Contract Year (such distribution is deemed to be
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<PAGE>
made from the initial Purchase Payment) and the Withdrawal Charge is to be
imposed on the full amount, the Owner would receive $100, the total Annuity
Value partially withdrawn would be $106.38, and the Withdrawal Charge would
be $6.38 (which is 6% of $106.38). Any partial withdrawal or Surrender may be
subject to tax and the Owner should, therefore, consult with his or her tax
advisor before requesting any partial withdrawal or Surrender. (See "FEDERAL
TAX MATTERS--Taxation of Annuities" on page 23 and "--Qualified Plans" on
page 24.)
The Withdrawal Charge is imposed to enable Western Reserve to recover certain
sales expenses it advances, including the cost of printing prospectuses and
sales literature and any advertising costs. The proceeds of this charge may
not be sufficient to cover these expenses. To the extent they are not,
Western Reserve will cover the shortfall from its general account assets,
which may include profits from the Mortality and Expense Risk Charge,
described below.
The Withdrawal Charge may be reduced when sales of Contracts are made to a
group of directors, officers and employees of the same employer (including
directors, officers and employees of Western Reserve and its affiliates), as
outlined in the following paragraph. The amount of reduction will depend on
factors such as the size of the group, total Purchase Payments, and other
relevant factors that might tend to reduce expenses incurred in connection
with such sales.
The Withdrawal Charge may be eliminated for the sale of the Contract to: (a)
current and retired directors, officers, full-time employees and agents of
Western Reserve and its affiliates; (b) current and retired directors,
officers, fulltime employees and registered representatives of
InterSecurities, Inc., an affiliate of Western Reserve, and any broker-dealer
which has a sales agreement with InterSecurities, Inc.; (c) any Trust,
pension, profit-sharing or other employee benefit plan of any of the
foregoing persons or entities; (d) current and retired directors, officers
and full-time employees of WRL Series Fund, Inc. and any IDEX mutual fund,
and any investment adviser or investment sub-adviser thereto; and (e) any
member of a family of any of the foregoing (E.G., spouse, child, sibling,
parent or parent-in-law). Western Reserve reserves the right to modify or
terminate this arrangement at any time.
TRANSFER CHARGE
After twelve free transfers of Annuity Value among the Sub-Accounts during
any one Contract Year, each additional transfer will be subject to a Transfer
Charge of $10, which will be deducted from the amount transferred to
compensate Western Reserve for the costs of the transfer. All transfers made
on any one day will be considered a single transfer, with any transfer charge
allocated equally. The Transfer Charge will not be increased. Western Reserve
does not anticipate making a profit from this charge. Western Reserve may, at
any time, revoke or modify this transfer privilege.
MORTALITY AND EXPENSE RISK CHARGE
During the Accumulation Period, Western Reserve will deduct a daily Mortality
and Expense Risk Charge from the Series Account at an annual rate of 1.10% of
the average daily net assets of the Series Account. After the Maturity Date,
Western Reserve will deduct a daily Mortality and Expense Risk Charge from
the Series Account at an annual rate of 1.25% of the average daily net assets
of the Series Account. Western Reserve assumes two mortality risks: (1 ) that
the annuity rates under the Contracts cannot be changed to the detriment of
Owners even if Annuitants live longer than projected; and (2) Western Reserve
may be obligated to pay a death benefit claim in excess of a Contract's Cash
Value. (See "ANNUITY PROVISIONS--Improved Annuity Rates" on page 22 and
"ACCUMULATION PROVISIONS--Death Benefits during the Accumulation Period" on
page 19.) Western Reserve also assumes an expense risk through its guarantee
not to increase the charges for issuing and administering the Contracts and
the Series Account, regardless of its actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
costs, the loss will be borne by Western Reserve; conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to Western
Reserve. This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. The Mortality and Expense
Risk Charge will not be assessed against either the Fixed Account Value or
monies that have been applied to purchase a Fixed Account annuity option.
ANNUAL CONTRACT CHARGE
On each Anniversary through the Maturity Date, Western Reserve will deduct an
Annual Contract Charge of $30 as partial compensation for the cost of
providing administrative services under the Contracts. The Annual Contract
Charge is deducted from each Sub-Account and the Fixed Account in proportion
to the value each bears to the Annuity Value. If the Annuity Value is
surrendered other than on an Anniversary, a full $30 fee will be deducted.
Western Reserve does not expect to earn a profit on the Annual Contract
Charge. Therefore, Western Reserve may reduce the amount of the Annual
Contract Charge when sales of Contracts are made to a group of employees of
the same employer, employer group or similar party, under an arrangement
which results in a savings in administrative service expenses. Even if
administrative expenses of the Account increase, Western Reserve guarantees
that it will not increase the amount of the Annual Contract Charge.
ADMINISTRATIVE CHARGE
Western Reserve deducts a daily Administrative Charge from values remaining
in the Series Account at an annual rate of 0.15% of the average daily net
assets of the Series Account for the cost of providing administrative
services under the Contracts and the Account. This charge is deducted from
the Series Account both during the Accumulation Period and after the Maturity
Date.
Western Reserve does not expect to earn a profit on the Administrative
Charge. Even if administrative expenses of the Contract and the Account
increase, Western Reserve guarantees that it will not increase the amount of
the Administrative Charge.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax,
ranging up to 3.5% of Purchase
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<PAGE>
Payments. If applicable, and if Western Reserve has incurred or reasonably
expects to incur expenses in respect of premium taxes, the tax will be
deducted, either from the Purchase Payment when received, from amounts
partially withdrawn or surrendered, from death benefit proceeds, or from the
amount applied to effect an annuity at the time annuity payments commence.
Western Reserve will deduct any applicable premium taxes when it incurs them,
but reserves the right to defer deduction to a later date as long as such
deferral is equitable to Owners.
Premium tax rates are subject to change by the respective state
legistlatures, administrative interpretations, or judicial acts. The amount
of any such tax will depend on, among other things, the Owner's state of
residence, the status of Western Reserve in that state, and the insurance tax
laws of such state.
DEDUCTIONS FOR OTHER TAXES
Currently no charge is made to the Series Account for Federal income taxes
attributable to the Series Account. Western Reserve may, however, make such a
charge in the future subject to obtaining any necessary regulatory approvals.
Charges for any other applicable taxes including any tax or other economic
burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Account may also be made. (See
"FEDERAL TAX MATTERS--Company Tax Status" on page 23.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of
the Series Account will reflect the investment advisory fee and other
expenses incurred by the Fund, as described in the Portfolios' Prospectus.
Effective January 1, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant
to the Plan, has entered into a Distribution Agreement with InterSecurities,
Inc. ("ISI"), principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundreths of
one percent) on an annualized basis of the average daily net assets. This fee
is measured and accrued daily and paid monthly. ISI has determined that it
will not seek payment by 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.
THE CONTRACT ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase
Payments after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany
the application, and for Non-Qualified Contracts must be at least $5,000;
however, a minimum initial Purchase Payment of $1,000 is allowed provided the
application reflects anticipated additional monthly periodic Purchase
Payments of at least $100, via electronic funds transfer from the Owner's
bank account. For IRAs the minimum initial Purchase Payment is $1,000 and for
Qualified Contracts other than IRAs the minimum initial Purchase Payment is
$50. For all Contracts, subsequent Purchase Payments are not required but may
be made at any time and in any amount provided that each payment is for a
minimum of $50, unless Western Reserve consents to a smaller amount and
further provided that total Purchase Payments in any Contract Year do not
exceed $1,000,000, unless Western Reserve consents to a larger amount.
As an accommodation to Owners, Western Reserve will accept transmittal of
both initial and subsequent Purchase Payments of at least $1,000 by wire
transfer. For initial Purchase Payments, the wire transfer must be
accompanied by a simultaneous telephone facsimile transmission of an
application ("FAXED Application"). Initial Purchase Payments accepted via
wire transfer with FAXED Application will be invested at the value next
determined following receipt. Initial Purchase Payments made by wire transfer
not accompanied by simultaneous FAXED Application, or accompanied by an
incomplete FAXED application, will be retained for a period up to five
business days while Western Reserve attempts to obtain the FAXED Application
or complete the essential information required to establish the Contract and
allocate the initial Purchase Payment at the Accumulation Unit Value which
will be determined after receipt of the FAXED Application or information
necessary to complete the application. If Western Reserve cannot obtain the
FAXED Application or essential information within five business days, Western
Reserve will return the initial Purchase Payment to the applicant, unless the
applicant consents to allow Western Reserve to retain the initial Purchase
Payment until the required FAXED Application or essential information is
received. When the FAXED Application contains all information necessary to
issue the Contract and allocate the Net Purchase Payment, but the FAXED
Application has not been signed by the Owner, Western Reserve will issue the
Contract and allocate the Net Purchase Payment as indicated in the FAXED
Application. At the same time, Western Reserve will also electronically
prepare a new application form, containing the same information received on
the FAXED Application, for delivery with the Contract to the Owner. Upon
delivery, the Owner will sign the electronically prepared application, which
will be retained by Western Reserve.
In the event the original application with original signature is later
received and the allocation instructions in that application are, for any
reason, inconsistent with those previously designated on the FAXED
Application, the initial Purchase Payment will be reallocated in accordance
with the allocation instructions in the application with original signature
at the Accumulation Unit Value next determined after receipt of such
application.
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<PAGE>
Owners wishing to make payments via bank wire should instruct their banks to
wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention: Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any reason
permitted by law.
NET PURCHASE PAYMENTS
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "Premium Taxes," page 14.) Initial and subsequent Net Purchase
Payments are allocated according to the Owner's direction among the
Sub-Accounts of the Series Account, to the Fixed Account, or to a combination
of both. (For Contracts issued in the State of Washington, the Fixed Account
is not available for allocation of Net Purchase Payments.) The Owner, or the
registered representative/agent of record for the Contract upon instructions
from the Owner, may change the allocation of subsequent Purchase Payments at
any time upon written notice to Western Reserve, 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. Western Reserve reserves the right to limit such change
to once each Contract Year. Upon allocation to the Series Account, Net
Purchase Payments are converted into units of the appropriate Sub-Account
based upon the Accumulation Unit Value in that Sub-Account on or following
the Valuation Date on which the Purchase Payment is received at Western
Reserve's Administrative Office. (See "Accumulation Unit Value" on this
page.) If the Contract application and other information necessary for
processing the request to apply the Purchase Payment (collectively
"application") are complete upon receipt, Western Reserve will accept the
application and apply the initial Net Purchase Payment within two business
days of receipt. If it is incomplete, Western Reserve will attempt to have it
properly completed within five business days of receipt, and if unable to do
so, Western Reserve will inform the prospective purchaser of the reasons that
the application is incomplete and request that the prospective purchaser
consent to Western Reserve retaining the Purchase Payment until the
application is properly completed. If such consent is not obtained, Western
Reserve will immediately return the entire Purchase Payment. Once the
application is complete, Western Reserve will accept it and apply the initial
Net Purchase Payment within two business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the close of a Valuation Period is determined by
multiplying the Accumulation Unit Value for that Sub-Account at the close of
the immediately preceding Valuation Period by the experience factor for that
Sub-Account for the current Valuation Period. The Accumulation Unit Value may
increase, decrease, or remain the same from Valuation Period to Valuation
Period.
EXPERIENCE FACTOR
During the Accumulation Period, the experience factor measures investment
experience for a Valuation Period. Each Sub-Account has its own distinct
experience factor. In calculating a Sub-Account's experience factor for a
Valuation Period, the net asset value for each share of the corresponding
Portfolio of the Fund at the end of the current Valuation Period is increased
by the amount per portfolio share of any dividend or capital gain
distribution received by the Portfolio during the current Valuation Period
and decreased by a per portfolio share charge for any applicable taxes. The
total is then divided by the net asset value per portfolio share at the end
of the preceding Valuation Period. A charge equal to 1.10% on an annual basis
of the net assets for each day in the Valuation Period is then subtracted to
compensate Western Reserve for certain mortality and expense risks and a
charge equal to 0.15% on an annual basis of the net assets for each day in
the Valuation Period is also subtracted to compensate Western Reserve for
certain administrative expenses. (See "CHARGES AND DEDUCTIONS--Mortality and
Expense Risk Charge" on page 13 and "--Administrative Charge" on page 13.)
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated
to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account
or the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any transfer charges.
PORTFOLIO SHARE NET ASSET VALUE. 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.
TRANSFERS TO AND FROM, AND AMONG ALLOCATION OPTIONS
Before the Maturity Date, the Owner may, at any time, transfer amounts among
Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts issued
in
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<PAGE>
the State of Washington, the Fixed Account is not available to receive
Annuity Value transferred from the Sub-Accounts.) Transfers may also be made
from the Fixed Account to the Sub-Accounts, subject to certain restrictions.
(See "THE FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on
page 27.) Transfers are not available if the Owner has elected Dollar Cost
Averaging, the Asset Rebalancing Program or Systematic Partial Withdrawals.
The amount 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 Administrative Office. As explained
in the previous paragraph, 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 Exchange (usually 4:00 p.m.,
Eastern time), which coincides with the end of each Valuation Period.
Therefore, any transfer request received after 4:00 p.m., Eastern time, on
any day the Exchange is open for business will be processed utilizing the net
asset value for each share of the applicable Portfolio determined as of 4:00
p.m., Eastern time, on the next day the Exchange is open for business.
The amount available for transfer from the Fixed Account will be determined
in the same manner. The registered representative/agent of record for the
Contract may, upon instructions from the Owner, make telephone transfers upon
request without the necessity for the Owner to have previously authorized
telephone transfers in writing. Written requests must be in a form acceptable
to Western Reserve. If, for any reason, an Owner does not want the ability to
make transfers by telephone, the Owner should provide written notice to
Western Reserve. All telephone transfers should be made by calling Western
Reserve at our toll-free number 1-800-851-9777.
Western Reserve will not be liable for complying with telephone instructions
it reasonably believes to be authentic, nor for any loss, damage, costs or
expense in acting on such telephone instructions, and Owners 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 Owners
and/or tape recording of telephone transfer request instructions received
from Owners. Western Reserve may, at any time, revoke or modify the transfer
privilege. Western Reserve ordinarily 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 Administrative
Office. Western Reserve currently imposes a $10 charge for each transfer
after the first twelve transfers during any Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 13.)
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to automatically transfer specified
amounts from the Money Market Sub-Account, the Bond Sub-Account, the
Short-to-Intermediate Government Sub-Account, the Fixed Account or any
combination of these Accounts on a monthly basis to any other Sub-Account.
This service is intended to allow the Owner to utilize "Dollar Cost
Averaging," a long-term investment method which provides for regular, level
investments over time. Western Reserve makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss. To qualify for
Dollar Cost Averaging, a minimum of $10,000 must be in each Account from
which transfers will be made and at least $1,000, in the aggregate, must be
transferred each month, unless Western Reserve consents to a smaller amount.
To further qualify for Dollar Cost Averaging from the Fixed Account, no more
than one-tenth (1/10) of the amount in the Fixed Account at the commencement
of Dollar Cost Averaging can be transferred each month. Other types of
transfers from the Fixed Account may also be subject to other certain
restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers and Partial
Withdrawals" on page 27.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Owner in order to begin transfers. The first
transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market, Bond, Short-to-Intermediate Government
Sub-Accounts or the Fixed Account will be processed monthly until the entire
value of each Account from which transfers are made is completely depleted or
the Owner 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 Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 13.) Western Reserve reserves the right
to discontinue offering Dollar Cost Averaging upon 30 days' written notice to
Owners. Dollar Cost Averaging is not available if the Owner has elected the
Asset Rebalancing Program or Systematic Partial Withdrawals.
ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which an Owner may authorize
Western Reserve to transfer automatically Annuity Value each quarter to
maintain a particular percentage allocation among the Sub-Accounts. The
Annuity Value allocated to each Sub-Account will grow or decline in value at
different rates. The Asset Rebalancing Program automatically reallocates the
Annuity Value in the Sub-Accounts at the end of each period to match the
Contract's currently effective Net Purchase Payment allocation schedule. The
Asset Rebalancing Program is
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intended to transfer Annuity 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 Annuity Value of $10,000 for an
existing Contract, or a minimum initial purchase payment of $10,000 for a new
Contract, is required. To participate in the Asset Rebalancing Program, a
properly completed Asset Rebalancing Request Form must be received by Western
Reserve at its Administrative Office. An Asset Rebalancing Request Form is
available upon request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Contract Date. Following receipt of the Asset
Rebalancing Request Form, Western Reserve will effect the initial rebalancing
of Annuity Value on the next such anniversary, in accordance with the
Contract's current Net Purchase Payment allocation schedule. The amounts
transferred will be credited at the Accumulation Unit Value as of the end of
the Valuation Dates on which 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 during the
Accumulation Period, and is not available if the Owner has elected Dollar
Cost Averaging or Systematic Partial Withdrawals. 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 Contract Year. (See "CHARGES AND DEDUCTIONS--Transfer
Charge" on page 13.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by verbal or written request to Western Reserve's Administrative
Office. 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 an Owner 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's Administrative
Office. Owners 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 Contract Year. Annuity
Value allocated to the Fixed Account may not be included in the Asset
Rebalancing Program.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
Although the Asset Rebalancing Program is not available as of the date of
this Prospectus, Western Reserve anticipates its availability by February 1,
1997.
PARTIAL WITHDRAWALS AND SURRENDERS
1. PARTIAL WITHDRAWALS. Prior to the earlier of the Maturity Date or the
death of the Annuitant (when no contingent Annuitant has been named), the
Owner may partially withdraw a portion of the Series Account Value upon
written request, complete with all necessary information, to Western
Reserve's Administrative Office. Although partial withdrawals are currently
permitted at any time prior to the Maturity Date, Western Reserve reserves
the right to refuse to permit any partial withdrawals prior to the first
Anniversary. No more than one partial withdrawal during any Contract Year is
permitted without the consent of Western Reserve. Unless Western Reserve
consents, no partial withdrawal is permitted if the Cash Value would be
reduced below $10,000. No partial withdrawals from the Fixed Account may be
made without the consent of Western Reserve. (See "THE FIXED
ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page 27.) All
requests for partial withdrawals are processed at the Accumulation Unit Value
for each Sub-Account next computed after receipt and acceptance of the
request by Western Reserve at its Administrative Office. Western Reserve will
cancel units equal to the amount requested from each Sub-Account, and an
amount equal to the Withdrawal Charge and any premium tax will also be
withdrawn in order for the Owner to receive the full amount requested. (See
"CHARGES AND DEDUCTIONS--Withdrawal Charge" on page 12 and "--Premium Taxes"
on page 13.) The Sub-Accounts for a partial withdrawal may be specified and
the amount requested to be withdrawn from each specified Sub-Account may not
exceed the value of that Sub-Account. If not specified, the amount requested
will be withdrawn on a pro rata basis from each Sub-Account.
2. SYSTEMATIC PARTIAL WITHDRAWALS. The Owner may elect in writing on a form
provided by Western Reserve to partially withdraw from the Series Account up
to 10% of the Cash Value annually (10% of the initial Purchase Payment if
elected at time of application for a Contract), in equal monthly payments
("Systematic Partial Withdrawals") of at least $200 per month. The first
withdrawal will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. If Systematic
Partial Withdrawals are elected at the time of application for a Contract, a
minimum initial Purchase Payment of at least $25,000 must accompany the
application, unless Western Reserve consents to a smaller amount. A
subsequent election is subject to the Contract then having a minimum of
$25,000 of Cash Value, unless Western Reserve consents to a smaller amount.
Western Reserve will pay the Systematic Partial Withdrawal amount requested
and cancel units equal to the amount withdrawn from the Sub-Accounts in the
same manner as the current Net Purchase Payment allocation instructions,
except no Systematic Partial Withdrawals are permitted from the Fixed
Account. The amount to be partially withdrawn from each Sub-Account may not
exceed the Cash Value of the Sub-Account. Western Reserve will not process a
Systematic Partial Withdrawal if the Cash Value for the entire Contract would
be reduced below $10,000.
Systematic Partial Withdrawals are not available if the Owner has elected
Dollar Cost Averaging or the Asset Rebalancing Program. Systematic Partial
Withdrawals may be discontinued by the Owner at any time by notifying Western
Reserve in writing. Western Reserve
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reserves the right to discontinue offering Systematic Partial Withdrawals
upon 30 days' written notice to Owners. Western Reserve also reserves the
right to assess a processing fee for this service. Generally, under a
Non-Qualified Contract, Systematic Partial Withdrawals, like other
distributions prior to the Maturity Date, are first treated as taxable income
to the extent that the Contract Value immediately before a withdrawal exceeds
the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable. Further, under a Non-Qualified Contract, a 10%
penalty tax will generally be imposed on the taxable portion of a Systematic
Partial Withdrawal made prior to the Owner's age 59-1/2, unless certain
exceptions apply. The Owner should, therefore, consult with his or her tax
advisor before requesting any Systematic Partial Withdrawals. (See "FEDERAL
TAX MATTERS--Taxation of Annuities" on pages 23-24.)
3. SURRENDERS. The Owner may completely surrender the Contract at any time
prior to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct from the Surrender proceeds the $30
Annual Contract Charge, any applicable premium taxes, and any applicable
Withdrawal Charge.
4. PARTIAL WITHDRAWALS AND SURRENDERS. The amount of any partial withdrawal
or Surrender will be paid promptly, and in any event within seven days of
receipt of the request, complete with all necessary information at Western
Reserve's Administrative Office, except that Western Reserve reserves the
right to defer the right of partial withdrawal or Surrender under certain
circumstances. (See "OTHER MATTERS RELATING TO THE CONTRACT--Contract
Payments" on page 22.) Under Non-Qualified Contracts, Western Reserve will
withhold from each partial withdrawal, systematic partial withdrawal or
Surrender for tax purposes the minimum amount required by law, unless the
Owner affirmatively elects, before payments begin, to have either nothing
withheld or a different amount withheld. When Western Reserve incurs
extraordinary charges, such as wire transfers or overnight mail expenses, for
expediting delivery of a partial withdrawal or Surrender payment to a
Contract Owner, Western Reserve will deduct such charges from the payment.
The current charge for a wire transfer is $15. The current charge for
overnight delivery is $20. For the protection of Owners, all requests for
partial withdrawals or Surrenders of more than $100,000, or where the partial
withdrawal or surrender proceeds are to be sent to an address other than the
address of record, will require a signature guarantee. All required
guarantees of signatures must be made by a national or state bank, a member
firm of a national stock exchange or any other institution which is an
eligible guarantor institution as defined by rules and regulations of the
SEC. If the Owner 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. Partial withdrawals and Surrenders may be subject to tax including
a penalty tax. (See "FEDERAL TAX MATTERS--Taxation of Annuities" on pages
23-24.) For certain Qualified Contracts, a partial withdrawal may require the
consent of the Owner's spouse under the Code and the regulations promulgated
thereunder by the Treasury Department (the "Treasury Regulations"). (See
"FEDERAL TAX MATTERS--Oualified Plans" on pages 24-25.) For Qualified
Contracts issued under Code Section 403(b) and Contracts issued under the
Texas Optional Retirement Program, certain restrictions will apply. (See
"FEDERAL TAX MATTERS--Qualified Plans" on pages 24-25.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the
Accumulation Period, (1) Owners of Contracts used in connection with a Tax
Sheltered Annuity Plan ("TSA Plan") under Section 403(b) of the Code, if the
TSA Plan is not subject to the Employee Retirement Income Security Act of
1974, and (2) Owners of Contracts purchased by a pension, profit-sharing, or
other similar plan qualified under Section 401(a) of the Code (a "401 Plan"),
including a Section 401(k) plan, where a plan trustee is the Owner, may elect
a Contract loan endorsement under which the Owner can receive Contract loans.
The availability of Contract loans will also be governed by the provisions of
the TSA Plans or 401 Plans involved. An Owner of a Contract used in
connection with a TSA Plan or 401 Plan may be subject to income tax or tax
penalties if loans from the plan are not repaid in accordance with applicable
provisions of the Code. In addition, Internal Revenue Service authorities
suggest that a Contract loan may, at least in certain circumstances, result
in adverse tax consequences for the TSA Plan or 401 Plan. Accordingly, a
competent tax advisor should be consulted before a Contract loan is
requested.
If the Contract loan endorsement is available, the Owner can borrow against
the Contract an amount which may not exceed the lesser of (1) 50% of the Cash
Value or (2) $50,000 reduced by the highest outstanding loan balance during
the 1-year period ending on the day before the loan date (determined below).
However, if the Cash Value is less than $20,000, the Owner may borrow against
the Contract the lesser of (1) 80% of the Cash Value or (2) $10,000. In all
events, the minimum amount that can be borrowed is $1,000. The Owner has the
sole responsibility for requesting loans and making loan repayments that
comply with applicable tax requirements.
When a loan is made, an amount equal to the loan will be withdrawn from the
Sub-Accounts specified by the Owner and transferred to the loan reserve. The
loan reserve is part of the Fixed Account used as collateral for any Contract
loan. If no Sub-Accounts are specified, the loan will be made from each
Sub-Account in accordance with the Owner's current Purchase Payment
allocation. Amounts transferred to the loan reserve do not participate in the
investment experience of the Sub-Accounts from which they were withdrawn.
All loan requests are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the loan request by
Western Reserve at its Administrative Office. The loan date is the date
Western Reserve processes the loan request. Under its
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current procedures, Western Reserve does not charge a fee to cover loan
processing and expenses associated with establishment and administration of
the loan reserve. However, Western Reserve reserves the right to charge such
a fee or change it from time to time. The Contract will be the sole security
for the loan. Western Reserve reserves the right to limit the number of loans
an Owner may make during a Contract Year.
On each Contract Anniversary, Western Reserve will compare the amount of the
outstanding loan to the amount in the loan reserve. Western Reserve will also
make this comparison whenever the Owner repays all or part of the loan. At
each such time, if the amount of the outstanding loan (plus any unpaid
interest) exceeds the amount in the loan reserve, Western Reserve will
withdraw the difference from the Contract's Sub-Accounts and transfer it to
the loan reserve, in the same fashion 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 Sub-Accounts in accordance with the Owner's current payment allocation.
However, Western Reserve reserves the right to require the transfer to the
Fixed Account if the amount was transferred from the Fixed Account to
establish the loan.
If the Contract loan at any time exceeds the Cash Value of the Contract,
Western Reserve will mail a notice to the last known address of the Owner and
any assignee of record. If the excess amount is not paid within 31 days after
mailing of the notice, the Contract will terminate without value.
LOAN INTEREST. Interest on any loan will be at the Contract loan annual rate
of 6% in arrears unless, under a 401 Plan, a higher rate is requested by the
Owner in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed
effective annual interest rate of 4% per year. Western Reserve may declare
from time to time higher current interest rates. Different current interest
rates may be applied to the Fixed Account attributable to the loan reserve
than to the rest of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in substantially
level quarterly or monthly payments over a 5-year period or, if the loan is
used to acquire the Owner's principal residence, a 10, 15, or 20-year period,
but such an extended period cannot go beyond the year the Owner attains age
70-1/2. If a loan installment repayment is not received within 31 days from
the installment's original due date, a deemed distribution of the entire
amount of the outstanding loan principal, interest due, and any applicable
charges under the Contract including any Withdrawal Charge, will take place.
Under a TSA Plan, this distribution may be subject to income tax and a
penalty tax, and may cause the Contract to fail to qualify under Section
403(b) of the Code. (See "FEDERAL TAX MATTERS--Qualified Plans," page 24.).
While the Contract is In Force and during the Accumulation Period, any loan
may be repaid in full. IF NOT REPAID, LOANS WILL AUTOMATICALLY REDUCE THE
AMOUNT OF ANY DEATH BENEFIT PROCEEDS, THE AMOUNT PAYABLE UPON A PARTIAL
WITHDRAWAL OR SURRENDER OF THE CONTRACT AND THE AMOUNT APPLIED ON THE
MATURITY DATE TO PROVIDE ANNUITY PAYMENTS.
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. GENERAL
If the Annuitant dies during the Accumulation Period and the Owner is a natural
person other than the Annuitant, the Owner will automatically become the new
Annuitant, the Contract will continue In Force and no death benefit will be
payable to the Beneficiary. If the Annuitant dies during the Accumulation Period
and the Owner is either the same individual as the Annuitant or other than a
natural person, Western Reserve will pay the death benefit proceeds to the
Beneficiary in a lump sum upon receipt of due proof of death, unless a written
Alternative Election, as described below, is made.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
If the Annuitant dies during the Accumulation Period and prior to the sixth
Contract Year and the Owner is either the same person as the Annuitant or
other than a natural person, the death benefit proceeds, if payable, will be
the greater of: (i) the Annuity Value as of the date Western Reserve receives
due proof of death and a written election as to the method of payment, as
described above; or (ii) the excess of (a) the amount of Purchase Payments
paid less (b) any amounts partially withdrawn from the Contract to pay for
partial withdrawals, increased by 5% on each Contract Anniversary prior to
the Owner's age 80 (Annuitant's age 80 if the Owner is not a natural person),
up to an amount not to exceed 200% of the Purchase Payments less partial
withdrawals.
If the Annuitant dies during the Accumulation Period and after the fifth
Contract Year and the Owner is either the same person as the Annuitant or
other than a natural person, the death benefit proceeds, if payable, will be
the greatest of: (i) the Annuity Value as of the date Western Reserve
receives due proof of death and a written election as to the method of
payment, as described above; or (ii) the excess of (a) the amount of Purchase
Payments paid less (b) any amounts partially withdrawn from the Contract to
pay for partial withdrawals, increased by 5% on each Contract Anniversary
prior to the Owner's age 80 (Annuitant's age 80 if the Owner is not a natural
person), up to an amount not to exceed 200% of the Purchase Payments less
partial withdrawals; or (iii) the Annuity Value as of the fifth Contract
Anniversary, less any amounts partially withdrawn from the Contract after the
fifth Contract Year to pay for partial withdrawals. In certain states, the
calculation of death benefit proceeds under item (iii) may vary. The Contract
should be consulted for details.
The Insurance Department of Pennsylvania has disapproved for Contracts issued
in Pennsylvania that portion of item (ii) of the death benefit provision
described in the two preceding paragraphs, which increases the death benefit
payable by 5% on each Contract Anniversary, as contrary to Pennsylvania
Insurance Laws. Therefore, for Contracts issued in Pennsylvania, when the
amount of death benefit payable under the Contract is the excess of (a) the
amount of Purchase Payments paid less (b) any amounts partially withdrawn
from the Contract to pay for partial withdrawals, such amount of death
benefit will not be increased by 5% on each Contract Anniversary.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit
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proceeds as in 2. above, and is the spouse of the deceased Annuitant, then
the Beneficiary may elect to become the new Owner and Annuitant and keep the
Contract In Force in lieu of receiving the death benefit proceeds. If the
Beneficiary is not the spouse of the deceased Annuitant and is entitled to
receive the death benefit proceeds, the Beneficiary may elect, in lieu of a
lump sum payment, one of the following options that provide for complete
distribution of the death benefit proceeds and termination of the Contract:
(i) within five years of the date of such Annuitant's death; (ii) over the
lifetime of the Beneficiary; or (iii) over a period that does not exceed the
life expectancy of such Beneficiary, as defined by the Code and the Treasury
Regulations. Options (ii) and (iii) may be elected only if the Beneficiary is
a natural person and payments start within one year of the date of the
Annuitant's death. (For a more detailed explanation of these requirements,
see "FEDERAL TAX MATTERS--Additional Considerations" on page 25.) Multiple
Beneficiaries may choose individually among any of the three options.
Under options (i) and (iii) above, the Annuity Value as of the date Western
Reserve receives due proof of death and a written election as to the method
of payment, if any, will be adjusted to equal the death benefit proceeds, as
described below, and the Contract will remain In Force as a deferred annuity
until the end of the elected distribution period. Under option (i) above,
Western Reserve will:
/bullet/ Allow the Beneficiary, at the time of electing (i), to make a
partial withdrawal. Further partial withdraw-als during the
duration of the five-year period are not permitted;
/bullet/ Allow the Beneficiary, at the time of electing (i), to make
"one-time" transfer of Contract values among Sub-Accounts and to
the Fixed Account, and trans-fers from the Fixed Account to the
Sub-Accounts;
/bullet/ Not deduct the Annual Contract Charge during the duration of the
five-year period;
/bullet/ Not apply the Withdrawal Charge in the event of a partial
withdrawal upon election of (i), or upon a total distribution of
all Contract values during or at the end of the five-year period;
/bullet/ Not allow annuitization during or at the end of the five-year
period. Distribution of all Contract values will be made in a lump
sum;
/bullet/ In the event of the death of the Beneficiary prior to the end of
the five-year period, pay remaining Contract value, according to
its value at the time of payment, to the Beneficiary's estate,
unless a Contingent Beneficiary has been named by the Owner, in
which event payment will be made to the Contingent Beneficiary.
The Beneficiary is NOT entitled to name his or her own beneficiary
of the Contract's value.
For option (ii), the Maturity Date will be changed to the date Western
Reserve receives due proof of death and a written election as to the method
of payment, if any, and the death benefit proceeds will be used to purchase
annuity payments under the annuity provisions of the Contract. (See "ANNUITY
PROVISIONS" page 20.)
4. DEATH OF AN OWNER WHO IS NOT AN ANNUITANT
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Successor Owner has been named or, if named, is no longer alive,
the Owner's estate will become the new Owner. The Cash Value must be
distributed within five years of the former Owner's death; or
(b) If a Successor Owner has been named, is alive and is the Owner's spouse,
the Contract will continue with the spouse as the new Owner; or
(c) If a Successor Owner has been named, is alive and is not the Owner's
spouse, the Successor Owner will become the new Owner. The Cash Value must be
distributed either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person, with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year of the
former Owner's death.
5. QUALIFIED CONTRACTS
If a Qualified Contract is issued to a retirement plan, similar provisions
will apply upon the death of the plan participant. However, the required
distribution rules are more complex in the case of a Qualified Contract held
by a plan. Plan participants should consult a qualified pension or tax
advisor concerning the operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-Qualified Contracts and Qualified
Contracts, the Anniversary nearest the Annuitant's Attained Age 90. However,
the Owner may change the Maturity Date at any time prior to the Maturity Date
by written request. Any new Maturity Date must be at least five years after
the Contract Date, and the Attained Age of the Annuitant as of the new
Maturity Date cannot be greater than 90. After the Maturity Date, no
additional purchase payments, partial withdrawals, transfers, full
Surrenders, or change of Annuitants or annuity options may be made under the
Contract. The Qualified Contract is designed for use with several types of
qualified plans. A tax advisor should be consulted about the use of a
Qualified Contract with qualified plans, including the specified minimum
distribution rules applicable to such plans.
Annuity Payments will be paid under Option D (described on page 22), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
Thirty days prior to the Maturity Date, Western Reserve will mail to the
Owner a notice and a form upon which the Owner can select Allocation Options
for the Annuity Proceeds as of the Maturity Date, which cannot be changed
thereafter and will remain in effect until the Contract terminates. If a
Series Account annuity option is chosen, the Owner must include in the
written
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notice the Sub-Account allocation of the Annuity Proceeds as of the Maturity
Date. If Western Reserve does not receive that form or other written notice
acceptable to Western Reserve prior to the Maturity Date, the Contract's
existing Allocation Options will remain in effect until the Contract
terminates. The Owner may also, prior to the Maturity Date, select or change
the frequency of annuity payments, which may be monthly, quarterly,
semi-annually or annually, provided that the annuity option and payment
frequency provides for payments of at least $100 per period. If none of these
is possible, a lump sum payment will be made.
The Owner may select one of the Fixed Account annuity options or Series
Account annuity options described below or any alternate form of settlement
acceptable to Western Reserve. Treasury Regulations may preclude the
availability of certain annuity options in connection with certain Qualified
Contracts.
Fixed Account annuity options provide equal periodic (monthly, quarterly,
semi-annual or annual) payments of a specific amount that Western Reserve
guarantees will not change. The amount of the periodic annuity payment will
be based on the Annuity Proceeds on the Maturity Date, the annuity option
selected (I.E., the form and duration of payments), the age of the Annuitant
or Beneficiary (or ages of co-annuitants), the sex of the Annuitant (except
for certain Qualified Contracts), and the applicable annuity rate shown in
the Contract (or a more favorable current rate available under the Contracts
on the Maturity Date). The annuity rates shown in the Contract are based on
the Society of Actuaries 1983 Table A with projection and an assumed
investment rate of 3%. Western Reserve may in its sole discretion increase
the amount of a payment or payments once payments begin.
Series Account annuity options (I.E., variable annuity options) are similar
to fixed annuity options except that the amount of each periodic payment
after the first will vary to reflect the net investment experience of the
Sub-Accounts selected by the Owner. The amount of the first annuity payment
is determined in the manner described in the Statement of Additional
Information for a Series Account annuity option. Under a Series Account
annuity option, the Owner applies the Annuity Proceeds to one or more of the
sixteen Sub-Accounts designated to support annuity payments by purchasing
units issued in connection with one or more of these Sub-Accounts. The number
of units purchased is equal to the amount of the first annuity payment
allocated to a particular Sub-Account divided by the Annuity Unit Value for
that Sub-Account on the Maturity Date. The number of units of a particular
Sub-Account supporting payments to an Annuitant never changes, but the second
and subsequent payments will vary with the Annuity Unit Value because each
payment will equal the number of units in each selected Sub-Account
multiplied by the Annuity Unit Value of that Sub-Account on the date the
payment is processed. Annuity Proceeds allocated to Series Account annuity
options are subject to a daily Mortality and Expense Risk Charge of 1.25% per
annum and a daily Administrative Charge of 0.15% per annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity
payments, is first calculated in the same manner as the Accumulation Unit
Value corresponding to the same Fund Portfolio would be calculated (see "THE
CONTRACT--ACCUMULATION PROVISIONS," page 14) (except that the Mortality and
Expense Risk Charge is at an annual rate of 1.25% of the average daily net
assets of the Series Account), and then is adjusted to reflect a 5% assumed
investment return. The adjustment results in the Annuity Unit Value
increasing to the extent that the net investment factor increases at greater
than an annual rate of 6.4%. It results in the Annuity Unit Value decreasing
to the extent that the net investment factor decreases or increases at less
than an annual rate of 6.4%. Consequently, if, for a monthly periodic
payment, the net investment experience of a Sub-Account for a given month
exceeds an annual rate of 6.4%, the monthly payment from that Sub-Account
will be greater than the previous payment. Likewise, if the net investment
experience for that month is less than an annual rate of 6.4%, the payment
will be less than the previous payment.
FIXED ACCOUNT ANNUITY OPTIONS
The following options are available for payment of fixed account monthly
annuity payments.
OPTION A--FIXED INSTALLMENTS. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
OPTION B--LIFE INCOME. The Annuity Proceeds will be paid in equal
installments: (1) during the lifetime of the Annuitant only ("Life Annuity");
(2) during a 10 year fixed period certain and for the remaining lifetime of
the Annuitant ("Certain Period"); or (3) until the sum of installments paid
equals the Annuity Proceeds applied and for the remaining life of the
Annuitant ("Installment Refund").
OPTION C--JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be paid
during the joint lifetimes of the Annuitant and a designated Co-Annuitant and
will continue upon the death of the first payee for the remaining lifetime of
the survivor.
SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds
will be used to purchase units of the Sub-Accounts selected by the Owner. The
following Series Account annuity options are available:
OPTION D--VARIABLE LIFE INCOME. The Annuity Proceeds will be paid in
installments determined in accordance with the table set forth in the
Contract. Such installments are payable (1) during the payee's lifetime only
("Variable Life Annuity"); or (2) during a 10 year fixed period certain and
for the payee's remaining lifetime ("Variable Certain Period").
OPTION E--VARIABLE JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will
be paid in installments during the joint lifetime of two payees and
continuing upon the death of the first payee for the remaining lifetime of
the survivor.
DEATH BENEFITS AFTER THE MATURITY DATE
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If
a payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as
rapidly as under the method of
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distribution being used as of the date of the payee's death. (For additional
information about death benefit payments under the Contract, See
"ACCUMULATION PROVISIONS--Death Benefits during the Accumulation Period" on
page 19.)
IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the
Maturity Date, it is offering annuity contracts of the same type and class as
the Contract with more favorable rates than those contained in the Contract's
income tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If
required by law to ignore differences in sex of any payee, annuity payments
will be determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase
Payment pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and
obtain a refund equal to the sum of: (1) the Purchase Payments received; plus
(or minus) (2) the accumulated gains (or losses), if any, in the Series
Account for the Contract as of the date Western Reserve receives the returned
Contract. Certain states require a Free-Look Period longer than ten days,
either for all Contract Owners or for certain classes of Contract Owners. The
Owner bears the investment risk during the Free-Look Period. Certain states
require Western Reserve to refund the Purchase Payment, which may be greater
or less than the amount computed above. In these states, Western Reserve
bears the investment risk during the Free-Look Period. The specific terms
applicable to a particular Contract will be set forth in the "Right to
Examine Contract" provision of that Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner
elects otherwise. Western Reserve reserves the right to suspend or postpone
the right of partial withdrawal and Surrender or postpone the date of payment
for any period: (1) 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 SEC; (2) the SEC by order permits
postponement for the protection of Owners; or (3) an emergency exists, as
determined by the SEC, as a result of which valuation or disposal of
securities is not reasonably practicable. Transfers may also be postponed
under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the
Contract Schedule Page or as subsequently named. These rights may be subject
to the consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of
the Owner prior to the death of the Annuitant. (See "THE
CONTRACT--ACCUMULATION PROVISIONS--Death Benefits during the Accumulation
Period - 2. Death of an Owner Who is not an Annuitant," on page 19.)
With regard to Non-Qualified Contracts, ownership of the Contract may be
changed or the Contract collaterally assigned at any time during the lifetime
of the Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 23-24.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve.
Western Reserve assumes no liability for any payments made or actions taken
before a change is accepted and shall not be responsible for the validity or
effect of any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior
designation of Successor Owner, but it does not change the Beneficiary or
Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may
be assigned, but only to the extent permitted by the Code and the terms of
the underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. Prior to
the Maturity Date, if the Owner is a natural person and upon agreement with
Western Reserve, the Owner may elect a different Annuitant. As of the
Maturity Date, and upon agreement with Western Reserve, the Owner may elect a
different Annuitant or, if either annuity Option C or Option E has been
selected, add a joint annuitant. On the Maturity Date, the Annuitant(s) will
become the payee(s) and receive the annuity payments.
BENEFICIARY
The Beneficiary is the person or persons named in the application or as
subsequently changed. The Beneficiary may be changed during the lifetime of
the Annuitant, subject to the rights of any irrevocable Beneficiary. Any
change must be made in writing and received at Western Reserve's
Administrative Office and, if accepted, will be effective as of the date on
which signed by the Owner. Western Reserve assumes no liability for any
payments made or actions taken before the change is received and
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shall not be responsible for the validity or effect of the change. Prior to
the Maturity Date, if no Beneficiary survives the Annuitant, the Owner, if
living, or the Owner's estate will be the Beneficiary. The interest of any
Beneficiary is subject to that of any assignee. In the case of certain
Qualified Contracts, the Treasury Regulations prescribe certain limitations
on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the
contrary, no Beneficiary may assign any payments under the Contract before
such payments are due. To the extent permitted by law, no payments under the
Contract will be subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. Only
statements in the application can be used to void the Contract or defend a
claim. The statements are considered representations and not warranties. No
Contract provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provision of the Contract.
The Contract may not be modified by Western Reserve without the consent of
the Owner, except as may be required to make it conform to any law or
regulation or ruling issued by a governmental agency or to improve the rights
and/or benefits under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans, regardless of whether the plans qualify
for special Federal income tax treatment. The ultimate effect of Federal
income taxes on the amounts held under a Contract, on annuity payments, and
on the economic benefits to the Owner, Annuitant or Beneficiary depends on
Western Reserve's tax status, on the type of retirement plan for which the
Contract is purchased, and upon the tax and employment status of the
individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion is based upon Western Reserve's understanding of the Federal
income tax laws as they are currently interpreted. Western Reserve makes no
representations regarding the likelihood of continuation of the Federal
income tax laws, the Treasury Regulations, or the current interpretations by
the Internal Revenue Service (the "Service"). For a discussion of Federal
income taxes as they relate to the Fund, please see the accompanying
Prospectus for the Portfolios.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of
Subchapter L of the Code. Because the Series Account is not an entity
separate from Western Reserve and its operations form a part of Western
Reserve, it will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. Investment income and realized capital gains
on the assets of the Series Account are reinvested and taken into account in
determining the Annuity Value. Western Reserve believes that under existing
Federal income tax law, the Series Account's investment income, including
realized net capital gains, will not be taxed to Western Reserve. Based upon
this belief, it is anticipated that no charges will be made against the
Series Account for Federal income tax. If any such charge is made, a
Contract's Annuity Value will reflect a deduction for the charge. Western
Reserve reserves the right to make a deduction from the assets of the Series
Account should any tax or other economic burden resulting from the
application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. IN GENERAL. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is not a natural
person must include in income any increase in the excess of the Contract's
Annuity Value over the investment in the Contract during the taxable year.
However, there are some exceptions to this exception and you may wish to
discuss these with your tax counsel. The taxable portion of a distribution
(in the form of an annuity or lump sum payment) is generally taxed as
ordinary income. For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the Annuity Value generally will be treated
as a distribution.
2. PARTIAL WITHDRAWALS AND SURRENDERS. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract (other than a Qualified Contract used
in a retirement plan that qualifies for special Federal income tax treatment
under section 457 of the Code as to which there are special rules), a ratable
portion of the amount received is taxable, generally based on the ratio of
the investment in the Contract to the total Annuity Value. The "investment in
the contract" generally equals the portion, if any, of any Purchase Payments
paid by or on behalf of an individual under a Contract which is not excluded
from the individual's gross income. For Contracts issued in connection with
qualified plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial
Withdrawal, or Surrender under a Non-Qualified Contract before the Maturity
Date, amounts received are first treated as taxable income to the extent that
the Annuity Value immediately before the partial withdrawal, Systematic
Partial Withdrawal, or Surrender exceeds the "investment in the contract" at
that time. Any additional amount partially withdrawn, applied to a Systematic
Partial Withdrawal, or Surrender is not taxable. In the event of a partial
withdrawal or Systematic Partial Withdrawal from, or Surrender of, a
Non-Qualified Contract, Western Reserve will withhold for tax purposes the
minimum
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amount required by law, unless the Owner affirmatively elects, before
payments begin, to have either nothing withheld or a different amount
withheld.
3. ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of
the Annuity Payment that represents the amount by which the Annuity Value
exceeds the "investment in the contract" will be taxed; after the "investment
in the contract" is recovered, the full amount of any additional Annuity
Payments is taxable. For variable annuity payments, the taxable portion is
generally determined by an equation that establishes a specific dollar amount
of each payment that is not taxed. The dollar amount is determined by
dividing the "investment in the contract" by the total number of expected
periodic payments. However, the entire distribution will be taxable once the
recipient has recovered the dollar amount of his or her "investment in the
contract." For Fixed Annuity Payments, in general, there is no tax on the
portion of each payment which represents the same ratio that the "investment
in the contract" bears to the total expected value of the Annuity Payments
for the term of the payments; however, the remainder of each Annuity Payment
is taxable until the recovery of the "investment in the contract", and
thereafter the full amount or each Annuity Payment is taxable. If death
occurs before full recovery of the "investment in the contract", the
unrecovered amount may be deducted on the Annuitant's final tax return.
4. PENALTY TAX ON CERTAIN DISTRIBUTIONS. In the case of a distribution
pursuant to a Non-Qualified Contract, a penalty tax may be imposed equal to
10% of the amount treated as taxable income. The penalty tax is not imposed
in certain circumstances, including, generally, distributions: (1 ) made on
or after the date on which the Owner attains age 59-1/2, (2) made as a
result of death of the Owner or disability of the taxpayer, or (3) received
in substantially equal installments as a life annuity. Other tax penalties
may apply to certain distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
Surrender of the Contract, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as Annuity Payments, as
described above.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts entered
into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as
one annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the
Treasury may conclude that it would be appropriate to aggregate two or more
annuity contracts purchased by the same owner. Accordingly, an Owner should
consult a competent tax advisor before purchasing more than one Contract or
other annuity contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership
or assignment of a Contract, the designation of an Annuitant or other
Beneficiary who is not also the Owner, or a change of Annuitant, may result
in certain income or gift tax consequences to the Owner that are beyond the
scope of this discussion. An Owner contemplating any such transfer,
assignment or change should contact a competent tax advisor in respect to the
potential tax effects of such a transaction.
8. POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
that would have adversely modified the Federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of
this Prospectus Congress is not considering any legislation regarding the
taxation of annuities, there is always the possibility that the tax treatment
of annuities could change by legislation or other means (such as the IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be effective prior to the date of the change.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries
in such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be
available for certain types of contributions and distributions (including
special rules for certain lump sum distributions). Adverse tax consequences
may result from contributions in excess of specified limits, distributions
prior to age 59-1/2 (subject to certain exceptions), distributions that do
not conform to specified minimum distribution rules, aggregate distributions
in excess of a specified annual amount, and in certain other circumstances.
Therefore, Western Reserve makes no attempt to provide more than general
information about use of the Contract with the various types of qualified
plans. Owners and participants under qualified plans as well as Annuitants
and Beneficiaries are cautioned that the rights of any person to any benefits
under qualified plans may be subject to the terms and conditions of the plan
themselves, regardless of the terms and conditions of the Contract issued in
connection therewith, Some retirement plans are subject to distribution and
other requirements that are not incorporated into our Contract administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Purchasers of Contracts
for use with any qualified plan should seek competent legal and tax advice
regarding the suitability of the Contract therefor.
1. (A) SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made
by public school systems and certain tax exempt organizations to purchase
annuity policies for their employees are excludable from the gross income of
the employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of
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the Code, Section 403(b) annuities generally may not permit distribution of
(i) elective contributions made in years beginning after December 31, 1988,
and (ii) earnings on those contributions, and (iii) earnings on amounts
attributed to elective contributions held as of the end of the last year
beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59-1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
(B) RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAMS. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program (ORP) to withdraw their interest in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be
redeemed.
(C) RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect
to the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
2. INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA". Individual
Retirement Annuities are subject to limitation on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into an IRA on a tax deferred basis. The Service has not reviewed the
Contract for qualification as an IRA, and has not addressed in a ruling of
general applicability whether a death benefit provision such as the provision
in the Contract comports with IRA qualification requirements.
3. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section
401(a) and 403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees and permit self-employed individuals
to establish qualified plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contracts to provide benefits
under the plans. These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax or
other legal consequences to the plan, to the participant or to both may
result if this Contract is assigned or transferred to any individual as a
means to provide benefit payments.
4. DEFERRED COMPENSATION PLANS. Section 457 of the Code, although not
actually providing for a qualified plan as that term is normally used,
provides for certain deferred compensation plans with respect to service for
state governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with
such plans. Under such plans, a participant may specify the form of
investment in which his or her participation will be made. All such
investments, however, are owned by, and are subject to, the claims of the
general creditors of the sponsoring employer. Depending on the terms of the
particular plan, the employer may be entitled to draw on deferred amounts for
purposes unrelated to its section 457 plan obligations. In general, all
amounts received under a section 457 plan are taxable and are subject to
federal income tax withholding as wages.
5. DISTRIBUTIONS FROM QUALIFIED PLANS. Under the tax qualification rules for
Section 401(a), 403(b), 408 and 457 plans, distributions generally must
commence no later than April 1 of the calendar year following the calendar
year in which the Owner (or plan participant) reaches age 70-1/2, and must
be made in a specified form and manner. Special rules and other restrictions
may apply depending on the type of plan and the particular circumstances.
Each Owner is responsible for requesting distributions under the Contract
that satisfy applicable tax rules, and should consult a qualified tax
advisor.
The above description of Federal income tax consequences pertaining to the
different types of qualified plans that may be funded by the Contracts is
only a brief summary and is not intended as tax advice. The rules governing
the provisions of qualified plans are extremely complex and often difficult
to comprehend. In addition, the Tax Reform Act has significantly changed a
great many rules for qualified plans. Anything less than full compliance with
the applicable rules, all of which are subject to change, may have
significant adverse tax consequences. A prospective purchaser considering the
purchase of a Contract in connection with a qualified plan should first
consult a qualified and competent tax advisor with regard to the suitability
of the Contract as an investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the investments
of the Series Account must be "adequately diversified" in accordance with
Treasury Regulations in order for the Contracts to qualify as annuity
contracts under Section 72 of the Code. 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 the Series Account will, thus, meet the
diversification requirements of Section 817(h). If the Series Account does
not meet those diversification requirements, Owners would be taxed currently
on any investment income under the Contract.
In certain circumstances, owners of variable annuity con-tracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. The Treasury Department has
stated in published rulings that a variable annuity contract owner will be
considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations
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concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (I.E., the
contract owner), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement further states that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts
without being treated as owners of the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, the owner of a Contract has the choice of more sub-accounts in
which to allocate net purchase payments and Contract values, and may be able
to transfer among sub-accounts more frequently than in such rulings. These
differences could result in an Owner being treated as the owner 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 Contract as necessary to attempt to prevent
an Owner from being considered the owner of a pro rata share of the assets of
the Series Account.
2. DISTRIBUTION-AT-DEATH RULES. The Code also requires Non-Qualified
Contracts to contain specific provisions for distribution of the Contract
proceeds upon the death of the Owner. In order to be treated as an annuity
contract for Federal income tax purposes, the Code requires that such
Contract provide that (a) if any Owner dies on or after the Maturity Date and
before the entire interest in the Contract has been distributed, the
remaining portion must be distributed at least as rapidly as under the method
in effect on the Owner's death; and (b) if any Owner dies before the Maturity
Date, the entire interest in the Contract must generally be distributed
within five years after the Owner's date of death. These requirements will be
considered satisfied if the entire interest of the Contract is used to
purchase an immediate annuity under which payments will begin within one year
of the Owner's death and will be made for the life of the Beneficiary or for
a period not extending beyond the life expectancy of the Beneficiary. The
Owner's Beneficiary is the person to whom ownership of the Contract passes
because of death and must be a natural person. (In the Contract, the
successor owner is the Owner's Beneficiary.) If the Beneficiary is the
Owner's surviving spouse, the Contract may be continued with the surviving
spouse as the new Owner. Non-Qualified Contracts will be reviewed and
modified if necessary to attempt to assure that they comply with the Code
requirements when clarified by regulation or otherwise. Other rules may apply
to Qualified Contracts.
3. WITHHOLDING. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring
withholding. Effective January 1, 1993, certain distributions from Section
401(a), 403(a) and 403(b) plans are subject to mandatory withholding.
4. SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain
or loss shall be recognized on the exchange of one annuity contract for
another. If the surrendered Contract was issued prior to August 14, 1982, the
tax rules that formerly provided that the Surrender was taxable only to the
extent the amount received exceeds the Owner's investment in the Contract
will continue to apply to amounts allocable to investment in the Contract
before August 14, 1982. In contrast, Contracts issued on or after January 19,
1985 in a Code Section 1035 exchange are treated as new Contracts for
purposes of the penalty and distribution-at-death rules. Special rules and
procedures apply to Code Section 1035 transactions. Prospective purchasers
wishing to take advantage of Code Section 1035 should consult their tax
advisors.
5. DIVERSIFICATION AND QUALIFIED PLANS. Code Section 817(h) applies to
variable annuity contracts other than pension plan contracts. The regulations
reiterate that the diversification requirements do not apply to pension plan
contracts. All of the qualified retirement plans (described above) are
defined as pension plan contracts for these purposes. Notwithstanding the
exception of Qualified Contracts from application of the diversification
rules, the investment vehicle for Western Reserve's Qualified Contracts
(I.E., the Fund) will be structured to comply with the diversification
standards because it serves as the investment vehicle for Non-Qualified
Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the State of Washington has disapproved, for
Contracts issued in Washington, the ability both to allocate Net Purchase
Payments to the Fixed Account and to transfer Annuity Value from Sub-Accounts
to the Fixed Account. Because of exemptive and exclusionary provisions,
interests in the Fixed Account have not been registered under the Securities
Act of 1933 and neither the Fixed Account nor the general account has been
registered as an investment company under the 1940 Act. Accordingly, neither
the Fixed Account, the general account nor any interests therein are
generally subject to the provisions of these acts, and Western Reserve has
been advised that the staff of the SEC has not reviewed the disclosure in
this Prospectus relating to the Fixed Account. Disclosure 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 Annuity 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
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investment gain or loss on this amount. All assets in the general account are
subject to Western Reserve's general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value 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 with different current interest
rates.
Western Reserve further guarantees that when a higher or lower current
interest rate is declared on an allocation to the Fixed Account Value, that
new interest rate will be guaranteed on such allocation for at least a one
year period measured from the date of each Purchase Payment or transfer (the
"Guarantee Period"). At the end of the Guarantee Period, Western Reserve
reserves the right to declare a new current interest rate on such allocation
and accrued interest thereon (which may be a different current interest rate
than the current interest rate on new allocations to the Fixed Account Value
on that date). The rate declared on such allocation and accrued interest
thereon at the end of each Guarantee Period will be guaranteed again for
another Guarantee Period. At the end of any Guarantee Period, any interest
credited on the Fixed Account Value in excess of the minimum guaranteed rate
of 4% per year will be determined in the sole discretion of Western Reserve.
The Owner assumes the risk that interest credited may not exceed the
guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
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.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase 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 withdrawn from the Fixed Account to pay for partial
withdrawals; minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
transfer charges, if any.
ALLOCATIONS, TRANSFERS AND PARTIAL WITHDRAWALS
Net Purchase 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
Administrative Office, except that any allocation of the initial Net Purchase
Payment will take place on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each
Contract Year. The amount that may be transferred is the greater of (a) 25%
of the amount in the Fixed Account, or (b) the amount transferred in the
prior Contract Year from the Fixed Account, unless Western Reserve consents
otherwise. No transfer charge will apply to transfers from the Fixed Account
to a Sub-Account. Amounts may be withdrawn from the Fixed Account for partial
withdrawals and Surrenders only upon written request and (other than for
Surrenders) only with Western Reserve's consent. Western Reserve further
reserves the right to defer payment of transfers, partial withdrawals, or
Surrenders from the Fixed Account for up to six months. In addition, Contract
provisions relating to transfers, partial withdrawals or Surrenders from the
Series Account will also apply to the Fixed Account. Dollar Cost Averaging
may be done from the Fixed Account. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Transfers to and from, and among Allocation Options" on page 16.)
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by individuals who, in addition to being licensed
as life insurance agents for Western Reserve, are also registered
representatives of InterSecurities, Inc., which has the same address as
Western Reserve, an affiliate of Western Reserve and the principal
underwriter of the Contracts, or of broker-dealers who have entered into
written sales agreements with the principal underwriter. InterSecurities,
Inc. is registered with the SEC under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. No
amounts have been retained by lntersecurities, Inc. for acting as principal
underwriter for the Contracts. Broker-dealers will generally receive sales
commissions of up to 5% of Purchase Payments. In addition, certain
production, persistency and managerial bonuses may be paid. Subject to
applicable Federal and state laws and regulations, Western Reserve may also
pay compensation to banks and other financial institutions for their services
in connection with the sale and servicing of the Contracts. The level of such
compensation will not exceed that paid to broker-dealers for their sale of
the Contracts. The offering of Contracts will be made on a continuing basis.
VOTING RIGHTS
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
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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 that an Owner has the right to instruct will be
calculated separately for each Sub-Account, and will be determined during the
Accumulation Period by dividing the portion of the Annuity Value in that
Sub-Account by $100. Fractional shares will be counted. After the Maturity
Date, the number of votes that an Annuitant has the right to instruct will be
calculated based on the liability for future variable annuity payments. This
liability will be calculated on the basis of the mortality assumptions used
in determining the number of units purchased by the Annuitant. Because this
liability generally declines as any Annuitant ages, the number of votes
attributable to that Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the
right to instruct will be determined as of 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 that are not attributable to Owners in proportion to
the voting instructions that are received with respect to all Contracts
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.
LEGAL PROCEEDINGS
There are at present 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.
InterSecurities, Inc., the Series Account's principal underwriter, is not
presently a party to any legal proceedings that are likely to have a material
adverse effect upon its ability to perform its contract with the Series
Account.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 34618-9051; telephone number (800) 851-9777.
WRL05024-01/97
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