WRL
FREEDOM
WEALTH
CREATORSM
Flexible Payment
Variable Accumulation
Deferred Annuity
Contract
PROSPECTUS DATED
July 22, 1997
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 Wealth CreatorSM Variable Annuity
(the "Contract"), a tax deferred variable annuity contract issued by Western
Reserve Life 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 fifteen 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
fifteen investment portfolios of the Fund are: the Aggressive Growth Portfolio,
Emerging Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced
Portfolio, Strategic Total Return Portfolio, Bond Portfolio, Growth & Income
Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio, Value
Equity Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio,
International Equity Portfolio and U.S. Equity Portfolio.
This Prospectus sets forth information about the Contract that a prospective
investor should know before investing. Additional information about the Series
Account has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated July 22, 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 of this
Prospectus.
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
CALCULATION OF YIELDS AND TOTAL RETURNS .............................. 6
OTHER PERFORMANCE DATA ................................................ 7
PUBLISHED RATINGS ...................................................... 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ..................... 9
/bullet/ Western Reserve Life Assurance Co. of Ohio .................. 9
/bullet/ WRL Series Annuity Account ................................. 9
/bullet/ WRL Series Fund, Inc ....................................... 9
CHARGES AND DEDUCTIONS ................................................ 10
/bullet/ Withdrawal Charge .......................................... 10
/bullet/ Transfer Charge ............................................. 11
/bullet/ Change in Purchase Payment Allocation Fee .................. 11
/bullet/ Mortality and Expense Risk Charge ........................... 11
/bullet/ Annual Contract Charge .................................... 12
/bullet/ Premium Taxes ............................................. 12
/bullet/ Deductions for Other Taxes ................................. 12
/bullet/ Expenses of the Fund ....................................... 12
THE CONTRACT ......................................................... 12
ACCUMULATION PROVISIONS ................................................ 12
/bullet/ Purchase Payments .......................................... 12
/bullet/ Net Purchase Payments ....................................... 13
/bullet/ Accumulation Unit Value .................................... 14
/bullet/ Computing Sub-Account Value ................................. 14
/bullet/ Transfers to and from, and among Allocation Options ......... 14
/bullet/ Dollar Cost Averaging ....................................... 15
/bullet/ Asset Rebalancing Program ................................. 15
/bullet/ Partial Withdrawals and Surrenders ........................ 16
/bullet/ Contract Loans For 401(a), 401(k), and 403(b) Contracts ... 17
/bullet/ Death Benefits during the Accumulation Period ............... 18
ANNUITY PROVISIONS ................................................... 19
/bullet/ Maturity Date and Selection of Annuity Options ............ 19
/bullet/ Fixed Account Annuity Options .............................. 20
/bullet/ Series Account Annuity Options .............................. 21
/bullet/ Death Benefits after the Maturity Date ..................... 21
/bullet/ Improved Annuity Rates .................................... 21
/bullet/ Proof of Age, Sex, and Survival ........................... 21
OTHER MATTERS RELATING TO THE CONTRACT ................................. 21
/bullet/ Changes in Purchase Payments .............................. 21
/bullet/ Right To Examine Contract ................................. 21
/bullet/ Contract Payments .......................................... 21
/bullet/ Ownership ................................................ 21
/bullet/ Annuitant ................................................... 22
/bullet/ Beneficiary ................................................ 22
/bullet/ Modification or Waiver .................................... 22
FEDERAL TAX MATTERS ................................................... 22
/bullet/ Introduction ................................................ 22
/bullet/ Company Tax Status .......................................... 22
/bullet/ Taxation of Annuities ....................................... 22
/bullet/ Qualified Plans ............................................. 24
/bullet/ Additional Considerations ................................. 25
</TABLE>
(i)
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
Page
------
<S> <C>
THE FIXED ACCOUNT ............................................. 26
/bullet/ Minimum Guaranteed and Current Interest Rates ...... 26
/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
APPENDIX A--Condensed Financial Information ..................... A-1
</TABLE>
(ii)
<PAGE>
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<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
VALUE Accumulation Period.
ADMINISTRATIVE OFFICE Western Reserve's administrative office for variable annuity products, the address
of which is P.O. Box 9051, Clearwater, Florida 34618-5068. Telephone number:
1-800-851-9777; Fax number:1-813-588-1620.
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
BENEFICIARY new 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 PAYMENT The Purchase Payment less any applicable premium taxes.
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 owner-
ship is made at a later time.
PORTFOLIO A separate investment portfolio of the Fund.
</TABLE>
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
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
SEPARATE ACCOUNT) Sub-Accounts 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 12 and "--Annuity Provisions"
on page 19.) (For information about tax status, see "FEDERAL TAX MATTERS" on
pages 22-26.)
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 21.)
THE FUND
The underlying variable investments for the Contracts are shares of several of
the Portfolios of the Fund, namely: the Aggressive Growth Portfolio, Emerging
Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio,
Money Market Portfolio, Tactical Asset Allocation Portfolio, Value Equity
Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio, International
Equity Portfolio and 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 9.)
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 12.)
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 $5,000. (See "THE
CONTRACT--Partial Withdrawals and Surrenders" on page 16.) 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 pages 24-25.)
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 seven years of
its payment. 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 charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF MONTHS
FROM DATE OF RECEIPT OF
CHARGE EACH PURCHASE PAYMENT
- -------- ------------------------
<S> <C>
8% 12 or less
7% 13 through 24
6% 25 through 36
5% 37 through 48
4% 49 through 60
3% 61 through 72
2% 73 through 84
0% 85 or more
</TABLE>
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 is 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 10.)
3
<PAGE>
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 22.)
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western Reserve
imposes a 1.40% per annum charge against all Annuity Value held in the Series
Account. This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. Western Reserve currently
intends to reduce this charge to 1.25% after the first seven Contract Years.
However, such reduction is not guaranteed, and Western Reserve reserves the
right to maintain this charge at the 1.40% level after the first seven Contract
Years. (See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on page
11.)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $35 is deducted annually on the Anniversary. (See
"CHARGES AND DEDUCTIONS--Annual Contract Charge", page 12.)
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 12.)
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 9 and
the Prospectus for the Fund.) TOTAL FUND ANNUAL EXPENSES FOR THE GLOBAL SECTOR
PORTFOLIO EXCEED 2.00%.
OTHER CONTRACTS
Western Reserve offers other variable annuity contracts which also invest in
the same Portfolios of the Fund. These contracts may have different charges
that could affect Sub-Account performance, and may offer different benefits
more suitable to your needs. To obtain more information about these contracts,
contact your agent, or call (800) 851-9777.
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.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases ......... None
Maximum Withdrawal Charge
(as a % of each Purchase Payment
surrendered or partially withdrawn within
7 years of receipt) ..................... 8%
Transfer Charge
On one transfer per Contract Month, or
the first 12 transfers each year ...... None
On each transfer thereafter ............ $25.00
Change in Purchase Payment Allocation Fee
One change in allocation per
Contract quarter ..................... None
Each change thereafter .................. $25.00
ANNUAL CONTRACT CHARGE* .................. $35.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average Series Account value)
Mortality and Expense Risk Charge ...... 1.40%
Total Separate Account Annual Expenses ... 1.40%
</TABLE>
- --------------------------------------------------------------------------------
Fund Annual Expenses** (as a % of Fund average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- -----------
<S> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.18% 0.14% 0.08%
Total Fund Annual Expenses ............ 0.98% 0.94% 0.88%
<CAPTION>
U.S. INTERNATIONAL
GLOBAL BALANCED EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO*** PORTFOLIO***
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80% 1.00%
Other Expenses (after reimbursement) ... 0.19% 0.17% 0.25% 0.30%
Total Fund Annual Expenses ............ 0.99% 0.97% 1.05% 1.30%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
TOTAL GROWTH & MONEY
BOND RETURN INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Management Fees .................. 0.50% 0.80% 0.75% 0.40%
Other Expenses
(after reimbursement) ......... 0.14% 0.11% 0.25% 0.12%
Total Fund Annual Expenses ...... 0.64% 0.91% 1.00% 0.52%
<CAPTION>
TACTICAL
ASSET VALUE C.A.S.E. GLOBAL
ALLOCATION EQUITY GROWTH SECTOR
PORTFOLIO PORTFOLIO*** PORTFOLIO PORTFOLIO***
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Management Fees .................. 0.80% 0.80% 0.80% 1.10%
Other Expenses
(after reimbursement) ......... 0.10% 0.20% 0.20% 1.27%
Total Fund Annual Expenses ...... 0.90% 1.00% 1.00% 2.37%
</TABLE>
- --------------
* Deduction of the Annual Contract Charge is currently waived when the sum of
all Net Purchase Payments received, minus all partial withdrawals, exceeds
$50,000 as of the Contract Anniversary for which the charge is payable.
** Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant
to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the
Plan, has entered into a Distribution Agreement with InterSecurities, Inc.
("ISI"), principal underwriter for the Fund. Under the Distribution Plan,
the Fund, on behalf of the Portfolios, is authorized to pay to various
service providers, as direct payment for expenses incurred in connection
with the distribution of a Portfolio's shares, amounts equal to actual
expenses associated with distributing a Portfolio's shares, up to a maximum
rate of 0.15% (fifteen one-hundredths of one percent) on an annualized
basis of the average daily net assets. This fee is measured and accrued
daily and paid monthly. ISI has determined that it will not seek payment by
the Fund of distribution expenses incurred with respect to any Portfolio
during the fiscal year ending December 31, 1997. Prior to ISI's seeking
reimbursement, Policyowners will be notified in advance.
*** Because the Value Equity and Global Sector Portfolios commenced operations
on May 1, 1996, the percentages set forth as "Other Expenses" and "Total
Fund Annual Expenses" are annualized. Because the International Equity and
U.S. Equity Portfolios commenced operations on January 2, 1997, the
percentages set forth as "Other Expenses" and "Total Fund Annual Expenses"
are estimates.
4
<PAGE>
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, 1996, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the Value Equity and
Global Sector Portfolios are annualized and the "Other Expenses" and "Total
Fund Annual Expenses" for the International Equity and U.S. Equity Portfolios
are estimates. Expenses of the Fund may be higher or lower in the future.
Certain states and other governmental entities may impose a premium tax, which
the Table does not include. For more information on the charges described in
this Table, see "CHARGES AND DEDUCTIONS" on page 10 and the Fund prospectus
which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30, 1998,
to pay Fund expenses on behalf of the Portfolios to the extent normal operating
expenses of a Portfolio exceed a stated percentage of the Portfolio's average
daily net assets, 0.70% for the Bond and Money Market Portfolios; 1.00% for the
Aggressive Growth, Emerging Growth, Growth, Global, Balanced, Strategic Total
Return, Growth & Income, Tactical Asset Allocation, Value Equity, C.A.S.E.
Growth Portfolios; 1.50% for the International Equity Portfolio; and 1.30% for
the U.S. Equity Portfolio. No expense limit applies to the Global Sector
Portfolio. In 1996, Western Reserve, the Fund's Investment Adviser prior to
January 1, 1997, reimbursed the Value Equity Portfolio in the amount of $13,672
and the C.A.S.E. Growth Portfolio in the amount of $73,269. Without such
reimbursement, the total annual Fund expenses during 1996 for the Value Equity
Portfolio and the C.A.S.E. Growth Portfolio would have been 1.03% and 1.64%,
respectively. See the Fund's prospectus for a description of the expense
limitation applicable to each Portfolio.
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 ............... $105 $137 $172 $282
Emerging Growth Sub-Account ............... 105 136 170 278
Growth Sub-Account ........................ 104 134 167 272
Global Sub-Account ........................ 105 138 173 283
Balanced Sub-Account ........................ 105 137 172 281
Strategic Total Return Sub-Account ......... 104 135 169 275
Bond Sub-Account ........................... 102 127 155 248
Growth & Income Sub-Account ............... 105 138 173 284
Money Market Sub-Account .................. 101 124 149 235
Tactical Asset Allocation Sub-Account ...... 104 135 168 274
Value Equity Sub-Account .................. 105 138 173 284
C.A.S.E. Growth Sub-Account ............... 105 138 173 284
Global Sector Sub-Account .................. 119 178 239 410
International Equity Sub-Account ............ 108 147 N/A N/A
U.S. Equity Sub-Account ..................... 106 139 N/A N/A
</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>
1YEAR 3 YEARS 5 YEARS 10 YEARS
------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $25 $ 77 $132 $282
Emerging Growth Sub-Account ............... 25 76 130 278
Growth Sub-Account ........................ 24 74 127 272
Global Sub-Account ........................ 25 78 133 283
Balanced Sub-Account ........................ 25 77 132 281
Strategic Total Return Sub-Account ......... 24 75 129 275
Bond Sub-Account ........................... 22 67 115 248
Growth & Income Sub-Account ............... 25 78 133 284
Money Market Sub-Account .................. 21 64 109 235
Tactical Asset Allocation Sub-Account ...... 24 75 128 274
Value Equity Sub-Account .................. 25 78 133 284
C.A.S.E. Growth Sub-Account ............... 25 78 133 284
Global Sector Sub-Account .................. 39 118 199 410
International Equity Sub-Account ............ 28 87 N/A N/A
U.S. Equity Sub-Account ..................... 26 79 N/A N/A
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $35 ANNUAL CONTRACT CHARGE BASED ON AN
ESTIMATED AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $33,268, WHICH CONVERTS
THAT CHARGE TO AN ANNUAL RATE OF 0.10% OF THE SERIES ACCOUNT VALUE.
5
<PAGE>
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.
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 18 and
"ANNUITY PROVISIONS--Death Benefits after the Maturity Date" on page 21.)
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 19.)
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 14.) One transfer per Contract Month, or twelve transfers per Contract
Year, are permitted without charge. Each additional transfer will be subject to
a transfer charge of $25. Currently, Western Reserve only charges the transfer
charge after twelve transfers per Contract Year. This charge will not be
increased. Certain restrictions apply to transfers from the Fixed Account. (See
"ACCUMULATION PROVISIONS--Transfers to and from, and among Allocation Options"
on page 14 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
A table that contains the accumulation unit value history of the Sub-Accounts
is presented in Appendix A--Condensed Financial Information.
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, 1996, the current yield and effective yield
for the Money Market Sub-Account were as follows:
Current Yield = 3.66%
Effective Yield = 3.73%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Account"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Account 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, 1996, the yield for the Bond Sub-Account
was 4.12%.
6
<PAGE>
TOTAL RETURN
The average annual total return of the Sub-Accounts shown below is based upon
the actual historical performance of the Sub-Accounts. The calculations
represent the performance of a hypothetical initial Purchase Payment of $1,000
over certain stated periods of time. Total return is calculated according to
the formula provided in the Statement of Additional Information.
THE STANDARD TOTAL RETURN CALCULATIONS IN THE TABLE BELOW HAVE BEEN REDUCED BY
ALL FEES AND CHARGES UNDER THE CONTRACT. Such fees and charges include the
Mortality and Expense Risk Charge of 1.40%, and the $35 Annual Contract Charge
based on an average Series Account Value of $33,268, which translates into an
annual charge of 0.10%. The total return calculations in the table below also
assume a complete surrender of the Contract at the end of the period, and
therefore THE WITHDRAWAL CHARGE IS DEDUCTED.
THE STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUB-ACCOUNTS SINCE THE
INCEPTION OF EACH SUB-ACCOUNT IS:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
------------------------------------------
ONE THREE FIVE FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS INCEPTION DATE
- ---------------------- ---------- ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth ............... 8.16% 13.50% N/A 11.28% 12/3/92
Bond ............... -9.38% 1.17% N/A 4.37% 12/3/92
Money Market ......... -4.47% 1.20% N/A 1.38% 12/3/92
Global ............... 17.76% 13.09% N/A 18.32% 12/3/92
Emerging Growth ...... 9.04% 14.10% N/A 17.37% 3/1/93
Strategic Total
Return ............ 5.25% 9.23% N/A 10.60% 3/1/93
Aggressive Growth..... 0.76% N/A N/A 11.90% 3/1/94
Balanced ............ 1.06% N/A N/A 4.44% 3/1/94
Growth & Income ...... 1.96% N/A N/A 7.01% 3/1/94
Tactical Asset
Allocation ......... 4.70% N/A N/A 12.04% 1/3/95
C.A.S.E. Growth ...... N/A N/A N/A -0.34% 5/1/96
Value Equity ......... N/A N/A N/A 4.06% 5/1/96
Global Sector ...... N/A N/A N/A -2.98% 5/1/96
</TABLE>
Because the International Equity and U.S. Equity Sub-Accounts had not yet
commenced operations as of December 31, 1996, no performance information is
provided for these Sub-Accounts.
OTHER PERFORMANCE DATA
Western Reserve may present the total return data shown above on a non-standard
basis. This means that the data will not be reduced by all the fees and charges
under the Contract and that the data may be presented for different time
periods and for different Purchase Payment amounts. NON-STANDARD PERFORMANCE
DATA WILL ONLY BE DISCLOSED IF STANDARD PERFORMANCE DATA FOR THE REQUIRED
PERIODS IS ALSO DISCLOSED.
Western Reserve may also disclose cumulative total returns and yields for the
Sub-Accounts based on the inception date of the Sub-Accounts. These
calculations will be determined according to the formulas presented in the
Statement of Additional Information.
In addition, Western Reserve may present historic performance data for the
Portfolios since their inception reduced by some or all of the fees and charges
under the Contract. Such adjusted historic performance includes data that
precedes the inception dates of the Sub-Accounts This data is designed to show
the performance that would have resulted if the Contract had been in existence
during that time.
For instance, as shown in the table below, Western Reserve may disclose average
annual total returns for the Portfolios reduced by all fees and charges under
the Contract, as if the Contract had been in existence. Such fees and charges
include the Mortality and Expense Risk Charge of 1.40%, the $35 Annual Contract
Charge (based on an average Series Account Value of $33,268, the Annual
Contract Charge is translated into an annual charge of 0.10%), and Withdrawal
Charges. Such data assumes a complete surrender of the Contract at the end of
the period; THEREFORE THE WITHDRAWAL CHARGE IS DEDUCTED.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL THE FEES AND CHARGES UNDER THE CONTRACT ARE:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- ---------------------- ---------- ----------- ------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth*** ............ 8.16% 13.50% 8.64% 16.20% 15.89% 10/2/86*
Bond*** ............ -9.38% 1.17% 4.36% 5.78% 6.01% 10/2/86*
Money Market***....... -4.47% 1.20% 1.50% 3.41% 3.40% 10/2/86*
Global ............... 17.76% 13.09% N/A N/A 18.32% 12/3/92**
Emerging
Growth ............ 9.04% 14.10% N/A N/A 17.37% 3/1/93**
Strategic Total
Return ............ 5.25% 9.23% N/A N/A 10.60% 3/1/93**
Aggressive
Growth ............ 0.76% N/A N/A N/A 11.90% 3/1/94**
Balanced ............ 1.06% N/A N/A N/A 4.44% 3/1/94**
Growth &
Income ............ 1.96% N/A N/A N/A 7.01% 3/1/94**
Tactical Asset
Allocation ......... 4.70% N/A N/A N/A 12.04% 1/3/95**
C.A.S.E. Growth....... 7.73% N/A N/A N/A 13.37% 5/1/95*
Value Equity ......... N/A N/A N/A N/A 4.06% 5/1/96**
Global Sector ...... N/A N/A N/A N/A -2.98% 5/1/96**
</TABLE>
- --------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
*** The calculation of total return performance for the Growth, Bond and Money
Market Sub-Accounts prior to December 3, 1992 reflects deductions for the
mortality and expense risk charge 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 that would have resulted if the
Sub-Accounts had actually been in existence since the inception of the
Portfolio.
In addition, as shown in the next table, Western Reserve may present average
annual total returns for the Portfolios reduced by all fees and charges under
the Contract, as if the Contract had been in existence, EXCEPT THAT THE
WITHDRAWAL CHARGE IS NOT DEDUCTED. Such fees and charges include the Mortality
and Expense Risk Charge of 1.40%, and the $35 Annual Contract Charge (based on
an
7
<PAGE>
average Series Account Value of $33,268, the Annual Contract Charge is
translated into an annual charge of 0.10%.)
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION REDUCED
BY ALL FEES AND CHARGES UNDER THE CONTRACT EXCEPT THE WITHDRAWAL CHARGE ARE:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- ---------------------- ----------- -------- ------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth ............... 16.16% 15.03% 9.44% 16.20% 15.89% 10/2/86*
Bond ............... -1.38% 3.08% 5.16% 5.78% 6.01% 10/2/86*
Money Market ......... 3.53% 3.12% 2.30% 3.41% 3.40% 10/2/86*
Global ............... 25.76% 14.63% N/A N/A 19.04% 12/3/92**
Emerging
Growth ............ 17.04% 15.62% N/A N/A 18.35% 3/1/93**
Strategic Total
Return ............ 13.25% 10.88% N/A N/A 11.75% 3/1/93**
Aggressive
Growth ............ 8.76% N/A N/A N/A 13.88% 3/1/94**
Balanced ............ 9.06% N/A N/A N/A 6.67% 3/1/94**
Growth &
Income ............ 9.96% N/A N/A N/A 9.15% 3/1/94**
Tactical Asset
Allocation ......... 12.70% N/A N/A N/A 15.57% 1/3/95**
C.A.S.E. Growth....... 15.73% N/A N/A N/A 21.37% 5/1/95*
Value Equity ......... N/A N/A N/A N/A 12.06% 5/1/96**
Global Sector ...... N/A N/A N/A N/A 5.02% 5/1/96**
</TABLE>
- --------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
Because the International Equity and U.S. Equity Sub-Accounts had not commenced
operations as of December 31, 1996, no performance information is provided for
these Sub-Accounts.
SUB-ADVISER PERFORMANCE
The Prospectus for the Fund presents the total returns of certain existing
SEC-registered funds that are managed by Sub-Advisers for the Portfolios and
that have investment objectives, policies, and strategies substantially similar
to those of certain Portfolios ("Similar Sub-Adviser Funds"). NONE OF THE FEES
AND CHARGES UNDER THE CONTRACT HAVE BEEN DEDUCTED FROM SUCH SUB-ADVISER
PERFORMANCE DATA. IF THOSE FEES AND CHARGES WERE DEDUCTED, THE INVESTMENT
RETURNS WOULD BE LOWER. THE SIMILAR SUB-ADVISER FUNDS ARE NOT AVAILABLE FOR
INVESTMENT UNDER THE CONTRACT. For more information on Sub-Adviser Performance,
see the Prospectus for the Fund.
OTHER INFORMATION
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 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, Financial Times (FT) World Index
Ex-USA, 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).
8
<PAGE>
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 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-one Sub-Accounts, fifteen
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-one Portfolios, fifteen of which are offered
under this Contract: the Aggressive Growth Portfolio, Emerging Growth
Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic
Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio, Money Market
Portfolio, Tactical Asset Allocation Portfolio, 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 name and sub-adviser for each Portfolio is stated below. THERE IS NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT OBJECTIVE. More
detailed information, including a description of risks and the investment
objective of each Portfolio, can be found in the Prospectus for the Fund, which
should be read carefully before investing.
AGGRESSIVE GROWTH PORTFOLIO: Sub-Adviser -- Fred Alger Management, Inc.
EMERGING GROWTH PORTFOLIO: Sub-Adviser -- Van Kampen American Capital Asset
Management, Inc.
GROWTH PORTFOLIO: Sub-Adviser -- Janus Capital Corporation.
GLOBAL PORTFOLIO: Sub-Adviser -- Janus Capital Corporation.
9
<PAGE>
BALANCED PORTFOLIO: Sub-Adviser -- AEGON USA Investment Management, Inc.
STRATEGIC TOTAL RETURN PORTFOLIO: Sub Adviser -- Luther King Capital Management
Corporation.
BOND PORTFOLIO: Sub-Adviser -- Janus Capital Corporation.
GROWTH & INCOME PORTFOLIO: Sub-Adviser -- Federated Investment Counseling.
MONEY MARKET PORTFOLIO: Sub-Adviser -- J.P. Morgan Investment Management Inc.
TACTICAL ASSET ALLOCATION PORTFOLIO: Sub-Adviser -- Dean Investment Associates.
VALUE EQUITY PORTFOLIO: Sub-Adviser -- NWQ Investment Management Company, Inc.
C.A.S.E. GROWTH PORTFOLIO: Sub-Adviser -- C.A.S.E. Management, Inc.
GLOBAL SECTOR PORTFOLIO: Sub-Adviser -- Meridian Investment Management
Corporation.
INTERNATIONAL EQUITY PORTFOLIO: Co-Sub-Advisers -- Scottish Equitable
Investment Management Limited and GE Investment Management Incorporated.
U.S. EQUITY PORTFOLIO: Sub-Adviser -- GE Investment Management Incorporated.
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.
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 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
16) 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
10
<PAGE>
charge is a percentage of each respective Purchase Payment partially withdrawn
or surrendered within seven years of its payment. The charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF MONTHS FROM
DATE OF RECEIPT OF EACH
WITHDRAWAL CHARGE PURCHASE PAYMENT
- ------------------- ------------------------
<S> <C>
8% ............... 12 or Less
7% ............... 13 through 24
6% ............... 25 through 36
5% ............... 37 through 48
4% ............... 49 through 60
3% ............... 61 through 72
2% ............... 73 through 84
0% ............... 85 or more
</TABLE>
For Contracts issued with an appropriate endorsement, if the Owner or a joint
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 imposed to enable Western Reserve to recover sales
expenses it advances, including compensation to broker-dealers, the cost of
printing prospectuses and sales literature and any advertising costs. The
Withdrawal Charge is deducted from the Annuity Value by cancelling the number
of Accumulation 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 full 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 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 $107.53, and the Withdrawal Charge would be $7.53 (which is
7% of $107.53). 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 pages 22-24 and "--Qualified Plans" on pages
24-25.)
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, full-time employees and registered representatives of ISI, 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
Each transfer of Annuity Value among the Sub-Accounts and the Fixed Account
exceeding one transfer per Contract Month, or twelve transfers per Contract
Year, will be subject to a Transfer Charge of $25. The Transfer Charge 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. The Transfer Charge will not be increased.
CHANGE IN PURCHASE PAYMENT ALLOCATION FEE
During the Accumulation Period, the Owner may allocate a percentage of the Net
Purchase Payment to one or more Sub-Accounts, to the Fixed Account, or to a
combination of both. Western Reserve reserves the right to limit any allocation
to any Sub-Account or the Fixed Account to no less than 10% of each Net
Purchase Payment. No fractional percentages are permitted. The Owner may change
the allocation of future Net Purchase Payments among the Sub-Accounts and the
Fixed Account at any time. Western Reserve will charge a fee of $25 for each
change of allocation in excess of one per Contract quarter.
MORTALITY AND EXPENSE RISK CHARGE
Western Reserve will deduct a daily Mortality and Expense Risk Charge from the
Series Account at an annual rate of 1.40% of the average daily net assets of
the Series Account. Western Reserve currently intends to reduce this charge to
1.25% after the first seven Contract Years. However, such reduction is not
guaranteed, and Western Reserve reserves the right to maintain this charge at
the 1.40% level after the first seven Contract Years. 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
11
<PAGE>
Contract's Cash Value. (See "ANNUITY PROVISIONS--Improved Annuity Rates" on
page 21 and "ACCUMULATION PROVISIONS--Death Benefits during the Accumulation
Period" on page 18.) 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.
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 and
Annual Contract Charge of $35 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 $35 fee will be deducted.
Deduction of the Annual Contract Charge is currently waived when the sum of all
Net Purchase Payments received, minus all partial withdrawals, exceeds $50,000
as of the Contract Anniversary for which the Annual Contract Charge is payable.
Western Reserve reserves the right to discontinue such waiver at any time and
to assess the Annual Contract Charge as it becomes payable.
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 group, 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.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax,
ranging up to 3.5% of Purchase 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 legislatures,
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 22.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of the
Series Account will reflect the investment management fee and other expenses
incurred by the Portfolios, as described in the Fund's Prospectus.
Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan,
has entered into a Distribution Agreement with ISI, principal underwriter for
the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-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 incurred with respect to any
Portfolio during the fiscal year ending December 31, 1997. Prior to ISI's
seeking reimbursement, Policyowners will be notified in advance.
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
12
<PAGE>
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.
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 12.) 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. Western Reserve reserves the right to limit any allocation to any
account to no less than 10% of each Net Purchase Payment. No fractional
percentages are permitted. The Owner may change the allocation of future Net
Purchase Payments among the Sub-Accounts and the Fixed Account at any time.
Western Reserve will charge a fee of $25 for each change of allocation in
excess of one per Contract quarter. The request for a change in allocation must
be in a form satisfactory to Western Reserve. The change in allocation is
effective on the date the request for change is recorded by Western Reserve.
(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" below.) 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
13
<PAGE>
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 end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund
Portfolio owned by the Sub-Account times the Portfolio's net asset value
per share; minus
2. The accrued daily percentage for the Mortality and Expense Risk Charge
multiplied by the net assets of the Sub-Account; minus
3. The accrued amount of reserve for any taxes that are determined by Western
Reserve to have resulted from the investment operations of the
Sub-Account; divided by
4. The number of outstanding units in the Sub-Account.
The Mortality and Expense Risk Charge is deducted at an annual rate of 1.40%
from the net assets during each day in the Valuation Period and compensates
Western Reserve for certain mortality and expense risks. (See "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge" on page 11.) The Accumulation
Unit Value may increase, decrease, or remain the same from Valuation Period to
Valuation Period.
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 Charge.
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 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. Owners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the 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. 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
the toll-free number 1-800-851-9777.
Western Reserve will not be liable for complying with telephone instructions it
reasonably believes to be authentic, nor for any loss, damage, 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
14
<PAGE>
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
$25 charge for when any transfer of Annuity Value exceeds one transfer per
Contract Month, or twelve transfers per Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 11.)
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Owners to conduct
transfers on a Policyowner's behalf, or who provide recommendations as to how
Sub-Account values should be allocated. This includes, but is not limited to,
transferring Sub-Account values among Sub-Accounts in accordance with various
investment allocation strategies such third party may employ. Such independent
third parties may or may not be appointed Western Reserve agents for the sale
of Contracts. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO
OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS
OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY
HAVE WITH WESTERN RESERVE FOR THE SALE OF CONTRACTS. WESTERN RESERVE THEREFORE
TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED
ON AN OWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
an Owner any additional fees for providing these support services. Western
Reserve reserves the right to discontinue providing administrative and support
services for Owners utilizing independent third parties who provide investment
allocation and transfer recommendations.
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to transfer automatically specified
amounts from the Money Market Sub-Account, the Bond Sub-Account, the Fixed
Account or any combination of these Accounts on a monthly basis to 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 $5,000 must be allocated to
each Account from which transfers will be made and at least $1,000, in the
aggregate, must be transferred each month, unless Western Reserve consents to a
smaller amount. To further qualify for Dollar Cost Averaging from the Fixed
Account, no more than one-tenth (1/10) of the amount in the Fixed Account at
the commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain other
restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers and 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 or Bond Sub-Accounts or the Fixed Account will be processed monthly
until the entire value of each Account from which transfers are made is
completely depleted or the 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 11.) 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, or if Western
Reserve is currently providing administrative and other support services to an
independent third party authorized to conduct transfers on the Owner's behalf.
ASSET REBALANCING PROGRAM
Western Reserve offers 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. Annuity Value
allocated to the Fixed Account may not be included in the Asset Rebalancing
Program. 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 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 $5,000 for an
existing Contract, or a minimum
15
<PAGE>
initial Purchase Payment of $5,000 for a new Contract, is required, unless
Western Reserve consents to a smaller amount. 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 Exchange is closed, rebalancing will
occur on the next day the New York Stock Exchange is open. 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 11.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by oral 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. 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, or
if Western Reserve is currently providing administrative and other support
services to an independent third party authorized to conduct transfers on the
Owner's behalf.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
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. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $5,000. 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
partial withdrawals are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the request for
partial withdrawal 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 10 and "Premium Taxes" on
page 12.) 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 from each Sub-Account and the Fixed Account in proportion to the
value each bears to the Annuity Value.
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 $5,000.
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 partial
withdrawal and 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 partial withdrawal or
16
<PAGE>
Systematic Partial Withdrawals. (See "FEDERAL TAX MATTERS--Taxation of
Annuities" on page 22.)
Systematic Partial Withdrawals are not available if the Owner has elected
Dollar Cost Averaging or the Asset Rebalancing Program, or if Western Reserve
is currently providing administrative and other support services to an
independent third party authorized to conduct transfers on the Owner's behalf.
Systematic Partial Withdrawals may be discontinued by the Owner at any time by
notifying Western Reserve in writing. Western Reserve 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.
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 the $35 Annual Contract Charge, any
applicable premium taxes, and any applicable Withdrawal Charge from the
Surrender proceeds.
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 written 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 21.) 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, Owners may call Western Reserve at (800) 851-9777. Partial
withdrawals, Systematic Partial Withdrawals, and Surrenders may be subject to
tax including a 10% penalty tax. (See "FEDERAL TAX MATTERS--Taxation of
Annuities" on page 22.) 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--Qualified Plans" on page 24.) 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 page 24.)
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 Annuity
Value or (2) $50,000 reduced by the highest outstanding loan balance during the
one-year period ending on the day before the loan date (determined below).
However, if the Annuity Value is less than $20,000, the Owner may borrow
against the Contract the lesser of (1) 80% of the Annuity 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 proportion to the
17
<PAGE>
value each bears to the Annuity Value. Amounts transferred to the loan reserve
do not participate in the investment experience of the Allocation Options 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 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. 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 and interest due, and any applicable charges
under the Contract including any Withdrawal Charge, will take place. Under a
Qualified Plan, this distribution may be subject to income tax and a penalty
tax, and may cause the Contract to fail to qualify under 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
In 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 and the Contract will continue In Force and no death
benefit will be payable to the Beneficiary. In the event of Joint Owners, the
younger Joint Owner will automatically become the Owner and the Contract will
continue. 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. However, in the event of Joint Owners,
if the Annuitant dies during the Accumulation Period and is the same individual
as one of the Joint Owners, the surviving Joint Owner will automatically become
the Annuitant and the Contract will continue.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND (A) PRIOR TO THE END
OF THE SEVENTH CONTRACT YEAR, OR (B) AFTER THE ANNUITANT'S ATTAINED AGE 79, 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.
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND AFTER THE SEVENTH
CONTRACT YEAR, BUT PRIOR TO THE ANNUITANT'S ATTAINED AGE 80, 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 withdrawn from
the Contract to pay for partial withdrawals, or (iii) the Annuity Value as of
the seventh Contract Anniversary, less any amounts withdrawn from the Contract
after the seventh Contract Year
18
<PAGE>
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.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit proceeds as in 2.
above and is the spouse of the deceased Annuitant, then the spousal 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.
For 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 one
partial withdrawal. Further partial withdrawals 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 Annuity Value among Sub-Accounts and to
the Fixed Account, and transfers from the Fixed Account to the
Sub-Accounts without a transfer charge;
/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.
Under 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 19.)
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 Beneficiary 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 Beneficiary 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 Beneficiary has been named, is alive and is not the Owner's spouse,
the Beneficiary 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
19
<PAGE>
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 21), 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.
The Annuitant on the Maturity Date will become the payee and receive the
annuity payment. 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 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 fifteen 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 1.40% 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 12), 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.
20
<PAGE>
SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds will
be used to purchase annuity 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 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 18.)
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.
Joint Owners can be named provided the Joint Owners are husband and wife. Upon
the death of one Joint Owner, the Contract will continue with the surviving
Joint Owner as the sole Owner. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period--4. 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 page 22.) 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
21
<PAGE>
shall not be responsible for the validity or effect of any change of ownership
or assignment.
Changing the Owner cancels any prior Ownership designation, but it does not
change the Beneficiary or the Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties, or even
prohibition under the Code, and must also be permitted under 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. 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 entitled to receive the death benefit proceeds upon the
death of the Annuitant when the Owner is a natural person other than the
Annuitant. The Beneficiary will become the new Owner when the Owner is not the
same person as the Annuitant and the Owner dies before the Annuitant. 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 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. No Contract
provision can be waived or changed except by endorsement. Any endorsement must
be signed by the President or Secretary of Western Reserve.
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 of the Fund.
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
22
<PAGE>
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 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 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. For these purposes, the investment in the Contract is not
affected by the Owner's or Annuitant's death. That is, the investment in the
Contract remains the amount of any Purchase Payments paid which were not
excluded from gross income.
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, the selection of certain Maturity Dates, 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, selection or change should contact a competent tax
advisor in respect to the potential tax effects of such a transaction.
23
<PAGE>
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 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.
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 Individual Retirement Annuity 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. Such plans may permit a participant to specify the form of
investment in which his or her participation will be made. In general, for
non-governmental plans, 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, a
24
<PAGE>
non-governmental 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 the later of April 1 of the calendar year following the
calendar year in which the Owner (or plan participant) (i) reaches age 70-1/2 or
(ii) retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), distributions
generally must begin no later than the date described in (i). 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.
6. 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.
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 contracts 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 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 an 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 5 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
25
<PAGE>
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 or 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 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 3%. 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
first-in, first-out ("FIFO") method.
26
<PAGE>
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 3% 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 14.)
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. ISI 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 will be retained by ISI for acting as principal
underwriter for the Contracts. Broker-dealers will generally receive sales
commissions of up to 6% of Purchase Payments. Trail commissions in subsequent
years will generally equal 0.20% of Annuity Value, subject to the Contract's
having at least $5,000 of Annuity Value. 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 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
27
<PAGE>
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. ISI, 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.
WRL00174-07/97
28
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
<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>
Growth ............ $10.000 $10.240 10,000
Bond ............ 10.000 10.140 10,000
Money Market ...... 10.000 10.010 10,000
Global ............ 10.000 10.151 25,000
</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 ............ $10.240 $10.500 7,300,170
Bond ............ 10.140 11.330 1,298,622
Money Market ...... 10.010 10.110 618,769
Global ............ 10.151 13.520 1,927,294
</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 $12.350 2,319,646
Strategic Total
Return** ...... 10.000 11.240 1,874,169
</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 ............ $10.500 $ 9.493 10,691,346
Bond ............ 11.330 10.400 1,516,637
Money Market ...... 10.110 10.319 2,375,242
Global ............ 13.520 13.364 6,555,723
Emerging
Growth ......... 12.350 11.286 5,255,225
Strategic Total
Return** ...... 11.240 11.027 6,078,888
</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>
Aggressive
Growth ......... $10.000 $9.782 1,104,940
Balanced ......... 10.000 9.339 790,146
Growth &
Income*** ...... 10.000 9.453 384,654
</TABLE>
<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 ............ $ 9.493 $13.771 13,303,045
Bond ............ 10.400 12.613 2,298,276
Money Market ...... 10.319 10.728 2,315,107
Global ............ 13.364 16.217 6,454,647
Emerging
Growth ......... 11.286 16.337 6,116,953
Strategic Total
Return** ...... 11.027 13.555 7,005,600
Aggressive
Growth ......... 9.782 13.313 4,238,166
Balanced ......... 9.339 11.032 1,396,713
Growth &
Income*** ...... 9.453 11.676 815,938
</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 $11.843 5,948,340
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
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 ......... $13.771 $16.019 18,529,755
Bond ............ 12.613 12.455 2,818,826
Money Market ...... 10.728 11.119 4,642,483
Global ............ 16.217 20.428 10,475,149
Emerging
Growth ......... 16.337 19.152 8,959,748
Strategic Total
Return** ...... 13.555 15.372 12,133,712
Aggressive
Growth ......... 13.313 14.500 6,567,346
Balanced ......... 11.032 12.045 2,269,160
Growth &
Income*** ...... 11.676 12.853 1,463,937
Tactical Asset
Allocation ...... 11.843 13.363 8,913,473
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MAY 1, 1996* TO DECEMBER 31, 1996
------------------------------------------------------------
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>
Value Equity ...... $10.000 $11.213 1,992,766
Global Sector ...... 10.000 10.508 302,972
C.A.S.E. Growth . 10.000 10.773 1,090,757
</TABLE>
- ----------------
* Commencement of operations of the Sub-Account.
** Prior to May 1, 1997, this Sub-Account was known as Equity-Income.
*** Prior to May 1, 1997, this Sub-Account was known as Utility.
Because the International Equity and U.S. Equity Sub-Accounts commenced
operations on January 2, 1997, there is no condensed financial information for
these Sub-Accounts for the year ended December 31, 1996.
A-1
