-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B3rdVX3J8hDTr4kk2KXCqzYq3u39biUNO6PqWvM01n1U9CNmcJ3A6cnmnwX4fqP4 Oyi7iFSE5AoRB9WEwLB0yw== 0000950170-96-000140.txt : 19960501 0000950170-96-000140.hdr.sgml : 19960501 ACCESSION NUMBER: 0000950170-96-000140 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-05143 FILM NUMBER: 96553585 BUSINESS ADDRESS: STREET 1: 201 HIGHLAND AVE CITY: LARGO STATE: FL ZIP: 34640 BUSINESS PHONE: 813-587-1800 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 34640 497 1 SUPPLEMENT DATED MAY 1, 1996 TO PROSPECTUS DATED MAY 1, 1994 WRL FREEDOM SP PLUS/Registered Trademark/ THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGE 7, FIFTH PARAGRAPH OF THE PROSPECTUS UNDER THE HEADING "11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?" PORTFOLIO RATE --------- ---- C.A.S.E. Growth 0.80% Value Equity 0.80% THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGES 22-23 OF THE PROSPECTUS UNDER THE HEADING "INVESTMENTS OF THE SERIES ACCOUNT - WRL SERIES FUND, INC.": Beginning May 1, 1995, the Fund will offer two additional portfolios ("Portfolios"). Also, as of May 1, 1996, the Money Market Portfolio will have a new Sub-Adviser, J.P. Morgan Investment Management Inc. The investment objectives and policies of the new Portfolios are summarized below. There is no assurance that any of the Portfolios will achieve its stated objective. More detailed information, including a description of risks, can be found in the prospectuses for the Portfolios, which should be read carefully. C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth through investments in small to medium-sized companies. VALUE EQUITY PORTFOLIO: This Portfolio seeks to achieve maximum, consistent total return with minimum risk to principal by investing primarily in common stocks with above-average statistical value which, in the Sub-Adviser's opinion, are in fundamentally attractive industries and are undervalued at the time of purchase. MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum current income consistent with preservation of principal and maintenance of liquidity. Western Reserve continues to serve as investment adviser to each Portfolio of the Fund and manages the assets of each Portfolio in accordance with policies, programs and guidelines established by the Board of Directors of the Fund. C.A.S.E. Management, Inc. ("C.A.S.E."), located at 2255 Glades Road, Boca Raton, Florida 33431, is sub-adviser to the C.A.S.E. Growth Portfolio of the Fund. C.A.S.E. is a registered investment advisory firm and a wholly-owed subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William Edward Lange, President and Chief Executive Officer of C.A.S.E. C.A.S.E. provides investment management services to financial institutions, high net worth individuals, and other professional money managers. Western Reserve and C.A.S.E. will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the C.A.S.E. Growth Portfolio. NWQ Investment Management Company, Inc. ("NWQ Investment"), located at 655 South Hope Street, 11th Floor, Los Angeles, California 90017, is sub-adviser to the Value Equity Portfolio of the Fund. NWQ Investment was founded in 1982 and is a wholly-owned subsidiary of United Asset Management Corporation. NWQ Investment provides investment management services to institutions and high net worth individuals. As of December 31, 1995, NWQ Investment had over $5.6 billion in assets under management. Western Reserve and NWQ Investment will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Value Equity Portfolio. NWQ Investment's compensation will be reduced by 50% of the amount paid by Western Reserve on behalf of the Value Equity Portfolio pursuant to any expense limitation or other reimbursement. J.P. Morgan Investment Management Inc. ("J.P. Morgan"), located at 522 Fifth Avenue, New York, New York 10036, is sub-adviser to the Money Market Portfolio of the Fund. Keith M. Schappert is the President and Chief Executive Officer of J.P. Morgan. J.P. Morgan is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated. J.P. Morgan provides investment management and related services for corporate, public and union employee benefit funds, foundations, endowments, insurance companies and government agencies. Western Reserve will receive monthly compensation at the current annual rate of 0.40% of the aggregate average daily net assets of the Money Market Portfolio. From this amount, as compensation for its services, J.P. Morgan will receive 0.15% of the average daily net assets of the Money Market Portfolio. THE FIFTH PARAGRAPH ON PAGE 52 AND CONTINUING ON PAGE 53 OF THE PROSPECTUS UNDER THE HEADING "APPENDIX A - ILLUSTRATION OF BENEFITS" IS CHANGED, AS FOLLOWS: The amounts shown for the death benefits, Cash Values and Net Surrender Values take into account (1) the daily charge for assuming mortality and expense risks assessed against each Sub-Account which is equivalent to an annual charge of 0.90% of the average net assets of the Sub-Accounts; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.87% of the average daily net assets of the Portfolios of the Fund; and (3) all applicable premium expense charges and Cash Value charges. The 0.87% expense level assumes an equal allocation of amounts among the thirteen Sub-Accounts and is based on an average 0.71% investment advisory fee and 1995 average normal operating expenses of 0.16%. Calculation of the average annual expense level utilized actual annual expenses incurred during 1995 as adjusted for anticipated expense modifications incurring in 1996 for the Money Market Sub-Account (0.46%), Bond Sub-Account (0.61%), Growth Sub-Account (0.86%), Short-to-Intermediate Government Sub-Account (0.78%), Equity-Income Sub-Account (0.87%), Emerging Growth Sub-Account (0.91%), Global Sub-Account (0.99%), Aggressive Growth Sub-Account (0.92%), Balanced Sub-Account (0.97%) and Utility Sub-Account (1.00%). Because the Tactical Asset Allocation Sub-Account and C.A.S.E. Growth Sub-Account were not in existence during the full year of 1995 (commencement of operations was January 3, 1995 for the Tactical Asset Allocation Sub-Account and May 1, 1995 for the C.A.S.E. Growth Sub-Account); and the Value Equity Sub-Account had not commenced operations as of December 31, 1995, the annual expense level utilized in the calculation for each of these three Sub-Accounts is estimated to be 1.00% during 1996. During 1995, Western Reserve had undertaken to pay Fund expenses for each Portfolio to the extent normal operating expenses of a Portfolio exceeded a stated percentage of the Portfolio's average daily net assets. Western Reserve has undertaken until April 30, 1997 to pay expenses to the extent normal operating expenses of a Portfolio exceeds a stated percentage of the Portfolio's average daily net assets. Taking into account the assumed charges of 1.77%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of - -1.77%, 4.23%, and 10.23%. The amounts shown for the Net Surrender Values take into account all of the above charges and, during the first ten Policy years, a contingent surrender charge, which consists of the sales charge under the Policy, a charge for premium taxes charged by various states, and a first year issue charge under the Policy. WRL FREEDOM SP PLUS(R) FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ISSUED BY WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO 201 HIGHLAND AVENUE LARGO, FLORIDA 34640 (800) 851-9777 (813) 585-6565 This Prospectus describes WRL Freedom SP Plus/Registered Trademark/, a Flexible Premium Variable Life Insurance Policy (the 'Policy') offered by Western Reserve Life Assurance Co. of Ohio ('Western Reserve'). The Policy is designed to provide lifetime insurance protection as well as flexibility in connection with premium payments and death benefits. The minimum initial payment is generally $10,000 with a $5,000 minimum initial payment applicable to insureds less than age 20. Thereafter, a Policyowner may, subject to certain restrictions, make additional premium payments and increase or decrease the level of life insurance benefits payable under the Policy. This flexibility allows a Policyowner to provide for changing insurance needs under a single insurance policy. The Policy provides for a death benefit payable at the insured's death, and for a net surrender value that can be obtained by completely or partially surrendering the Policy. Net premiums are allocated according to the Policyowner's directions among the sub-accounts of the WRL Series Life Account ('Series Account') or to a fixed interest account ('Fixed Account') or to a combination of both. The amount of the death benefit will never be less than the specified amount of the Policy so long as the Policy remains in force. Under certain circumstances, a higher amount of death benefit will be paid at the death of the insured. Western Reserve will pay to the beneficiary the death benefit minus any indebtedness under the Policy. The Policy provides for a free-look period. The Policyowner may cancel the Policy within 10 days after the Policyowner receives it, or 10 days after Western Reserve mails or delivers a written notice of withdrawal right to the Policyowner or within 45 days after signing the application, whichever is latest. The assets of each sub-account of the Series Account will be invested solely in a corresponding portfolio of WRL Series Fund, Inc. (the 'Fund'). The Prospectuses for the Fund describes the investment objectives and the risks of investing in the portfolios of the Fund corresponding to the Sub-Accounts currently available under the Policy. The Policyowner bears the entire investment risk for all amounts allocated to the Series Account; there is no guaranteed minimum cash value. Prior to May 1, 1991, Western Reserve offered certain variable life insurance policies known as 'The Executive Equity Protector' and 'WRL Freedom Plus' (the 'Old Policies'), described in earlier versions of this Prospectus. The terms, provisions, and resulting benefits and values of the Old Policies may vary from those of the Policy described in this Prospectus, in that they have: no fixed account; no monthly administrative charge; different underwriting classifications; and different cost of insurance charges. The Executive Equity Protector also has a different contingent surrender charge and a different premium expense charge on additional premium payments. An owner of an Old Policy receiving this Prospectus should refer to the policy contract to determine its exact terms. Under the Old Policies, net premiums may be allocated and cash values may be transferred to the same sub-accounts of the Series Account as under the Policy. It may not be to your advantage to replace existing insurance or supplement an existing flexible premium variable life insurance policy with a Policy described in this Prospectus. Distributions from a Policy including policy loans, surrenders and cash withdrawals may have adverse tax consequences and, prior to age 59 1/2, may result in a penalty tax. Please read this Prospectus and the Prospectuses for the Fund carefully and retain for future reference. 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. Prospectus Dated May 1, 1995 TABLE OF CONTENTS DEFINITIONS................................................................ INTRODUCTION............................................................... INVESTMENT EXPERIENCE INFORMATION.......................................... Rates of Return.................................................. Death Benefit, Cash Value and Net Surrender Value Illustrations.. Other Performance Data........................................... WESTERN RESERVE AND THE SERIES ACCOUNT..................................... Western Reserve Life Assurance Co. of Ohio....................... The Series Account............................................... POLICY BENEFITS............................................................ Death Benefit.................................................... Cash Value....................................................... INVESTMENTS OF THE SERIES ACCOUNT.......................................... WRL Series Fund, Inc............................................. Addition, Deletion, or Substitution of Investments............... PAYMENT AND ALLOCATION OF PREMIUMS......................................... Issuance of a Policy............................................. Partial Payment Procedure........................................ Temporary Insurance Coverage..................................... Premiums......................................................... Allocation of Premiums and Cash Value............................ Policy Lapse and Reinstatement................................... CHARGES AND DEDUCTIONS..................................................... Contingent Surrender Charge...................................... Sales Charge and Premium Tax Charge on Additional Premiums....... Cash Value Charges............................................... Optional Cash Value Charges...................................... Charges Against the Series Account............................... Group or Sponsored Arrangements.................................. POLICY RIGHTS.............................................................. Loan Privileges.................................................. Surrender Privileges............................................. Examination of Policy Privilege ('Free-Look').................... Conversion Rights................................................ Benefits at Maturity............................................. Payment of Policy Benefits....................................... GENERAL PROVISIONS......................................................... Postponement of Payments......................................... The Contract..................................................... Suicide.......................................................... Incontestability................................................. Change of Owner or Beneficiary................................... Assignment....................................................... Misstatement of Age or Sex....................................... Reports and Records.............................................. Optional Insurance Benefits...................................... i THE FIXED ACCOUNT.......................................................... Minimum Guaranteed and Current Interest Rates.................... Fixed Account Value.............................................. Allocations and Withdrawals...................................... DISTRIBUTION OF THE POLICIES............................................... FEDERAL TAX MATTERS........................................................ Introduction..................................................... Tax Charges...................................................... Tax Status of the Policy......................................... Tax Treatment of Policy Benefits................................. Employment-Related Benefit Plans................................. SAFEKEEPING OF THE SERIES ACCOUNT'S ASSETS................................. VOTING RIGHTS OF THE SERIES ACCOUNT........................................ STATE REGULATION OF WESTERN RESERVE........................................ REINSURANCE................................................................ EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE........................ LEGAL MATTERS.............................................................. LEGAL PROCEEDINGS.......................................................... EXPERTS.................................................................... ADDITIONAL INFORMATION..................................................... INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS................... APPENDIX A - ILLUSTRATION OF BENEFITS...................................... APPENDIX B - LONG TERM MARKET TRENDS....................................... INDEX TO FINANCIAL STATEMENTS.............................................. The Policy is not available in all States. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, 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 BE NO RELIED UPON. ii DEFINITIONS ACCOUNTS -- Allocation options including the Fixed Account and Sub-Accounts of the Series Account. ATTAINED AGE -- The Issue Age plus the number of completed Policy years. ANNIVERSARY -- The same day and month as the Policy Date for each succeeding year the Policy remains In Force. BENEFICIARY -- The person or persons specified by the Owner as entitled to receive the death benefit proceeds under the Policy. CASH VALUE -- The sum of the values in each Sub-Account plus the Policy's value in the Fixed Account. CASH WITHDRAWAL -- The right of a Policyowner to receive, subject to Policy limitations, a portion of the Net Surrender Value. FIXED ACCOUNT -- An allocation option other than the Series Account. Part of Western Reserve's General Account. FUND -- WRL Series Fund, Inc., a registered management investment company in which the assets of the Series Account are invested. GENERAL ACCOUNT -- The assets of Western Reserve other than those allocated to the Series Account or any other separate account. IN FORCE -- Condition under which the coverage is active and the Insured's life remains insured. INITIAL PREMIUM -- The amount which must be paid before coverage begins. INSURED -- The person upon whose life the Policy is issued. ISSUE AGE -- Issue age refers to the age on the Insured's birthday nearest the Policy Date. LAPSE -- Termination of the Policy at the end of the grace period. LOAN RESERVE -- A part of the Fixed Account to which amounts are transferred from the Series Account as collateral for Policy loans. MATURITY DATE -- The date when coverage under the Policy will terminate if the Insured is living and the Policy is In Force. MONTHLY ANNIVERSARY OR MONTHIVERSARY -- The same date in each succeeding month as the Policy Date. For purposes of the Series Account, whenever the Monthly Anniversary falls on a date other than a Valuation Date, the Monthly Anniversary will be deemed to be the next Valuation Date. NET SURRENDER VALUE -- The amount payable upon surrender of the Policy equal to the Cash Value less indebtedness and less the then applicable surrender charge. NET PREMIUM -- The portion of the premium available for allocation to either the Fixed Account or the Sub-Accounts of the Series Account equal to the premium paid by the Policyowner less any applicable premium expense charges. OFFICE -- The administrative office of Western Reserve whose mailing address is P. O. Box 5068, Clearwater, Florida 34618-5068. POLICY -- The flexible premium variable life insurance policy offered by Western Reserve and described in this Prospectus. 1 DEFINITIONS (CONTINUED) POLICY DATE -- The date set forth in the Policy when insurance coverage is effective and monthly deductions commence under the Policy. The Policy Date is used to determine Policy years and Policy Months. Policy Anniversaries are measured from the Policy Date. POLICY MONTH -- A month beginning on the Monthly Anniversary. POLICYOWNER ('OWNER') -- The person who owns the Policy. PORTFOLIO -- A separate investment portfolio of the Fund. RECORD DATE -- The date the Policy is recorded on the books of the Company as an In Force Policy. SERIES ACCOUNT -- WRL Series Life Account, a separate investment account established by Western Reserve to receive and invest the net premiums allocated under the Policy. SPECIFIED AMOUNT -- The minimum death benefit payable under the Policy as long as the Policy remains In Force. The death benefit proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. SUB-ACCOUNT -- A sub-division of the Series Account. Each Sub-Account invests exclusively in the shares of a specified Portfolio of the Fund. SURRENDER -- The right of a Policyowner to voluntarily terminate the Policy and receive the entire Net Surrender Value. TERMINATION -- Condition when the Insured's life is no longer insured under the coverage provided. VALUATION DATE -- Each day on which the net asset value of the Fund is determined. VALUATION PERIOD -- The period between two successive Valuation Dates, commencing at the close of business of a Valuation Date and ending at the close of business of the next succeeding Valuation Date. 2 INTRODUCTION 1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED BENEFIT LIFE INSURANCE POLICY? Like conventional fixed-benefit life insurance, as long as the Policy remains In Force, the Policy will provide for: (1) the payment of a minimum death benefit to a Beneficiary upon the Insured's death; (2) the accumulation of Cash Value; and (3) surrender rights and Policy loan privileges. The Policy differs from conventional fixed-benefit life insurance by allowing Policyowners to allocate net premiums to one or more Sub-Accounts of the Series Account, or to the Fixed Account, or to a combination of both. Each Sub-Account invests in a designated Portfolio of the Fund. The amount and/or duration of the life insurance coverage and the Cash Value of the Policy are not guaranteed and may increase or decrease depending upon the investment experience of the Series Account. Accordingly, the Policyowner bears the investment risk of any depreciation in value of the underlying assets of the Series Account but reaps the benefits of any appreciation in value. (See Allocation of Premiums and Cash Value - Allocation of Net Premiums, p. .) Unlike conventional fixed benefit life insurance, a Policyowner also has the flexibility, subject to certain restrictions (see Premiums - Premium Limitations, p. ), to make additional premium payments and to adjust the death benefits payable under the Policy by increasing or decreasing the Specified Amount. Thus, unlike conventional fixed-benefit life insurance, the Policy does not require a Policyowner to adhere to a fixed premium schedule. The minimum Initial Premium is generally $10,000 ($5,000 in the case of Insureds less than age 20), except under certain circumstances. (See Payment and Allocation of Premiums - Partial Payment Procedure, p. .) Thereafter, the failure to make additional payments will not itself cause the Policy to lapse. Conversely, making additional premium payments will not guarantee that the Policy will remain In Force. Lapse will only occur when Net Surrender Value is insufficient to pay certain charges deducted on the Monthly Anniversary, and a grace period expires without sufficient additional premium payments by the Policyowner. (See Policy Lapse and Reinstatement - Lapse, p. .) 2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY? The Policy provides for the payment of benefits upon the death of the Insured. The Policy contains two death benefit options. Under Death Benefit Option A, the death benefit is the greater of the Specified Amount of the Policy or a specified percentage times the Cash Value of the Policy on the date of death of the Insured. Under Death Benefit Option B, the death benefit is the greater of the Specified Amount of the Policy plus the Cash Value of the Policy on the date of death of the Insured or a specified percentage of Cash Value of the Policy on the date of death of the Insured. So long as the Policy remains In Force, the minimum death benefit payable under either option will be the current Specified Amount. These proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges, and increased by any additional insurance benefits added by rider and any unearned loan interest. Policyowners will be able to select from a range of Specified Amounts based on the size of their initial payment. Under Western Reserve's current rules, the minimum Specified Amount for a Policy at issue is the amount of insurance which the $10,000 minimum initial payment ($5,000 in the case of Insureds less than age 20) will purchase based on the Insured's age, sex, and rate class and certain guidelines set forth in the Internal Revenue Code. The maximum Specified Amount for a particular Initial Premium payment is generally the amount of insurance which would remain In Force for a 20-year period based on certain assumptions. Optional insurance benefits offered under the Policy include a children's insurance rider; an other insured rider; an accidental death benefit rider; an option to increase specified amount rider; a disability waiver rider; a disability waiver and income rider; and a primary insured rider. (See 3 Optional Cash Value Charges - Optional Insurance Benefits, p. .) The cost of these optional insurance benefits will be deducted from Cash Value as part of the monthly deduction. (See Charges and Deductions - Cash Value Charges, p. .) Benefits under the Policy may be paid in a lump sum or under one of the settlement options set forth in the Policy. (See Payment of Policy Benefits - Settlement Options, p. .) 3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY? Under either death benefit option, as long as the Policy remains In Force, the death benefit will not be less than the current Specified Amount of the Policy. These proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. The death benefit may, however, exceed the Specified Amount under certain circumstances. The amount by which the death benefit exceeds the Specified Amount depends upon the option chosen and the Cash Value of the Policy. (See Policy Benefits - Death Benefit, p. .) The Policy's Cash Value in the Series Account will reflect the amount and frequency of premium payments, the investment experience of the chosen Sub-Accounts of the Series Account, any Cash Withdrawals, and any charges imposed in connection with the Policy. The entire investment risk for amounts allocated to the Series Account is borne by the Policyowner; Western Reserve does not guarantee a minimum Cash Value. (See Policy Benefits - Cash Value, p. .) 4. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT? The Policyowner has significant flexibility to adjust the death benefit payable by increasing or decreasing the Specified Amount of the Policy. No increase in the Specified Amount may be requested during the first Policy year and no decrease may be requested during the first two Policy years. Any increase in the Specified Amount will require additional evidence of insurability satisfactory to Western Reserve (see Policy Benefits - Death Benefit, p. ), and will result in additional charges. (See Cash Value Charges - Cost of Insurance, p. .) Also, the Policyowner may change the death benefit option once each Policy year after the first Policy year. (See Death Benefit - Change in Death Benefit Option, p. .) 5. HOW LONG WILL THE POLICY REMAIN IN FORCE? The Policy will lapse only when Net Surrender Value is insufficient to pay the monthly deduction (see Charges and Deductions - Cash Value Charges, p. ), and a grace period expires without a sufficient payment by the Policyowner. The Policy, therefore, differs in two important respects from a conventional life insurance policy. First, the failure to make additional premium payments will not automatically cause the Policy to Lapse. Second, the Policy can Lapse even if additional premium payments have been made if Net Surrender Value is insufficient to pay certain monthly charges, and a grace period expires without a sufficient payment. Thus, the payment of premiums in any amount does not guarantee that the Policy will remain In Force until the Maturity Date. If the Insured is alive and the Policy is In Force on the Maturity Date, which is the Insured's 95th birthday, the Policy will then terminate and no longer be In Force. The Net Surrender Value as of the Maturity Date will be paid to the Policyowner. 6. HOW ARE PREMIUMS ALLOCATED? The Policyowner determines in the application how premiums are to be allocated among the Sub-Accounts of the Series Account, each of which invests in shares of a designated Portfolio of the Fund, to the Fixed Account, or to a combination of both. The Policyowner may change the allocation for future premiums at any time by providing Western Reserve with written notification. Each Portfolio has a different investment objective. (See Investments of the Series Account - WRL Series Fund, Inc., p. .) 4 The entire Initial Premium payment is available for allocation among the Sub-Accounts of the Series Account. The portion of any additional premium payments available for allocation ('net premium') equals the premium paid less the premium expense charges. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) 7. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS? Yes. A Policyowner may transfer amounts among the Sub-Accounts of the Series Account or from the Sub-Accounts to the Fixed Account. Transfers may also be made from the Fixed Account to the Sub-Accounts subject to certain restrictions. (See the Fixed Account - Allocations and Withdrawals, p. .) Western Reserve reserves the right to impose a charge of $10 for each transfer following the first twelve transfers made during any Policy year. However, Western Reserve does not currently impose a charge for transfers, regardless of the number made. (See Allocation of Premiums and Cash Value - Transfers, p. .) 8. IS THERE A 'FREE-LOOK' PERIOD? Yes, the Policy provides for a free-look period. The Policyowner may cancel the Policy within 10 days after the Policyowner receives it, or 10 days after Western Reserve mails or delivers a written notice of withdrawal right to the Policyowner, or within 45 days after signing the application, whichever is the latest. Certain states require a Free-Look period longer than 10 days, either for all Policyowners or for certain classes of Policyowners. In most states, Western Reserve will refund the value of the amounts allocated to the accounts plus any charges previously deducted. (See Policy Rights - Examination of Policy Privilege, p. .) 9. MAY THE POLICY BE SURRENDERED? Yes, the Policyowner may totally surrender the Policy at any time and receive the Net Surrender Value of the Policy which equals the Policy's Cash Value less indebtedness and less the then applicable surrender charge plus any unearned loan interest. (See Charges and Deductions - Contingent Surrender Charge, p. .) Subject to certain limitations, the Policyowner may also make Cash Withdrawals from the Policy at any time after the first Policy year and prior to the Maturity Date. (See Policy Rights - Surrender Privileges, p. .) A charge on Cash Withdrawals will be deducted equal to the lesser of $25.00 or 2% of the amount of each Cash Withdrawal. (See Optional Cash Value Charges - Cash Withdrawals, p. .) If Death Benefit Option A is in effect, Cash Withdrawals will reduce the Policy's Specified Amount by the amount of the Cash Withdrawal. 10. WHAT IS THE LOAN PRIVILEGE? After the first Policy Anniversary, a Policyowner may obtain a Policy loan in an amount which is not greater than 90% of the Cash Value, less any surrender charge and already outstanding Policy loan. The interest rate on a loan is 7.4% payable annually in advance. The requested loan amount plus interest in advance will be transferred from the Series Account to the Loan Reserve and credited with guaranteed interest at a rate of 4% per year. Western Reserve may from time to time, and in its sole discretion, credit the Loan Reserve with additional interest at a rate higher than 4% per year. The Loan Reserve is currently being credited with a rate higher than 4% per year. The minimum loan amount is generally $500. (See Policy Rights - Loan Privileges, p. .) Upon repayment of a loan, amounts in the Loan Reserve in excess of the outstanding value of the loan are currently transferred to the accounts in the same manner as net premium allocations; however, Western Reserve may in the future require these amounts to be transferred to the Fixed Account. (See The Fixed Account, p. .) A 10% additional income tax is imposed on the portion of any distribution from, or loan taken from, or secured by, such a Policy that is included in income except where the distribution or loan 5 is made on or after the Owner attains age 59 1/2, is attributable to the Owner's becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Owner or the joint lives (or joint life expectancies) of the Owner and the Owner's Beneficiary. (See Federal Tax Matters, p. .) There are risks involved in taking a Policy loan, a few of which include the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved, as well as adverse tax consequences which occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax Treatment of Policy Benefits, p. .) 11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY? The first two charges are charges on premiums. One is a charge that is a percent of the Initial Premium and is taken out of Cash Value only upon Surrender of a Policy during the first 10 Policy years. The other is a percent of any subsequent premium payments and is taken from those payments. No amount will be deducted from the Initial Premium prior to allocation to the Sub-Account of the Series Account investing in the Money Market Portfolio. If a Policy is surrendered prior to the end of the tenth Policy year, a contingent surrender charge (including a contingent deferred sales charge) will be deducted from the Policy's Cash Value equal to 9% of the Initial Premium in the first year and grading down to 0% over the first ten Policy years. The contingent surrender charge partially reimburses Western Reserve for premium taxes and other expenses associated with the issuance and distribution of the Policy. (See Charges and Deductions - Contingent Surrender Charge, p. .) A charge of 8.5% will be deducted from any premium payments made after the Initial Premium payment. 6% is a sales charge to compensate Western Reserve for distribution expenses associated with the Policy. 2.5% is a premium tax charge to compensate Western Reserve for premium taxes associated with the Policy. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) Western Reserve charges the Sub-Accounts of the Series Account for the mortality and expense risks Western Reserve assumes. The charge is made daily at an effective annual rate of .90% of the average daily net assets of each Sub-Account of the Series Account. (See Charges and Deductions - Charges Against the Series Account, p. .) An investment advisory charge is imposed on each applicable Portfolio of the Fund at a current annual rate stated as a percentage of the aggregate average daily net assets of the Portfolio as discussed in the section entitled Investments of the Series Account - WRL Series Fund, Inc., p. . Cost of insurance charges and a $5.00 monthly administrative charge will be deducted monthly from the Cash Value of each Policy to compensate Western Reserve for the cost of insurance and the cost of administering the Policy. (See Charges and Deductions - Cash Value Charges, p. .) Optional Cash Value charges will be deducted from the Policy as a result of Policyowner changes or elections made to the Policy. Optional Cash Value charges would include charges for: optional insurance benefits, certain Cash Value transfers, increases in the Specified Amount of the Policy and Cash Withdrawals. (See Charges and Deductions - Optional Cash Value Charges, p. .) No charges are currently made from the Series Account for Federal or state income taxes. Should Western Reserve determine that such taxes may be imposed, the Company may make deductions from the Series Account to pay the taxes. (See Federal Tax Matters, p. .) 6 12. MAY THE POLICYOWNER MAKE ADDITIONAL PREMIUM PAYMENTS? Yes, additional premium payments may be made after the first Policy year. Under Western Reserve's current rules, the minimum additional payment amount is $1,000. Western Reserve reserves the right to limit additional premium payments to once each Policy year. Certain charges will be deducted from each additional premium payment. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) 13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY? At present, there is only limited guidance for determining whether a Policy meets the requirements prescribed by tax legislation for tax treatment as a life insurance contract under Section 7702 of the Internal Revenue Code. With respect to a Policy that is issued on the basis of a rate class using non-smoker ultimate select, non-smoker select, smoker ultimate standard or smoker standard guaranteed rates, while there is some uncertainty due to the limited guidance on Section 7702, Western Reserve nonetheless believes that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard rate class, there is even less guidance to determine whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus, it is not clear whether or not such a Policy would satisfy Section 7702, particularly if the Policyowner pays the full amount of premiums permitted under the Policy. If it is subsequently determined that a Policy does not qualify as a life insurance contract, Western Reserve will take whatever steps are appropriate and reasonable to attempt to have such a Policy comply with Section 7702. For these reasons, Western Reserve reserves the right to modify the Policy as necessary to attempt to qualify it as a life insurance contract under Section 7702. Assuming that a Policy qualifies as a life insurance contract for Federal income tax purposes, Western Reserve believes that the Death Benefit paid under the Policy generally should be fully excludable from the gross income of the Beneficiary for Federal income tax purposes. Moreover, the Owner should not be deemed in constructive receipt of Cash Values under a Policy until there is a distribution from the Policy. For most policies, Policy loans, and loans secured by a Policy, surrenders, and maturity benefits will be treated first as distributions of taxable income to the extent of any gain and then as a return of the basis or investment in the Policy. In addition, prior to age 59 1/2 any distributions of gains generally will be subject to a 10% penalty tax. For further elaboration on the tax consequences of a Policy, see Federal Tax Matters, p. . INVESTMENT EXPERIENCE INFORMATION The information provided in this section shows the historical investment experience of the Fund and hypothetical illustrations of the Policy based on the historical investment experience of the Fund. It does not represent or project future investment performance. The Series Account and the Fund commenced operations on October 2, 1986. The rates of return shown below depict the actual investment experience of each Portfolio of the Fund for the periods shown. The illustrations of death benefits, Cash Values and Net Surrender Values shown below depict these Policy features for a hypothetical Policy as if it had been purchased on January 1, 1987 by an Insured in the age and risk classes indicated, based on the historical investment experience of the Portfolio indicated since January 1, 1987. The actual rate of return in each calendar year was assumed to be uniformly earned throughout that year. 7 RATES OF RETURN The rates of return shown below are based on the actual investment performance, after the deduction of investment management fees and direct Fund expenses, of the Portfolios of the Fund. The rates are average annual compounded rates of return for the periods ending on December 31, 1994. (See Investments of the Series Account - WRL Series Fund, Inc., p. .) These rates of return figures do not reflect the annual charge against the assets of the Series Account of .90% for mortality and expense risks. These rates of return figures also do not reflect the charges deducted from premiums, monthly deductions from Cash Value, or surrender charges. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. ; Contingent Surrender Charge, p. ; and Cash Value Charges, p. .) Accordingly, these rates of return do not illustrate how actual investment performance will affect benefits under the Policies. (See, however, Death Benefit, Cash Value and Net Surrender Value Illustrations, on p. ). Moreover, these rates of return are not an estimate, projection or guarantee of future performance. Also shown are comparable figures for the unmanaged Standard and Poor's Index of 500 Common Stocks, a widely used measure of stock market performance. AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 1994
Fund Portfolio Inception* 5 Years 3 Years 1 Year - -------------- ---------- ------- ------- ------ Growth % % % % Bond % % % % Money Market % % % % Global % N/A N/A % Short-to-Intermediate Government % N/A N/A % Emerging Growth % N/A N/A % Equity-Income % N/A N/A % Standard & Poor's Index of 500 Common Stocks % % % %
* The Growth, Bond and Money Market Portfolios of the Fund commenced operations on October 2, 1986. The Global and Short-to-Intermediate Government Portfolios commenced operations on December 3, 1992. The Emerging Growth and Equity-Income Portfolios commenced operations on March 1, 1993. Because the Balanced Portfolio, Utility Portfolio and Aggressive Growth Portfolio commenced operations on March 1, 1994, and the Tactical Asset Allocation Portfolio had not yet commenced operations as of December 31, 1994, the above chart does not reflect rates of return for these Portfolios. Additional information regarding the investment performance of the Portfolios of the Fund appears in the attached Fund Prospectuses. DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS In order to demonstrate how the actual investment experience of the Portfolios will affect the Option A and Option B death benefits, the Policy Cash Value and Net Surrender Value, the following hypothetical illustrations are based on the actual investment experience of each Portfolio as if the Policy had been available for sale and issued on January 1, 1987. The actual rate of return in each calendar year was assumed to be uniformly earned throughout that year. These illustrations do not represent what may happen in the future. The illustrations show Options A and B based on the payment of an Initial Premium of $10,000 at issue, and a Specified Amount of $31,000 for a male age 55. The illustrations also assume that the Insured is placed in Western Reserve's non-smoker Ultimate Select underwriting rate class. (See Cash 8 Value Charges - Cost of Insurance, p. .) The illustrations also assume that the Policy's entire Cash Value is allocated to the Sub-Account corresponding to the Portfolio shown. The amounts shown for death benefits, Cash Values and Net Surrender Values take into account all charges and deductions from the Policy, the Series Account and the Fund (see Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. , Charges Against the Series Account, p. , and Investments of the Series Account - WRL Series Fund, Inc., p. ). For each Portfolio of the Fund, one illustration is based on the guaranteed cost of insurance rates, the other illustration is based on the current cost of insurance rates. These examples of Policy performance are for the specific age, sex, rate class, premium payment pattern and policy set forth above. The amount and timing of premium payments would affect individual Policy benefits as would any withdrawals or loans. This Prospectus also contains illustrations based on assumed rates of return. See Appendix A, page 52. The following examples show how the hypothetical net return of the Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. These examples assume that the net premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GROWTH PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 41,844 $ 10,907 $ 10,844 $ 10,007 $ 9,944 1989*................... 31,000 43,252 12,403 12,252 11,603 11,452 1990*................... 31,000 48,823 18,171 17,823 17,371 17,023 1991*................... 31,000 48,010 17,481 17,010 16,781 16,310 1992*................... 37,093 57,709 27,681 26,709 26,981 26,009 1993*................... 36,305 57,728 27,927 26,728 27,427 26,228 1994*................... 36,413 57,989 28,448 26,989 28,048 26,589 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. 9 GROWTH PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 41,778 $ 10,864 $ 10,778 $ 9,964 $ 9,878 1989*................... 31,000 43,096 12,302 12,096 11,502 11,296 1990*................... 31,000 48,489 17,965 17,489 17,165 16,689 1991*................... 31,000 47,599 17,241 16,599 16,541 15,899 1992*................... 36,523 56,929 27,256 25,929 26,556 25,229 1993*................... 35,710 56,836 27,469 25,836 26,969 25,336 1994*................... 35,777 56,952 27,950 25,952 27,550 25,552 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. The following examples show how the hypothetical net return of the Bond Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. These examples assume that net premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. BOND PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 40,265 $ 9,320 $ 9,265 $ 8,420 $ 8,365 1989*................... 31,000 40,557 9,676 9,557 8,876 8,757 1990*................... 31,000 41,663 10,874 10,663 10,074 9,863 1991*................... 31,000 42,006 11,315 11,006 10,615 10,306 1992*................... 31,000 43,425 12,892 12,425 12,192 11,725 1993*................... 31,000 43,958 13,587 12,958 13,087 12,458 1994*................... 31,000 44,996 14,844 13,996 14,444 13,596 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. 10 BOND PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 40,205 $ 9,278 $ 9,205 $ 8,378 $ 8,305 1989*................... 31,000 40,417 9,578 9,417 8,778 8,617 1990*................... 31,000 41,414 10,701 10,414 9,901 9,614 1991*................... 31,000 41,650 11,071 10,650 10,371 9,950 1992*................... 31,000 42,908 12,541 11,908 11,841 11,208 1993*................... 31,000 43,298 13,145 12,298 12,645 11,798 1994*................... 31,000 44,135 14,276 13,135 13,876 12,735 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. The following examples show how the hypothetical net return of the Money Market Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. These examples assume that net premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. MONEY MARKET PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 41,277 $ 10,337 $ 10,277 $ 9,437 $ 9,377 1989*................... 31,000 41,563 10,694 10,563 9,894 9,763 1990*................... 31,000 42,038 11,255 11,038 10,455 10,238 1991*................... 31,000 42,446 11,767 11,446 11,067 10,746 1992*................... 31,000 42,615 12,051 11,615 11,351 10,915 1993*................... 31,000 42,622 12,081 11,622 11,581 11,122 1994*................... 31,000 42,446 12,013 11,446 11,613 11,046 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. 11 MONEY MARKET PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1988.................... $ 31,000 $ 41,213 $ 10,294 $ 10,213 $ 9,394 $ 9,313 1989*................... 31,000 41,419 10,597 10,419 9,797 9,619 1990*................... 31,000 41,799 11,095 10,799 10,295 9,999 1991*................... 31,000 42,100 11,537 11,100 10,837 10,400 1992*................... 31,000 42,155 11,747 11,155 11,047 10,455 1993*................... 31,000 41,950 11,704 10,950 11,204 10,450 1994*................... 31,000 41,621 11,550 10,621 11,150 10,221 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. The following examples show how the hypothetical net return of the Global Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1993, if the Global Portfolio had been offered through the Policy as of January 1, 1993. These examples assume that net premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GLOBAL PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1994.................... $ 31,000 $ 44,083 $ 13,160 $ 13,083 $ 12,260 $ 12,183 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. GLOBAL PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1994.................... $ 31,000 $ 44,010 $ 13,113 $ 13,010 $ 12,213 $ 12,110 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. The following examples show how the hypothetical net return of the Short-to-Intermediate Government Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1993, if the Short-to-Intermediate Government Portfolio had been offered through the Policy as of January 1, 1993. These examples assume that net premiums and related Cash Values were in the Sub-Account for the 12 entire period and that the values were determined on the first Valuation Date following January 1st of each year. SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1994.................... $ 31,000 $ 41,088 $ 10,148 $ 10,088 $ 9,248 $ 9,188 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO Male, Issue Age 55, $10,000 Initial Premium ($31,000 Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1994.................... $ 31,000 $ 41,025 $ 10,105 $ 10,025 $ 9,205 $ 9,125 1995*...................
* Benefits and values include only premiums paid during previous Policy years, and do not include premiums to be paid at the beginning of the current Policy year. The following examples show how the hypothetical net return of the Emerging Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1994, if the Emerging Growth Portfolio had been offered by the Policy as of January 1, 1994. These examples assume that net premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. EMERGING GROWTH PORTFOLIO Male, Issue Age 35, $_______________ Annual Premium ($_______________ Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1995.................... $ $ $ $ $ $
EMERGING GROWTH PORTFOLIO Male, Issue Age 35, $_______________ Annual Premium ($_______________ Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1995.................... $ $ $ $ $ $
The following examples show how the hypothetical net return of the Equity-Income Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1994, if the Equity-Income Portfolio had been offered by the Policy as of January 1, 1994. These examples assume that net premiums and 13 related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. EQUITY-INCOME PORTFOLIO Male, Issue Age 35, $_______________ Annual Premium ($_______________ Specified Amount, Non-Smoker Ultimate Select Risk) Based on Current Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1995.................... $ $ $ $ $ $
EQUITY-INCOME PORTFOLIO Male, Issue Age 35, $_______________ Annual Premium ($_______________ Specified Amount, Non-Smoker Ultimate Select Risk) Based on Guaranteed Charges
Death Benefit Cash Value Net Surrender Value Policy Anniversary on ---------------------- ---------------------- ---------------------- January 1 of Option A Option B Option A Option B Option A Option B - ------------------------ -------- -------- -------- -------- -------- -------- 1995.................... $ $ $ $ $ $
Because the Aggressive Growth, Balanced and Utility Portfolios commenced operations on March 1, 1994, and the Tactical Asset Allocation Portfolio had not commenced operations as of December 31, 1994, there are no hypothetical illustrations for these Portfolios. OTHER PERFORMANCE DATA Western Reserve may compare the performance of each Sub-Account in advertising and sales literature to the performance of other variable life insurance policies in general or to the performance of particular types of variable life insurance policies investing in mutual funds, or investment series of mutual funds with investment objectives similar to each of the Sub-Accounts whose performance is reported by Lipper Analytical Services, Inc. ('Lipper') and Morningstar, Inc. ('Morningstar') or reported by other services, companies, individuals or other industry or financial publications of general interest, such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Changing Times and Fortune. Lipper and Morningstar are independent services which monitor and rank the performances of variable life insurance policies in each of the major categories of investment objectives on an industry-wide basis. Lipper's and Morningstar's rankings include variable annuity contracts as well as variable life insurance policies. The performance analysis prepared by Lipper and Morningstar rank such contracts and policies on the basis of total return, assuming reinvestment of distributions, but does not take sales charges, redemption fees or certain expense deductions at the separate account level into consideration. Western Reserve may also compare the performance of each Sub-Account in advertising and sales literature to the Standard & Poor's Index of 500 Common Stocks, a widely used measure of stock market performance, or other widely recognized indices. Unmanaged indices may assume the reinvestment of dividends, but usually do not reflect any 'deduction' for the expense of operating or managing an investment portfolio. In addition, Western Reserve may, as appropriate, compare each Sub-Account's performance to that of other types of investments such as certificates of deposit, savings accounts and U.S. Treasuries, or to certain interest rate and inflation indices, such as the Consumer Price Index, which is published by the U.S. Department of Labor and measures the average change in prices over time of a fixed 'market basket' of certain specified goods and services. Similar comparisons of Sub-Account performance may also be made with appropriate indices measuring the performance of a defined group of securities 14 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). WESTERN RESERVE AND THE SERIES ACCOUNT WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Western Reserve was originally incorporated under the laws of Ohio on October 1, 1957. Western Reserve is engaged in the business of writing life insurance policies and annuity contracts. Western Reserve is admitted to do business in 49 states and the District of Columbia. The Office of Western Reserve is located in Largo, Florida; however, the mailing address is P.O. Box 5068, Clearwater, FL 34618-5068. Western Reserve is a wholly-owned subsidiary of First AUSA Life Insurance Company ('First AUSA'), a stock life insurance company which is wholly-owned by AEGON USA, Inc. ('AEGON'). AEGON is a financial services holding company whose primary emphasis is on life and health insurance and annuity and investment products. AEGON is a wholly-owned indirect subsidiary of AEGON nv, a Netherlands corporation, which is a publicly traded international insurance group. PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to time publish in advertisements, sales literature and reports to Policyowners, the ratings and other information assigned to it by one or more independent rating organizations such as A.M. Best Company ('A.M. Best'), Moody's Investors Service, Inc. ('Moody's'), Standard & Poor's Insurance Rating Services, and Duff & Phelps. A.M. Best's and Moody's ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. Standard & Poor's and Duff & Phelps provide ratings which measure the claims-paying ability of insurance companies. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms. Claims-paying ability ratings do not refer to an insurer's ability to meet non-policy obligations (i.e., debt/commercial paper). THE SERIES ACCOUNT WRL Series Life Account ('Series Account') was established by Western Reserve as a separate account on July 16, 1985. The Series Account meets the definition of a 'separate account' under the Federal securities laws. The Series Account will receive and invest the net premiums paid under this Policy and other flexible premium variable life insurance policies issued by Western Reserve. Although the assets of the Series Account are the property of Western Reserve, the Code of Ohio, under which the Series Account was established, provides that the assets in the Series Account attributable to the Policies are not chargeable with liabilities arising out of any other business which Western Reserve may conduct. The assets of the Series Account of Western Reserve shall, however, be available to cover the liabilities of the General Account of Western Reserve to the extent that the Series Account's assets exceed its liabilities arising under the Policies supported by it. The Series Account is currently divided into eleven Sub-Accounts. Each Sub-Account invests exclusively in shares of a single Portfolio of the Fund. Income and both realized and unrealized gains or losses from the assets of each Sub-Account of the Series Account are credited to or charged against that Sub-Account without regard to income, gains or losses from any other Sub-Account of the Series Account or arising out of any other business Western Reserve may conduct. 15 POLICY BENEFITS DEATH BENEFIT Policyowners designate in the initial application one of two death benefit options offered under the Policy: Death Benefit Option A ('Option A') and Death Benefit Option B ('Option B'). As long as the Policy remains In Force (see Policy Lapse and Reinstatement - Lapse, p. ), Western Reserve will, upon receiving due proof of the Insured's death, pay the death benefit proceeds of a Policy to the named Beneficiary in accordance with the designated death benefit option. The amount of the death benefit proceeds payable will be determined at the end of the Valuation Period during which the Insured dies. The proceeds may be paid in a lump sum or under one or more of the settlement options set forth in the Policy. (See Payment of Policy Benefits - Settlement Options, p. .) Western Reserve guarantees that so long as the Policy remains In Force (see Policy Lapse and Reinstatement - Lapse, p. ), the death benefit proceeds under either option will never be less than the Specified Amount of the Policy but the proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. These proceeds will be increased by any additional insurance In Force provided by rider and any unearned loan interest. OPTION A. The death benefit is the greater of the Specified Amount of the Policy or the applicable percentage (the 'limitation percentage') times the Cash Value on the date of death. The limitation percentage is 250% for an Insured age 40 or below on the Policy Anniversary prior to the date of death. For an Insured with an Attained Age over 40 on a Policy Anniversary, the percentage declines as shown in the following Limitation Percentage Table. Accordingly, under Option A the death benefit will remain level unless the limitation percentage times the Cash Value exceeds the Specified Amount, in which case the amount of the death benefit will vary as the Cash Value varies. ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that the Insured's Attained Age is under 40 and that there is no outstanding indebtedness. Under Option A, a Policy with a $50,000 Specified Amount will generally pay $50,000 in death benefits. However, because the death benefit must be equal to or be greater than 250% of Cash Value, any time the Cash Value of the Policy exceeds $20,000, the death benefit will exceed the $50,000 Specified Amount. Each additional dollar added to Cash Value above $20,000 will increase the death benefit by $2.50. Similarly, so long as Cash Value exceeds $20,000, each dollar taken out of Cash Value will reduce the death benefit by $2.50. If at any time, however, the Cash Value multiplied by the limitation percentage is less than the Specified Amount, the death benefit will equal the Specified Amount of the Policy. LIMITATION PERCENTAGE TABLE ATTAINED AGE APPLICABLE PERCENTAGE - ------------ --------------------- 40 and under...................... 250% 41 through 45..................... 250% minus 7% for each age over age 40 46 through 50..................... 215% minus 6% for each age over age 45 51 through 55..................... 185% minus 7% for each age over age 50 56 through 60..................... 150% minus 4% for each age over age 55 61 through 65..................... 130% minus 2% for each age over age 60 66 through 70..................... 120% minus 1% for each age over age 65 71 through 75..................... 115% minus 2% for each age over age 70 76 through 90..................... 105% 91 through 95..................... 105% minus 1% for each age over age 90 OPTION B. The death benefit is equal to the greater of the Specified Amount plus the Cash Value of the Policy or the limitation percentage times the Cash Value on or prior to the date of death. The applicable percentage is 250% for an Insured age 40 or below on the Policy Anniversary prior to the 16 date of death. For Insureds with an Attained Age over 40 on a Policy Anniversary, the percentage declines as shown in the Limitation Percentage Table above. Accordingly, under Option B the amount of the death benefit will always vary as the Cash Value varies. ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that the Insured is under the age of 40 and that there is no outstanding indebtedness. Under Option B, a Policy with a Specified Amount of $50,000 will generally pay a death benefit of $50,000 plus Cash Value. Thus, for example, a Policy with a Cash Value of $10,000 will have a death benefit of $60,000 ($50,000 + $10,000). The death benefit, however, must be at least 250% of Cash Value. As a result, if the Cash Value of the Policy exceeds $33,333, the death benefit will be greater than the Specified Amount plus Cash Value. Each additional dollar of Cash Value above $33,333 will increase the death benefit by $2.50. Similarly, any time Cash Value exceeds $33,333, each dollar taken out of Cash Value will reduce the death benefit by $2.50. If at any time, however, Cash Value multiplied by the limitation percentage is less than the Specified Amount plus the Cash Value, then the death benefit will be the Specified Amount plus the Cash Value of the Policy. CHOOSING DEATH BENEFIT OPTION A OR OPTION B. As described above and assuming the death benefit is not being determined by reference to the limitation percentage, Option A will provide a Specified Amount of death benefit which does not vary with changes in Cash Value. Thus, under Option A, as Cash Value increases, Western Reserve's net amount at risk under the Policy will decline. In contrast, Option B involves a constant net amount at risk, again assuming that the death benefit is not being determined by reference to the limitation percentage. Therefore, assuming positive investment experience, the cost of insurance deduction under a Policy with an Option A death benefit will be less than under a corresponding policy with an Option B death benefit. Because of this, if investment performance is positive, Cash Value under Option A will increase faster than under Option B but the total death benefit under Option B will generally be greater. Thus, Option A could be considered more suitable for Policyowners whose goal is increasing Cash Values based upon positive investment experience, while Option B could be considered more suitable for Policyowners whose goal is increasing death benefits. CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, a Policyowner may increase or decrease the Specified Amount of a Policy. A change in Specified Amount may affect the net amount at risk, which may affect a Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of Insurance, p. .) A change in Specified Amount could also have Federal income tax consequences. (See Federal Tax Matters, p. .) DECREASES. Any decrease in the Specified Amount will become effective on the Monthly Anniversary date on or following receipt of a written request from the Policyowner by Western Reserve. No requested decrease in the Specified Amount will be permitted during the first two Policy years. The Specified Amount remaining In Force after any requested decrease may not be less than the minimum Specified Amount set forth in the Policy. If, following the decrease in the Specified Amount, the Policy would not comply with the maximum premium limitations required by Federal tax law (see Premiums - Premium Limitations, p. ), the decrease may be limited (or, if the Policyowner so elects, Cash Value may be returned to the Policyowner) to the extent necessary to meet these requirements. INCREASES. For an increase in the Specified Amount, written application must be submitted. Western Reserve will also require that additional evidence of insurability be submitted. Western Reserve reserves the right to decline any increase request. Any increase will become effective on the effective date shown on an endorsement to the Policy. The effective date of the increase will be the Monthly Anniversary on or following written approval of the increase by Western Reserve. No increase in the Specified Amount will be permitted during the first Policy year. Under Western Reserve's current rules, the increase may not be less than $10,000. An increase need not be accompanied by an additional premium, but there must be sufficient Net Surrender Value to cover the next monthly 17 deduction after the increase becomes effective, which will include an administrative fee for processing the increase. (See Charges and Deductions - Optional Cash Value Charges, p. .) CORRIDOR PERCENTAGE. If, pursuant to the requirements of the Internal Revenue Code of 1986, as amended, the death benefit under a Policy is determined by reference to the limitation percentage discussed above, the Policy is described as 'in the corridor,' and an increase in the Cash Value of the Policy will increase the net amount at risk assumed by Western Reserve and consequently increase the cost of insurance deducted from the Cash Value of the Policy. INSURANCE PROTECTION. A Policyowner may increase or decrease the pure insurance protection provided by a Policy (i.e., the difference between the death benefit and the Cash Value) in one of several ways as insurance needs change. These ways include increasing or decreasing the Specified Amount of insurance, making additional premium payments, and, to a lesser extent, making a Cash Withdrawal from the Policy. Although the consequences of each of these methods will depend upon the individual circumstances, they may be generally summarized as follows: (a) A decrease in the Specified Amount will, subject to the limitation percentage (see Policy Benefits - Death Benefit, p. ), in general decrease the insurance protection and the charges under the Policy without reducing the Cash Value. (b) If Option A is elected, an increased level of premium payments also will reduce the pure insurance protection, until the limitation percentage times the Cash Value exceeds the Specified Amount. Furthermore, increased premiums should increase the amount of funds available to keep the Policy In Force. (c) A Cash Withdrawal will reduce the death benefit. (See Surrender Privileges - Cash Withdrawals, p. .) However, it has no effect on the amount of pure insurance protection and charges under the Policy, unless the death benefit payable is governed by the limitation percentages. (d) An increase in the Specified Amount may increase the amount of pure insurance protection, depending on the amount of Cash Value and the resultant limitation percentage. If the insurance protection is increased, the Policy charges generally will increase as well. CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in effect may be changed by the Policyowner once each Policy year after the first Policy year by sending Western Reserve a written request for change. A change in death benefit options may have Federal income tax consequences. (See Federal Tax Matters, p. .) Under Western Reserve's current rules, no change may be made if it would result in a Specified Amount less than the minimum Specified Amount set forth in the Policy. The effective date of any change will be the Monthly Anniversary on or following receipt of the request. No charges will be imposed for making a change in death benefit option. If the death benefit option is changed from Option B to Option A, the Specified Amount will be increased by an amount equal to the Policy's Cash Value on the effective date of change. If the death benefit option is changed from Option A to Option B, the Specified Amount will be decreased by an amount equal to the Cash Value on the effective date of the change. HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In Force, Western Reserve guarantees that the death benefit will never be less than the Specified Amount of the Policy. These proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. The death benefit may, however, vary with the Policy's Cash Value. Under Option A, the death benefit will only vary when the Cash Value multiplied by the limitation percentage exceeds the Specified Amount of the Policy. Accordingly, under Option A, the closer the Specified Amount of the Policy the Policyowner selects is to the maximum Specified Amount permitted for the Policyowner's Initial Premium payment, the more favorable investment performance would have to be in order for the death benefit to exceed such Specified Amount. The death benefit under Option B will always vary with the 18 Cash Value because the death benefit equals either the Specified Amount plus the Cash Value or the limitation percentage times the Cash Value. HOW THE DURATION OF THE POLICY MAY VARY. The duration of the Policy depends upon the Net Surrender Value. The Policy will remain In Force until maturity so long as the Net Surrender Value is sufficient to pay the monthly deduction. (See Charges and Deductions - Cash Value Charges, p. .) Where, however, Net Surrender Value is insufficient to pay the monthly deduction, and a grace period expires without an adequate payment by the Policyowner, the Policy will lapse and terminate without value. (See Policy Lapse and Reinstatement - Lapse, p. .) CASH VALUE At the end of any Valuation Period, the Cash Value of the Policy is equal to the sum of the Sub-Account values of the Series Account plus the Fixed Account value. There is no guaranteed minimum Cash Value to the extent that Cash Value is allocated to the Series Account. NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender Privileges, p. .) The Net Surrender Value as of any date is equal to: (1) the Cash Value as of such date; minus (2) any surrender charge as of such date (as described on p. ); minus (3) any outstanding Policy loan; plus (4) any unearned loan interest. DETERMINATION OF VALUES IN THE SERIES ACCOUNT. On the Policy Date, the Policy's Cash Value in a Sub-Account of the Series Account will equal the portion of the Initial Premium allocated to the Sub-Account, reduced by the portion of the first monthly deduction allocated to that Sub-Account. (See Payment and Allocation of Premiums - Allocation of Premiums and Cash Value, p. .) Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of the Series Account will equal: (1) The Policy's value in the Sub-Account on the preceding Valuation Date, multiplied by the experience factor for the current Valuation Period; plus (2) Any net premium payments received during the current Valuation Period which are allocated to the Sub-Account; plus (3) All values transferred to the Sub-Account from the Loan Reserve, from the Fixed Account or from another Sub-Account during the current Valuation Period; minus (4) All values transferred from the Sub-Account to the Loan Reserve, to the Fixed Account or to another Sub-Account during the current Valuation Period; minus (5) All Cash Withdrawals from the Sub-Account during the current Valuation Period; minus (6) The portion of the monthly deduction allocated to the Sub-Account during the current Valuation Period. The Policy's total value in the Series Account equals the sum of the Policy's value in each Sub-Account. (For a description of how the values of the Fixed Account are calculated, see The Fixed Account - Fixed Account Value, p. .) Because the Cash Value is dependent upon a number of variables, including the investment experience of the chosen Sub-Accounts of the Series Account, the frequency and amount of premium payments, transfers and surrenders, and charges assessed in connection with the Policy, a Policy's Cash Value cannot be predetermined. THE EXPERIENCE FACTOR. The experience factor measures investment experience during a Valuation Period. Each Sub-Account has its own distinct experience factor. In calculating a Sub-Account's experience factor for a Valuation Period, the net asset value for each share of the corresponding Portfolio of the Fund at the end of the current Valuation Period is increased by the 19 amount per Portfolio share of any dividend or capital gain distribution received by the Portfolio during the current Valuation Period and decreased by a per Portfolio share charge for any applicable taxes. The total is then divided by the net asset value per Portfolio share at the end of the preceding Valuation Period. A charge equal to .90% on an annual basis of the net assets for each day in the Valuation Period is then subtracted to compensate Western Reserve for certain mortality and expense risks. (See Charges Against the Series Account - Mortality and Expense Risk Charge, p. .) VALUATION DATE AND VALUATION PERIOD. The net asset value per share of the portfolio securities of the Fund is determined, once daily, as of the close of the regular session of business on the New York Stock Exchange (currently 4:00 p.m., Eastern time), Monday through Friday, except on customary national business holidays on which the New York Stock Exchange is closed. INVESTMENTS OF THE SERIES ACCOUNT WRL SERIES FUND, INC. The Series Account invests in shares of WRL Series Fund, Inc. (the 'Fund'), a series mutual fund which is registered with the Securities and Exchange Commission ('Commission') as an open-end diversified management investment company. Such registration does not involve supervision of the management or investment practices or policies of the Fund by the Commission. Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of the Series Account are: Aggressive Growth Portfolio, Emerging Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio, Equity-Income Portfolio, Bond Portfolio, Short-to-Intermediate Government Portfolio, Utility Portfolio, Money Market Portfolio and Tactical Asset Allocation Portfolio. The assets of each Portfolio are held separate from the assets of the other Portfolios, and each Portfolio has investment objectives and policies which are different from those of the other Portfolios. Thus, each Portfolio operates as a separate investment fund, and the income or losses of one Portfolio generally have no effect on the investment performance of any other Portfolio. Pending any prior approval by a state insurance regulatory authority, certain Sub-Accounts and corresponding Portfolios may not be available to residents of some states. The investment objectives and policies of each Portfolio are summarized below. There is no assurance that any of the Portfolios will achieve its stated objective. More detailed information, including a description of risks, can be found in the Prospectuses for the Fund, which accompanies this Prospectus and which should be read carefully. AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities. EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by investing primarily in common stocks of small and medium sized companies. GROWTH PORTFOLIO: This Portfolio's objective is growth of capital. GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a manner consistent with preservation of capital, primarily through investments in common stocks of foreign and domestic issuers. BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced volatility, and superior long-term risk adjusted returns by investing primarily in common stock, convertible securities and fixed-income securities. EQUITY-INCOME PORTFOLIO: This Portfolio seeks to provide current income, long-term growth of income and capital appreciation by investing primarily in common stocks, income producing securities convertible into common stocks, and fixed-income securities. 20 BOND PORTFOLIO: This Portfolio seeks the highest possible current income within the confines of the primary goal of insuring the protection of capital by investing in debt securities issued by the U.S. Government and its agencies and in medium to high-quality corporate debt securities. SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO: This Portfolio seeks as high a level of current income as is consistent with preservation of capital, primarily through investments in U.S. Government securities, including repurchase agreements with respect to U.S. Government securities. UTILITY PORTFOLIO: This Portfolio's objective is to achieve high current income and moderate capital appreciation by investing primarily in a professionally managed and diversified portfolio of equity and debt securities of utility companies. MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum current income consistent with preservation of principal and maintenance of liquidity. TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of capital and competitive investment returns by investing primarily in stocks, United States Treasury bonds, notes and bills, and money market funds. Western Reserve serves as investment adviser to the Fund and manages its assets in accordance with policies, programs and guidelines established by the Board of Directors of the Fund. Janus Capital Corporation ('Janus') serves as sub-adviser to the Growth, Money Market, Bond and Global Portfolios of the Fund. Janus, located at 100 Fillmore Street, Suite 300, Denver, Colorado 80206, has been engaged in the management of the Janus funds since 1969. Janus also serves as investment adviser or sub-adviser to other mutual funds, and individual, corporate, charitable, and retirement accounts. The aggregate market value of the assets managed by Janus was approximately $22 billion as of February 1, 1994. Western Reserve and Janus will divide equally monthly compensation at current annual rates of 0.50% of the aggregate average daily net assets each of the Money Market Portfolio and the Bond Portfolio and 0.80% of the aggregate average daily net assets each of the Growth Portfolio and the Global Portfolio. AEGON USA Investment Management, Inc. ('AEGON Management') is sub-adviser to the Short-to-Intermediate Government Portfolio and the Balanced Portfolio of the Fund. AEGON Management, located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, is a wholly-owned subsidiary of AEGON USA, Inc. ('AEGON') and thus is an affiliate of Western Reserve. AEGON Management serves as sub-adviser to the two bond portfolios of IDEX II Series Fund. AEGON Management also manages the general account investment portfolios of the life insurance subsidiaries of AEGON, which had in excess of $17.5 billion under management as of January 1, 1994. Western Reserve and AEGON Management will divide equally monthly compensation at the current annual rate of 0.60% of the aggregate average daily net assets of the Short-to-Intermediate Government Portfolio and 0.80% of the aggregate average daily net assets of the Balanced Portfolio. AEGON Management's compensation will be reduced by 50% of the amount paid by Western Reserve on behalf of the Short-to-Intermediate Government Portfolio pursuant to any expense limitation or other reimbursement. American Capital Asset Management, Inc. ('American Capital') is sub-adviser to the Emerging Growth Portfolio of the Fund. American Capital, located as 2800 Post Oak Blvd., Houston, Texas 77056, is a wholly-owned subsidiary of American Capital Management & Research, Inc., an indirect wholly-owned subsidiary of The Travelers, Inc. (formerly 'Primerica Corporation'). The Travelers, Inc. is a financial services holding company engaged, through its subsidiaries, principally in three business segments -- investment services, consumer finance services and insurance services. American Capital has provided investment advisory services to other mutual funds for over 68 years and currently has over $16 billion of assets under management. Western Reserve and American Capital will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Emerging Growth Portfolio. American Capital's compensation will be reduced by 50% of 21 the amount paid by Western Reserve on behalf of the Emerging Growth Portfolio pursuant to any expense limitation or other reimbursement. Luther King Capital Management Corporation ('Luther King') is sub-adviser to the Equity-Income Portfolio of the Fund. Luther King is located at 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102. Ultimate control of Luther King is exercised by J. Luther King, Jr. Although Luther King has no previous experience as an investment adviser to mutual funds, it is a registered investment adviser and provides investment management services to accounts of individual and other institutional investors. Western Reserve and Luther King will divide equally monthly compensation at the current rate of 0.80% of the aggregate average daily net assets of the Equity-Income Portfolio. Federated Investment Counseling ('Federated') is sub-adviser to the Utility Portfolio of the Fund. Federated, located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, is a Delaware business trust organized on April 11, 1989 and is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. Federated serves as investment adviser to a number of investment companies and private accounts. Total assets under management or administration by Federated and other subsidiaries of Federated Investors is approximately $79 billion. Western Reserve will receive monthly compensation at the current annual rate of 0.75% of the aggregate average daily net assets of the Utility Portfolio. From this amount, as compensation for its services, Federated will receive payment of fees equal to 0.50% of the first $30 million of average daily net assets, 0.35% of the next $20 million of average daily net assets, and 0.25% of average daily net assets in excess of $50 million of the Utility Portfolio. Fred Alger Management, Inc. ('Fred Alger') is sub-adviser to the Aggressive Growth Portfolio of the Fund. Fred Alger, located at 75 Maiden Lane, New York, NY 10038, is a wholly-owned subsidiary of Fred Alger & Company, Incorporated, which in turn is a wholly-owned subsidiary of Alger Associates, Inc., a financial services holding company controlled by Fred M. Alger. Fred Alger has approximately $2.5 billion in assets under management for investment companies and private accounts. Western Reserve and Fred Alger will divide equally monthly compensation at the current rate of 0.80% of the aggregate average daily net assets of the Aggressive Growth Portfolio. Dean Investment Associates, a Division of C.H. Dean and Associates, Inc. ('Dean') is sub-adviser to the Tactical Asset Allocation Portfolio of the Fund. Dean, located at 2480 Kettering Tower, Dayton, Ohio 45423-2480, is a registered investment adviser with the Securities and Exchange Commission. Dean is wholly-owned by C.H. Dean and Associates, Inc. Founded in 1972, Dean Investments manages portfolios for individuals and institutional clients worldwide. Dean provides a full range of investment advisory services and currently has over $4 billion of assets under management. Western Reserve and Dean will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Tactical Asset Allocation Portfolio. Dean's compensation will be reduced by 50% of the amount paid by Western Reserve on behalf of the Tactical Asset Allocation Portfolio pursuant to any expense limitation or other reimbursement. In addition to the Series Account, shares of the Fund are also sold to the WRL Series Annuity Account, a separate account established by Western Reserve for its variable annuity contracts, the PFL Endeavor Variable Annuity Account, a separate account of PFL Life Insurance Company, the ILI Endeavor Variable Annuity Account, a separate account of International Life Investors Insurance Company, and to the AUSA Series Life Account, a separate account of AUSA Life Insurance Company, Inc., all affiliates of Western Reserve. Shares of the Fund may in the future be sold to other separate accounts, including separate accounts established for variable life insurance policies or variable annuity contracts issued by Western Reserve or its affiliates. It is conceivable that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the Fund simultaneously. Although neither Western Reserve nor the Fund currently foresees any such disadvantages, either to variable life insurance Policyowners or to variable annuity contract owners, the Fund's Board of Directors intends to monitor events in order to identify any material 22 conflicts between the interests of such variable life insurance Policyowners and variable annuity contract owners and to determine what action, if any, it should take. Such action could include the sale of Fund shares by one or more of the separate accounts, which could have adverse consequences. Material conflicts could result from, for example, (1) changes in state insurance laws, (2) changes in Federal income tax laws, or (3) differences in voting instructions between those given by variable life insurance Policyowners and those given by variable annuity contract owners. If the Board of Directors were to conclude that separate funds should be established for variable life and variable annuity separate accounts, Western Reserve will bear the attendant expenses, but variable life insurance Policyowners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined fund. ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS Western Reserve reserves the right, subject to compliance with applicable law, to make additions to, deletions from, or substitutions for the shares that are held by the Series Account or that the Series Account may purchase. Western Reserve reserves the right to eliminate the shares of any of the Portfolios of the Fund and to substitute shares of another Portfolio of the Fund or of another open-end, registered investment company, if the shares of a Portfolio are no longer available for investment, or if in its judgment further investment in any Portfolio should become inappropriate in view of the purposes of the Series Account. Western Reserve will not substitute any shares attributable to a Policyowner's interest in a Sub-Account of the Series Account without notice and prior approval of the Commission, to the extent required by the Investment Company Act of 1940, as amended (the '1940 Act') or other applicable law. Nothing contained herein shall prevent the Series Account from purchasing other securities for other portfolios or classes of policies, or from permitting a conversion between portfolios or classes of policies on the basis of requests made by Policyowners. Western Reserve also reserves the right to establish additional Sub-Accounts of the Series Account, each of which would invest in a new Portfolio of the Fund, or in shares of another investment company, with a specified investment objective. New sub-accounts may be established when, in the sole discretion of Western Reserve, marketing, tax or investment conditions warrant, and any new sub-accounts will be made available to existing Policyowners on a basis to be determined by Western Reserve. Western Reserve may also eliminate one or more Sub-Accounts if, in its sole discretion, marketing, tax, or investment conditions warrant. In the event of any such substitution or change, Western Reserve may by appropriate endorsement make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If deemed by Western Reserve to be in the best interests of persons having voting rights under the Policies, the Series Account may be operated as a management company under the 1940 Act, or it may be deregistered under that Act in the event such registration is no longer required. PAYMENT AND ALLOCATION OF PREMIUMS ISSUANCE OF A POLICY Individuals wishing to purchase a Policy must send a completed application to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068. The Policyowner will be able to select from a range of specified amounts based on the size of the initial payment. Under Western Reserve's current rules, the minimum Specified Amount for a Policy at issue is the amount of insurance which the $10,000 minimum Initial Premium payment ($5,000 in the case of Insureds less than age 20) will purchase based on the Insured's age, sex and rate class and certain guidelines set forth in the Internal Revenue Code. When the Specified Amount for a Policy is set at the minimum Specified Amount permitted for the Policyowner's Initial Premium payment, the Policyowner will, in the absence of Policy loans, generally not be permitted to make additional premium payments without requesting an increase in the Policy's Specified Amount. 23 The maximum Specified Amount for a particular Initial Premium payment is generally the amount of insurance which would remain in force for a 20-year period based on the current cost of insurance charges for the Policy and a 12% rate of return on the monies allocated to the Sub-Accounts of the Series Account. When the Specified Amount is set at the maximum for a particular Initial Premium payment, a Policyowner may be required to make additional premium payments before the end of the 20-year period to prevent the Policy from lapsing. (See Payment and Allocation of Premiums - Policy Lapse and Reinstatement, p. .) To the extent the Specified Amount selected by a Policyowner exceeds the minimum Specified Amount permitted for the Policyowner's Initial Premium payment, it is more likely that such Policyowner will be required to make additional premium payments before the end of the 20-year period to prevent the Policy from lapsing. Such additional premium payments are subject to additional premium expense charges including a charge of 2.5% of each such premium to compensate Western Reserve for premium taxes imposed by various states, and a charge of 6.0% of each such premium to compensate Western Reserve for expenses associated with the distribution of the Policy. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) A Policy will generally be issued only to Insureds 75 years of age or under who supply satisfactory evidence of insurability sufficient to Western Reserve. Western Reserve may, however, at its sole discretion, issue a Policy to an individual above the age of 75. Acceptance is subject to Western Reserve's underwriting rules and Western Reserve reserves the right to reject an application for any reason permitted by law. The Initial Premium payment will be allocated to the Sub-Account of the Series Account investing in the Money Market Portfolio upon receipt by Western Reserve. The Policy Date will ordinarily be the date of receipt of the premium payment. Insurance coverage under the Policy and associated monthly deductions commence on the Policy Date. The Record Date of the Policy will be the date on which the Policy is recorded on Western Reserve's books as an 'In Force' Policy and Western Reserve will allocate Net Premiums to the accounts on the first Valuation Date on or following the Record Date in accordance with the directions in the application. (See Payment and Allocation of Premiums - Allocation of Premiums and Cash Value, p. .) PARTIAL PAYMENT PROCEDURE In certain circumstances, for example if the Policy is being purchased with the proceeds of a tax-free exchange under Section 1035 of the Internal Revenue Code of 1986, the Policyowner may make the Initial Premium payment in more than one part. If cash is received with the application, an initial payment of at least $2,000 will be required. The remainder of the Initial Premium payment may be paid in multiple parts provided that the balance is received at Western Reserve's Office within 60 days (or 180 days if the Policy is involved with an exchange under Section 1035). Under this method of payment, the first payment will be applied as of the Policy Date and the remaining payments will be applied as of the Record Date, with each payment being credited with interest to the Record Date as if the payment had been invested in the Money Market Portfolio as of the date of receipt by Western Reserve. If at least $10,000, but not the entire anticipated amount has been received during the applicable time period, Western Reserve will issue the Policy with the Specified Amount originally requested and an Initial Premium payment equal to the amount received during the applicable time period. If the $10,000 minimum Initial Premium requirement has not been met within the applicable time period, all payments previously received by Western Reserve will be returned, without interest, and all coverage deemed void from the beginning. TEMPORARY INSURANCE COVERAGE If Western Reserve determines to its satisfaction that on the date the application is signed and submitted with the Initial Premium payment the proposed insured and all additional insureds proposed for coverage were insurable and acceptable under Western Reserve's underwriting rules and standards 24 for insurance in the amount, plan and risk classification applied for in the application, then the insurance protection applied for, subject to the limits of liability and in accordance with the terms set forth in the Policy and in the conditional premium receipt, will by reason of such payment take effect on the later of the date of the application or the date of completion of all medical tests and examinations, if required. The maximum amount of temporary insurance coverage is the lesser of the amount applied for or $100,000 minus any amounts payable under other insurance on the life of the proposed insured in force with Western Reserve. Temporary insurance coverage expires on the earliest of the following dates: (1) the date Western Reserve approves the Policy as applied for; or (2) at the end of the fraction of a year which the payment bears to the premium required to provide one month of insurance coverage; or (3) at the beginning of the sixtieth (60th) day following the date of the conditional receipt. PREMIUMS PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy frees the Owner from the requirement that premiums be paid in accordance with a rigid and inflexible premium schedule. The minimum initial payment is generally $10,000 ($5,000 in the case of Insureds less than age 20), except under certain circumstances. (See Payment and Allocation of Premiums - Partial Payment Procedure, p. .) Thereafter, subject to the minimum and maximum premium limitations described below, a Policyowner may make certain additional premium payments. PREMIUM LIMITATIONS. Under Western Reserve's current rules, no additional premium payments may be made during the first Policy year and the minimum additional payment amount is $1,000. Premium payments less than the minimum amount may be returned to the Policyowner. Western Reserve reserves the right to limit additional premium payments to once each Policy year. The total of all premiums paid may not exceed the current maximum premium limitations which are required by Federal tax laws. If at any time a premium is paid which would result in total premiums exceeding the current maximum premium limitation, Western Reserve will only accept that portion of the premium which will make total premiums equal the maximum. Any part of the premium in excess of that amount will be returned and no further premiums will be accepted until allowed by the current maximum premium limitations set forth in the Policy. PAYMENT OF PREMIUMS. While there is indebtedness, additional premium payments in excess of $1,000 will be treated as premium payments unless clearly marked as loan repayments. Certain charges will be deducted from each additional premium payment. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) As an accommodation to Policyowners, Western Reserve will accept transmittal of initial and subsequent premiums of at least $1,000 by wire transfer. For an Initial Premium, the wire transfer must be accompanied by a simultaneous telephone facsimile transmission ('FAX') of a completed application. An Initial Premium of $2,000 or more accepted via wire transfer with FAX will be invested at the unit value next determined following receipt. An Initial Premium made by wire transfer not accompanied by a simultaneous FAX, or accompanied by a FAX of an incomplete application, will be retained for a period up to five business days while Western Reserve attempts to obtain the FAX or complete the essential information required to establish the Policy and allocate the Initial Premium at the unit value next determined after receipt of the FAX or information necessary to complete the application. If Western Reserve cannot obtain the FAX or essential information within five business days, Western Reserve will return the Initial Premium to the applicant, unless the applicant consents to allow Western Reserve to retain the Initial Premium until the required FAX or essential information is received. In the event the application with original signature is later received and the allocation instructions in that application, for any reason, are inconsistent with those previously designated on the FAX, the Initial Premium will be reallocated in accordance with the allocation instructions in the application with original signature at the unit value next determined after receipt of such application. 25 Policyowners wishing to make payments via bank wire should instruct their banks to wire Federal Funds as follows: Barnett Bank of Pinellas County ABA Pound 063000047 For credit to: Western Reserve Life Account Pound: 1263627596 Policyowner's Name: Policy Number: Attention: General Accounting Fax Number: (813) 588-1620 ALLOCATION OF PREMIUMS AND CASH VALUE NET PREMIUMS. With respect to the Initial Premium, the Net Premium equals the premium paid, because no premium expense charges are deducted from the Initial Premium. With respect to additional premium payments, the Net Premium equals the premium paid less the applicable premium expense charges. (See Charges and Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. .) ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Policyowner will allocate Net Premiums to one or more of the Sub-Accounts of the Series Account, to the Fixed Account, or to a combination of both. Notwithstanding the allocation in the application, the Initial Premium payment will be allocated to the Sub-Account of the Series Account that invests exclusively in shares of the Money Market Portfolio and will be re-allocated on the first Valuation Date on or following the Record Date in accordance with the directions in the application. Net Premiums paid after the Record Date will be allocated in accordance with the Policyowner's instructions. The minimum percentage of each premium that may be allocated to any account is 10%; percentages must be in whole numbers. The allocation for future Net Premiums may be changed without charge at any time by providing Western Reserve with written notification from the Policyowner, or by telephone by calling Western Reserve's toll-free number, 1-800-851-9777. Western Reserve will employ the same procedures to confirm that such telephone instructions are genuine as it employs regarding transfers among Sub-Accounts and the Fixed Account by telephone. Upon instructions from the Policyowner, the registered representative/agent of record may also change the allocation of future Net Premiums. Western Reserve reserves the right to limit the number of changes of the allocation of Net Premiums to one per year. Investment returns from the amounts allocated to Sub-Accounts of the Series Account will vary with the investment experience of these Sub-Accounts and the Policyowner bears the entire investment risk. TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the Series Account or from the Sub-Accounts to the Fixed Account. Transfers may also be made from the Fixed Account to the Sub-Accounts, subject to certain restrictions. (See The Fixed Account - Allocations and Withdrawals, p. .) The amount of Cash Value available for transfer from any Sub-Account, or the Fixed Account, is determined at the end of the Valuation Period during which the transfer request is received at Western Reserve's Office. As previously explained, the net asset value for each share of the corresponding Portfolio of any Sub-Account is determined, once daily, as of the close of the regular business session of the New York Stock Exchange (currently 4:00 p.m. Eastern time), which coincides with the end of each Valuation Period. (See Policy Benefits - Valuation Date and Valuation Period, p. .) Therefore, any transfer request received after 4:00 p.m., Eastern time, on any day the New York Stock 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 New York Stock Exchange is open for business. Cash Value available for transfer from the Fixed Account will be determined in the same manner. 26 Policyowners may make transfer requests in writing, or by telephone. Written requests must be in a form acceptable to Western Reserve. The registered representative/agent of record for the Policy may, upon instructions from the Policyowner, make telephone transfers upon request without the necessity for the Policyowner to have previously authorized telephone transfers in writing. All telephone transfers should be made by calling Western Reserve at our toll-free number: 1-800-851-9777. Western Reserve will not be liable for complying with telephone instructions it reasonably believes to be authentic, nor for any loss, damage, cost or expense in acting on such telephone instructions, and Policyowners will bear the risk of any such loss. Western Reserve will employ reasonable procedures to confirm that telephone instructions are genuine. If Western Reserve does not employ such procedures, it may be liable for losses due to unauthorized or fraudulent instructions. Such procedures may include, among others, requiring forms of personal identification prior to acting upon such telephone instructions, providing written confirmation of such transactions to Policyowners and/or tape recording of telephone transfer request instructions received from Policyowners. Western Reserve may, at any time, revoke or modify the transfer privilege. Under Western Reserve's current procedures, it will effect transfers and determine all values in connection with transfers at the end of the Valuation Period during which the transfer request is received at Western Reserve's Office. Although Western Reserve does not currently impose a charge for any transfers, Western Reserve reserves the right to impose a $10 charge for each transfer after the first twelve transfers during any Policy year. POLICY LAPSE AND REINSTATEMENT LAPSE. Unlike conventional life insurance policies, the failure to make additional premium payments after the Initial Premium payment will not itself cause the Policy to lapse. Lapse will only occur where Net Surrender Value is insufficient to cover the monthly deduction, and a grace period expires without a sufficient payment. If Net Surrender Value is insufficient to cover the monthly deduction, the Policyowner must pay during the grace period either a payment at least sufficient to provide a Net Premium to cover the sum of the monthly deductions due within the grace period or $1,000, whichever is greater. (See Charges and Deductions, p. .) If Net Surrender Value is insufficient to cover the monthly deduction, Western Reserve will notify the Policyowner and any assignee of record of the minimum payment needed to keep the Policy In Force. The Policyowner will then have a grace period of 61 days, measured from the date notice is sent to the Policyowner, for Western Reserve to receive sufficient payments. If Western Reserve does not receive a sufficient payment within the grace period, Lapse of the Policy will result. If a sufficient payment is received during the grace period, any resulting Net Premium will be allocated among the Accounts, and any monthly deductions due will be charged to such Accounts, in accordance with the Policyowner's then current instructions (see Allocation of Premiums and Cash Value - Allocation of Net Premiums, p. ), and any monthly deductions due will be charged to the Sub-Accounts in accordance with the Policyowner's then current instructions. (See Cash Value Charges - Cost of Insurance, p. .) If the Insured dies during the grace period, the death benefit proceeds will equal the amount of the death benefit proceeds immediately prior to the commencement of the grace period, reduced by any due and unpaid charges. REINSTATEMENT. A lapsed Policy may be reinstated any time within 5 years after the date of lapse and before the Maturity Date by submitting the following items to Western Reserve: 1. A written application for reinstatement from the Policyowner; and 2. Evidence of insurability satisfactory to Western Reserve; and 3. A premium which is at least $1,000 and which, after the deduction of premium expense charges, is large enough to cover: (a) one monthly deduction at the time of termination; and (b) the next two monthly deductions which will become due after the time of reinstatement. 27 Any indebtedness on the date of Lapse will not be reinstated. The Cash Value of the Loan Reserve on the date of reinstatement will be zero. The amount of Cash Value on the date of reinstatement will be equal to the Net Premiums paid at reinstatement, less the amounts paid in accordance with 3(a). All future surrender charges will be waived. Upon approval of the application for reinstatement, the effective date of reinstatement will be the first Monthly Anniversary on or next following the date Western Reserve approves of the application for reinstatement. CHARGES AND DEDUCTIONS Charges will be deducted in connection with the Policy to compensate Western Reserve for: (1) providing the insurance benefits set forth in the Policy and any optional insurance benefits added by rider; (2) administering the Policy; (3) assuming certain risks in connection with the Policy; and (4) incurring expenses in distributing the Policy. The nature and amount of these charges are described more fully below. The first two charges are charges on premiums. One is a charge that is a percent of the Initial Premium and is taken out of Cash Value only upon surrender of a Policy during the first 10 Policy years. The other is a percent of any subsequent premium payments and is taken from those payments. CONTINGENT SURRENDER CHARGE No amount will be deducted from the Initial Premium payment prior to allocation to the Sub-Account of the Series Account investing in the Money Market Portfolio. If the Policy is totally surrendered prior to the end of the tenth Policy year, a surrender charge will be deducted from the Policy's Cash Value. The surrender charge consists of a sales charge, a premium tax charge and a first year issue charge, all of which are more fully described below. The surrender charge during the first year equals 9.0% of the Initial Premium payment. During Policy year 2-10, the surrender charge will also be a percentage of the Initial Premium payment, such that a surrender on a Policy Anniversary will decline from year to year as follows: End of Policy Year Charge - ----------- ---------------------------------- 1 9% of the Initial Premium payment 2 8% of the Initial Premium payment 3 8% of the Initial Premium payment 4 7% of the Initial Premium payment 5 7% of the Initial Premium payment 6 5% of the Initial Premium payment 7 4% of the Initial Premium payment 8 3% of the Initial Premium payment 9 2% of the Initial Premium payment 10+ 0% of the Initial Premium payment The surrender charge on any date other than a Policy Anniversary will be interpolated between the two end of year charges. The surrender charge consists of a sales charge, a premium tax charge and a first year issue charge. Assuming a 9% surrender charge is imposed, 6% is a sales charge designed to assist Western Reserve in recovering distribution expenses incurred in connection with the Policy. These expenses include agent sales commissions, the cost of printing prospectuses and sales literature, and any advertising costs. The proceeds of this charge may not be sufficient to cover these expenses. To the extent they are not, Western Reserve will cover the shortfall from its General Account assets, which may include profits from the mortality and expense risk charge under the Policy. 28 Various states and subdivisions impose a tax on premiums received by insurance companies. Premium tax rates vary from state to state from a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a particular state, a deduction of an amount equal to 2.5% of the Initial Premium will be part of the surrender charge to compensate Western Reserve for paying this tax. Because of the retaliatory provisions of state premium tax laws, Western Reserve is required to pay a minimum 2.5% premium tax regardless of a state's actual premium tax rate. The first year surrender charge will also include an amount equal to 0.5% of the Initial Premium to assist Western Reserve in recovering the first year underwriting, processing and start-up expenses incurred in connection with the Policy and the Series Account. These expenses include the cost of processing applications, conducting medical examinations, determining insurability and the Insured's rate class, and establishing Policy records. Western Reserve does not anticipate that it will make any profit on this charge. SALES CHARGE AND PREMIUM TAX CHARGE ON ADDITIONAL PREMIUMS A charge of 8.5% will be deducted from those premium payments made after the Initial Premium payment. A charge of 6.0% of each premium will be deducted to compensate Western Reserve for distribution expenses of the Policy. A charge of 2.5% of each premium will be deducted to compensate Western Reserve for premium taxes imposed by various states. (See Payment and Allocation of Premiums - -Issuance of a Policy, p. .) CASH VALUE CHARGES Certain charges will be deducted monthly from the Cash Value of each Policy ('monthly deduction') to compensate Western Reserve for certain administrative costs, and for the cost of insurance and optional benefits added by rider. The monthly deduction will be deducted on each Monthly Anniversary. It will be allocated among the Accounts on the same basis as Net Premiums are allocated. If the value of any Account is insufficient to pay its part of the monthly deduction, the monthly deduction will be taken on a pro rata basis from all Accounts. Because portions of the monthly deduction, such as the cost of insurance, can vary from month to month, the monthly deduction itself will vary in amount from month to month. COST OF INSURANCE. Western Reserve will determine the monthly cost of insurance charge by multiplying the applicable cost of insurance rates by the net amount at risk for each Policy Month. The net amount at risk for a Policy Month is (a) the death benefit at the beginning of the Policy Month divided by 1.0032737 (which reduces the net amount at risk, solely for purposes of computing the cost of insurance, by taking into account assumed monthly earnings at an annual rate of 4%), less (b) the Cash Value at the beginning of the Policy Month. To the extent that there is an increase in the Specified Amount of a Policy which results in a greater net amount at risk, the cost of insurance deduction will increase. Cost of insurance rates will be based on the sex, Attained Age and rate class of the Insured, and the length of time a Policy has been In Force. The actual monthly cost of insurance rates will be based on Western Reserve's expectations as to future experience. They will not, however, be greater than the guaranteed cost of insurance rates set forth in the Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Table and the Insured's sex, Attained Age and rate class. For standard rate classes, these rates will not exceed rates contained in the 1980 C.S.O. Tables. Western Reserve also may guarantee the actual cost of insurance rates will not be changed for a specified period of time (e.g., one year). Any change in the cost of insurance rates will apply to all persons of the same age, sex, and rate class whose Policies have been In Force for the same length of time. The policies offered by this Prospectus are based on mortality tables that distinguish between men and women. As a result, the Policy pays different benefits to men and women of the same age. The state of Montana prohibits the use of actuarial tables that distinguish between men and women in 29 determining premiums and policy benefits for policies issued on the lives of its residents. The State of Massachusetts formerly had a similar prohibition and has introduced legislation which may reinstate such prohibition. Therefore, if Policies are offered by this Prospectus to insure residents of the States of Montana and Massachusetts, such Policies may have premiums and benefits which are based on actuarial tables that do not differentiate on the basis of sex. The rate class of an Insured will affect the cost of insurance rates. Western Reserve currently places Insureds into the following four standard rate classes: non-smoker Ultimate Select, non-smoker Select, smoker Ultimate Standard, and smoker Standard; as well as various other sub-standard rate classes involving a higher mortality risk. In an otherwise identical Policy, the cost of insurance rate is generally higher for smokers than for non-smokers and, within these two categories, higher for Insureds not in the Ultimate category than in the Ultimate category. Western Reserve may also issue certain Policies on a 'simplified' or expedited basis to certain categories of individuals (for example, Policies issued at a predetermined Specified Amount or underwritten on a group basis). Policies issued on this basis will have guaranteed cost of insurance rates no higher than the guaranteed rates for non-smoker Select or smoker Standard categories (as appropriate), however, due to the special underwriting criteria established for these issues, actual rates may be higher or lower than the current cost of insurance rates charged under otherwise identical Policies that are underwritten using standard underwriting criteria. MONTHLY ADMINISTRATION CHARGE. Western Reserve has primary responsibility for the administration of the Policy and the Series Account. Annual administrative expenses include recordkeeping, processing death benefit claims, Policy changes, reporting and overhead costs. As reimbursement for administrative expenses related to the maintenance of each Policy and the Series Account, Western Reserve assesses a monthly administration charge from each Policy. This charge is currently $5.00 per Policy Month and will not be increased. Western Reserve does not anticipate that it will make any profit on this charge. OPTIONAL CASH VALUE CHARGES The following optional Cash Value charges will be deducted from the Policy as the result of changes or elections made to the Policy and initiated by the Policyowner. OPTIONAL INSURANCE BENEFITS. The monthly deduction will include charges for any optional insurance benefits added to the Policy by rider. CASH VALUE TRANSFERS. Western Reserve reserves the right to impose a transfer charge of $10 for each transfer following the first twelve transfers made during any Policy year. However, Western Reserve does not currently impose a charge for transfer, regardless of the number made. INCREASES IN THE SPECIFIED AMOUNT OF POLICY. In the month the increase becomes effective, an administrative fee of $3.60 per $1,000 of increase will be charged to compensate Western Reserve for the costs in effectuating the change. This charge will not be increased. Western Reserve does not anticipate that it will make a profit on this charge. CASH WITHDRAWALS. A charge equal to the lesser of $25 or 2% of the amount withdrawn will be deducted from amounts withdrawn from the Policy and the balance will be paid to the Policyowner. This charge will not be increased. Western Reserve does not anticipate that it will make a profit on this charge. CHARGES AGAINST THE SERIES ACCOUNT Certain expenses will be deducted as a percentage of the value of the net assets of the Series Account to compensate Western Reserve for certain risks assumed in connection with the Policy. MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily charge from the Series Account at an annual rate of .90% of the average daily net assets of the Series Account. Under 30 Western Reserve's current procedures, these amounts are paid to the General Account monthly. Western Reserve may profit from this charge. The mortality risk assumed by Western Reserve is that Insureds may live for a shorter time than projected. The expense risk assumed is that expenses incurred in issuing and administering the Policies will exceed the limits on administrative charges set in the Policies. Western Reserve also assumes risks with respect to other contingencies including the incidence of Policy loans, which may cause Western Reserve to incur greater costs than anticipated when designing the Policies. TAXES. Currently no charge is made to the Series Account for Federal income taxes that may be attributable to the Series Account. Western Reserve may, however, make such a charge in the future. Charges for other taxes, if any, attributable to the Series Account may also be made. (See Federal Tax Matters, p. .) INVESTMENT ADVISORY FEE. Because the Series Account purchases shares of the Fund, the net assets of the Series Account will reflect the investment advisory fee and other expenses incurred by the Fund. (See pp. - for a discussion of the investment advisory fees of each Portfolio.) GROUP OR SPONSORED ARRANGEMENTS Policies may be purchased under group or sponsored arrangements, as well as on an individual basis. A 'group arrangement' includes a program under which a trustee, employer or similar entity purchases individual Policies covering a group of individuals on a group basis. Examples of such arrangements are employer-sponsored benefit plans which are qualified under Section 401 of the Internal Revenue Code and deferred compensation plans. A 'sponsored arrangement' includes a program under which an employer permits group solicitation of its employees or an association permits group solicitation of its members for the purchase of Policies on an individual basis. The sales charge and surrender charges described in 'Charges and Deductions' may be reduced for Policies issued in connection with group or sponsored arrangements. Western Reserve will reduce these charges in accordance with its rules in effect as of the date an application for a Policy is approved. To qualify for such a reduction, a group or sponsored arrangement must satisfy certain criteria as to, for example, size and number of years in existence. Generally, the sales contacts and effort, administrative costs and mortality cost per Policy vary based on such factors as the size of the group or sponsored arrangement, its stability as indicated by its term of existence, the purposes for which Policies are purchased and certain characteristics of its members. The amount of reduction and the criteria for qualification will reflect the reduced sales effort resulting from sales to qualifying groups and sponsored arrangements. Western Reserve may modify from time to time on a uniform basis, both the amounts of reductions and the criteria for qualification. In no event, however, will group or sponsored arrangements established for the sole purpose of purchasing Policies, or which have been in existence for less than six months, qualify for such reductions. Reductions in these charges will not be unfairly discriminatory against any person, including the affected Policyowners and all other Policyowners of Policies funded by the Series Account. In 1983 the United States Supreme Court held that certain insurance policies, the benefits under which vary based on sex, may not be used to fund certain employer-sponsored benefit plans and fringe benefit programs. Western Reserve recommends that any employer proposing to offer the Policies to employees under a group or sponsored arrangement consult his or her attorney before doing so. (See Federal Tax Matters - Employment-Related Benefit Plans, p. .) 31 POLICY RIGHTS LOAN PRIVILEGES POLICY LOAN. After the first Policy year and so long as the Policy remains In Force, the Policyowner may borrow money from Western Reserve using the Policy as the only security for the loan. The maximum amount that may be borrowed is 90% of the Cash Value, less any surrender charge and any already outstanding Policy loan. Western Reserve reserves the right to limit the amount of any Policy loan to no less than $500. Outstanding loans have priority over the claims of any assignee or other person. The loan may be repaid totally or in part before the Maturity Date of the Policy and while the Policy is In Force. A loan taken from, or secured by, a Policy may have Federal income tax consequences. (See Federal Tax Matters, p. .) An amount equal to the loan plus interest in advance until the next Policy Anniversary will be withdrawn from the Account or Accounts specified and transferred to the Loan Reserve until the loan is repaid. The Sub-Accounts of the Series Account may be specified. If no Account is specified, the loan amount will be withdrawn from each Account in the same manner as the current allocation instructions. The loan will normally be paid within seven days after receipt of a request in a manner permitted by Western Reserve. Postponement of loans may take place under certain conditions. (See General Provisions - Postponement of Payments, p. .) Under Western Reserve's current procedures, at each Anniversary, Western Reserve will compare the amount of the outstanding loan (including interest in advance until the next Policy Anniversary, if not paid) to the amount in the Loan Reserve. Western Reserve will also make this comparison any time the Policyowner repays all or part of the loan. At each such time, if the amount of the outstanding loan exceeds the amount in the Loan Reserve, Western Reserve will withdraw the difference from the Accounts of and transfer it to the Loan Reserve in the same manner as when a loan is made. If the amount in the Loan Reserve exceeds the amount of the outstanding loan, Western Reserve will withdraw the difference from the Loan Reserve and transfer it to the Accounts in the same manner as Net Premiums are allocated. Western Reserve reserves the right to require the transfer of such amounts to the Fixed Account, where such amounts will be credited at the applicable rate and subject to the applicable transfer and withdrawal restrictions. (See The Fixed Account, p. .) No charge will be imposed for these transfers. A 10% additional income tax is imposed on the portion of any distribution from, or loan taken from, or secured by, such a Policy that is included in income except where the distribution or loan is made on or after the Owner attains age 59 1/2, is attributable to the Owner's becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Owner or the joint lives (or joint life expectancies) of the Owner and the Owner's Beneficiary. (See Federal Tax Matters, p. .) INTEREST. The interest rate charged on Policy loans will be at the rate of 7.4% payable annually in advance. If unpaid when due, interest will be added to the amount of the loan and will become part of the loan and bear interest at the same rate. EFFECT OF POLICY LOANS. A Policy loan affects the Policy since the death benefit and Net Surrender Value under the Policy are reduced by the amount of the loan. Repayment of the loan causes the death benefit and Net Surrender Value to increase by the amount of the repayment. As long as a loan is outstanding, an amount equal to the loan plus interest in advance until the next Policy anniversary is held in the Loan Reserve. This amount will not be affected by the Series Account's investment performance. Amounts transferred from the Series Account to the Loan Reserve will affect the Series Account value because such amounts will be credited with an interest rate declared by Western Reserve rather than a rate of return reflecting the investment performance of the Series Account. (See The Fixed Account - Minimum Guaranteed and Current Interest Rates, p. .) 32 There are risks involved in taking a Policy loan, a few of which include the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved, as well as adverse tax consequences which occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax Treatment of Policy Benefits, p. .) INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any unearned loan interest on the loans. If indebtedness exceeds Cash Value less the then applicable surrender charge, Western Reserve will notify the Policyowner and any assignee of record. If a sufficient payment equal to excess indebtedness or $1,000, whichever is greater, is not received by Western Reserve within 61 days from the date notice is sent, the Policy will lapse and terminate without value. The Policy, however, may later be reinstated. (See Payment and Allocation of Premiums - Policy Lapse and Reinstatement, p. .) REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the Maturity Date of the Policy and while the Policy is In Force. (See Policy Rights - -Benefits at Maturity, p. .) While there is indebtedness, additional premium payments in excess of $1,000 will be treated as premium payments unless the Policyowner indicates that the payment should be treated as loan repayments. If not repaid, Western Reserve may deduct indebtedness from any amount payable under the Policy. As indebtedness is repaid, the Policy's value in the Loan Reserve securing the indebtedness repaid will be transferred from the Loan Reserve to the accounts in the same manner as net premiums are allocated. However, Western Reserve reserves the right to require the transfer to the Fixed Account. Western Reserve will allocate the repayment of indebtedness at the end of the Valuation Period during which the repayment is received. SURRENDER PRIVILEGES At any time before the earlier of the death of the Insured or the Maturity Date, the Policyowner may totally Surrender or, after the first Policy year, make a Cash Withdrawal from the Policy by sending a written request to Western Reserve. The amount available for surrender is the Net Surrender Value at the end of the Valuation Period during which the surrender request is received at Western Reserve's Office. Surrenders from the Series Account will generally be paid within seven days of receipt of the written request. Postponement of payments may, however, occur in certain circumstances. (See General Provisions - Postponement of Payments, p. .) For the protection of Policyowners, all requests for Cash Withdrawals or total surrenders of more than $50,000, or where the withdrawal or surrender proceeds are to be sent to an address other than the address of record will require a signature guarantee. All required guarantees of signatures must be made by a national or state bank, a member firm of a national stock exchange or any other institution which is an eligible guarantor institution as defined by rules and regulations of the Commission. If the Policyowner is a corporation, partnership, trust or fiduciary, evidence of the authority of the person seeking redemption is required before the request for withdrawal is accepted, including withdrawals under $50,000. For additional information, Policyowners may call Western Reserve at (800) 581-9777. A Cash Withdrawal or total surrender may have Federal income tax consequences. (See Federal Tax Matters, p. .) TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy itself must be returned to Western Reserve along with the request. A Policyowner may elect to have the amount paid in a lump sum or under a settlement option. (See Payment of Policy Benefits - Settlement Options, p. .) CASH WITHDRAWALS. Under Western Reserve's current rules, there is no minimum Cash Withdrawal amount. Western Reserve reserves the right to limit Cash Withdrawals to once each Policy year and to an amount no more than 10% of the net surrender value. The amount paid plus a charge equal to the lesser of $25 or 2% of the amount withdrawn will be deducted from the Policy's Cash Value at the end of the Valuation Period during which the request is received. The amount will be deducted from the Accounts in the same manner as the current allocation instructions unless the Policyowner directs otherwise. 33 Cash Withdrawals will affect both the Policy's Cash Value and the death benefit payable under the Policy. The Policy's Cash Value will be reduced by the amount of the Cash Withdrawal. Moreover, the death benefit proceeds payable under a Policy will generally be reduced by at least the amount of the Cash Withdrawal. In addition, when death benefit Option A is in effect, the Specified Amount will be reduced by the Cash Withdrawal. No Cash Withdrawal will be permitted which would (1) result in a Specified Amount lower than the minimum Specified Amount set forth in the Policy, (2) reduce the Net Surrender Value to less than $5,000 or (3) deny the Policy status as life insurance under the Internal Revenue Code and applicable regulations. (See Cash Value Charges - Cost of Insurance, p. ; Death Benefit - Insurance Protection, p. ; and Federal Tax Matters - Tax Treatment of Policy Benefits, p. .) EXAMINATION OF POLICY PRIVILEGE ('FREE-LOOK') The Policyowner may cancel the Policy within 10 days after the Policyowner receives it, or 10 days after Western Reserve mails or delivers a written notice of withdrawal right to the Policyowner or within 45 days after signing the application, whichever is latest. Certain states require a Free-Look period longer than 10 days, either for all Policyowners or for certain classes of Policyowners. In such states, Western Reserve will comply with the specific requirements of those states. The Policyowner should mail or deliver the Policy to either Western Reserve or the agent who sold it. If the Policy is cancelled in a timely fashion, a refund will be made to the Policyowner. The refund will equal the sum of: (i) the difference between the premiums paid and the amounts allocated to any Accounts under the Policy; (ii) the total amount of monthly deductions made and any other charges imposed on amounts allocated to the Accounts; and (iii) the value of amounts allocated to the Accounts on the date Western Reserve or its agent receives the returned Policy. If state law prohibits the calculation above, the refund will equal the total of all premiums paid for the Policy. CONVERSION RIGHTS At any time upon written request within 24 months of the Policy Date, the Policyowner may elect to transfer all Sub-Account values to the Fixed Account. No transfer charge will be assessed. BENEFITS AT MATURITY If the Insured is living and the Policy is In Force, Western Reserve will pay the Net Surrender Value of the Policy on the Maturity Date. (See Cash Value - -Net Surrender Value, p. .) The Policy will mature on the Anniversary nearest the Insured's 95th birthday, if the Insured is living and the Policy is In Force. Western Reserve is willing to extend the Maturity Date provided the Policy is still In Force on the Maturity Date and there are no unfavorable tax consequences. Extension of the Maturity Date will be made upon mutual agreement between Western Reserve and the Policyowner, provided the Policyowner submits a written request to Western Reserve between 90 and 180 days prior to the Maturity Date, and provided the Policy may be extended with no unfavorable tax consequences to the Policyowner. PAYMENT OF POLICY BENEFITS Death benefits under the Policy will ordinarily be paid within seven days after Western Reserve receives due proof of death, and verifies the validity of the claim. Other benefits will ordinarily be paid within seven days of receipt of proper written request (including an election as to tax withholding). Payments may be postponed in certain circumstances. (See General Provisions - Postponement of Payments, p. and The Fixed Account - Allocations and Withdrawals, p. .) The Policyowner may decide the form in which the benefits will be paid. During the Insured's lifetime, the Policyowner may arrange for the death benefits to be paid in a lump sum or under one or more of the settlement options described below. These choices are also available if the Policy is surrendered or matures. If no election is made, Western Reserve will pay the benefits in a lump sum. 34 When death benefits are payable in a lump sum, the Beneficiary may select one or more of the settlement options. If death benefits become payable under a settlement option and the Beneficiary has the right to withdraw the entire amount, the Beneficiary may name and change contingent beneficiaries. SETTLEMENT OPTIONS. Policyowners and Beneficiaries subject to a prior election of the Policyowner, may elect to have benefits paid in a lump sum or in accordance with a variety of settlement options offered under the Policy. Once a settlement option is in effect, there will no longer be value in the Series Account or the Fixed Account. Western Reserve may make other settlement options available in the future. The effective date of a settlement provision will be either the date of Surrender or the date of death of the Insured. For additional information concerning these options, see the Policy itself. OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will be paid in equal monthly installments for the period chosen until the Fund has been paid in full. The period chosen may not exceed 30 years. OPTION B - LIFE INCOME. The proceeds will be paid in equal installments for the guaranteed payment period elected and continue for the life of the person on whose life the option is based. Such installments will be payable: (a) during the lifetime of the payee; or (b) during a fixed period certain and for the remaining lifetime of the payee; or (c) until the sum of installments paid equals the proceeds applied and for the remaining life of the payee. Guaranteed payment periods may be elected for 5 and 10 years, or the period in which the total payments will equal the amount retained. OPTION C - JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid during the joint lifetime of two persons and (a) continue upon the death of the first payee for the remaining lifetime of the survivor or (b) be reduced by one-third upon the death of the first payee and continue for the remaining lifetime of the survivor. GENERAL PROVISIONS POSTPONEMENT OF PAYMENTS GENERAL. Payment of any amount from the Series Account upon complete Surrender, Cash Withdrawal, Policy loan, or benefits payable at death or maturity may be postponed whenever: (i) the New York Stock Exchange is closed other than customary weekend and holiday closing, or trading on the New York Stock Exchange is restricted as determined by the Commission; (ii) the Commission by order permits postponement for the protection of Policyowners; or (iii) an emergency exists, as determined by the Commission, as a result of which disposal of securities is not reasonably practicable or it is not reasonably practicable to determine the value of the Series Account's net assets. Transfers may also be postponed under these circumstances. For restrictions applicable to payments from the Fixed Account, see The Fixed Account - Allocations and Withdrawals, p. . PAYMENT BY CHECK. Payments under the Policy of any amounts derived from premiums paid by check or bank draft may be delayed until such time as the check or bank draft has cleared the Policyowner's bank. THE CONTRACT The Policy and attached copy of the application and any supplemental applications are the entire contract. Only statements in the application and any supplemental applications can be used to void the Policy or defend a claim. The statements are considered representations and not warranties. No Policy provision can be waived or changed except by endorsement. Only the President or Secretary of Western Reserve can agree to change or waive any provisions of the Policy. 35 SUICIDE If the Insured, while sane or insane, commits suicide within two years after the Policy Date, Western Reserve will pay only the premiums received, less any Cash Withdrawals and outstanding indebtedness. In the event of Lapse of the Policy, the suicide period will be measured from the effective date of reinstatement. If the Insured, while sane or insane, commits suicide within two years after the effective date of any increase in insurance or any reinstatement, Western Reserve's total liability with respect to such increase or reinstatement will be the cost of insurance charges deducted for such increase or reinstatement. INCONTESTABILITY Western Reserve cannot contest the Policy as to the initial Specified Amount after it has been in force during the lifetime of the Insured for two years from the Policy Date. A new two year contestability period will apply to each increase in Specified Amount beginning on the effective date of each such increase and will apply to statements made in the application for the increase. If the Policy is reinstated, a new two year contestability period (apart from any remaining contestability period) will apply from the date of the application for reinstatement and will apply only to statements made in the application for reinstatement. CHANGE OF OWNER OR BENEFICIARY The Beneficiary, as named in the Policy application or subsequently changed, will receive the Policy benefits at the Insured's death. If the named Beneficiary dies before the Insured, the contingent beneficiary, if named, becomes the Beneficiary. If no Beneficiary survives the Insured, the benefits payable at the Insured's death will be paid to the Policyowner or the Policyowner's estate. As long as the Policy is In Force, the Policyowner or Beneficiary may be changed by written request from the Policyowner in a form acceptable to Western Reserve. The Policy need not be returned unless requested by Western Reserve. The change will take effect as of the date the request is signed, whether or not the Insured is living when the request is received by Western Reserve. Western Reserve will not, however, be liable for any payment made or action taken before receipt of the request. ASSIGNMENT The Policy may be assigned by the Policyowner. Western Reserve will not be bound by the assignment until a written copy has been received at its Office and will not be liable with respect to any payment made prior to that time. Western Reserve assumes no responsibility for determining whether an assignment is valid or the extent of the assignee's interest. MISSTATEMENT OF AGE OR SEX If the age or sex of the Insured has been misstated, the death benefit will be adjusted based on what the cost of insurance charge for the most recent monthly deduction would have purchased based on the correct age and sex. REPORTS AND RECORDS Western Reserve will maintain all records relating to the Series Account and the Fixed Account. Western Reserve will mail to Policyowners, at their last known address of record, any reports required by any applicable law or regulation. OPTIONAL INSURANCE BENEFITS Subject to certain requirements, one or more of the following optional insurance benefits may be added to a Policy by rider. The cost of any optional insurance benefits will be deducted as part of the monthly deduction. (See Charges and Deductions - Cash Value Charges, p. .) CHILDREN'S INSURANCE RIDER: Provides level term insurance on the Insured's children, as defined in the rider. Under the terms of the rider, the death benefit will be payable to the Beneficiary stated in the 36 rider upon the death of any insured child. Upon receipt of proof of the primary Insured's death, each child's protection may be converted to any permanent premium paying plan of insurance on an Attained Age basis. ACCIDENTAL DEATH BENEFIT RIDER: Provides additional insurance if the Insured's death results from accidental bodily injury, as defined in the rider. Under the terms of the rider, the additional benefits provided in the rider will be paid upon receipt of proof by Western Reserve that death resulted directly and independently of all other causes through external, violent and accidental means; occurred within 90 days from the date of accident causing such injuries; and occurred while the rider was In Force. The rider will terminate on the earliest of the Policy Anniversary nearest the Insured's 70th birthday, the date the Policy terminates, and the Monthiversary on which the rider is terminated on request by the Policyowner. INCREASE IN SPECIFIED AMOUNT RIDER: Provides increases in the Specified Amount of the Policy on specified option dates without additional proof of insurability. Under the terms of the rider, an increase in the Specified Amount will automatically occur on an option date upon written request submitted to Western Reserve within 60 days prior to such option date. An option date is each anniversary nearest the Policyowner's 25th, 28th, 31st, 34th, 37th and 40th birthdays. The amount of the increase will be the option amount specified in the Policy. OTHER INSURED RIDER: Provides that Western Reserve will pay the face amount of the rider to the Beneficiary stated in the rider upon receipt of due proof of the other Insured's death. On any Monthiversary while the rider is In Force, the Policyowner may exchange the rider without evidence of insurability for a new policy on the other Insured's life upon written request subject to the following: (a) the rider has not reached the Anniversary nearest the other Insured's 70th birthday; (b) the new policy is on any permanent plan of insurance then offered by Western Reserve; (c) the amount of insurance upon conversion will equal the face amount then In Force under the rider; and (d) the payment of the premium based on the other Insured's rate class under the rider. DISABILITY WAIVER RIDER: Provides a waiver of the monthly deductions for the Policy while the Insured is disabled. Under the terms of the rider, the total monthly deductions will be waived upon receipt of proof adequate to Western Reserve that: the Insured is totally disabled, as defined in the rider, the disability commenced while the rider was In Force, the disability began before the anniversary nearest the Insured's 60th birthday, and total disability continued without interruption for six months. No monthly deduction will be waived which falls due more than one year prior to receipt by Western Reserve of written notice of a claim. DISABILITY WAIVER AND INCOME RIDER: Provides the identical benefit as the Disability Waiver Rider and, in addition, a monthly income benefit up to a maximum 120 monthly payments. PRIMARY INSURED RIDER: Provides the payment of the face amount of the rider upon receipt by Western Reserve of written notice that the primary Insured's death occurred while the rider was In Force. On any Monthiversary while the rider is In Force, the Policyowner may exchange the rider without evidence of insurability for a new policy on the primary Insured's life. Such new policy will be issued upon written request subject to the following: (a) the rider has not reached the Anniversary nearest the primary Insured's 70th birthday; (b) the new policy is on any permanent plan of insurance then offered by Western Reserve; (c) the amount of insurance upon conversion will equal the face amount then In Force under the rider; and (d) the payment of the premium based on the primary Insured's rate class under the rider. THE FIXED ACCOUNT A Policyowner may allocate net premiums and transfer Cash Value to the Fixed Account, which is part of Western Reserve's General Account. 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 37 Act. Accordingly, neither the Fixed Account, the General Account nor any interests therein are generally subject to the provisions of these Acts and Western Reserve has been advised that the staff of the Commission has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and completeness of statements made in prospectuses. The portion of the Cash Value allocated to the Fixed Account (the 'Fixed Account Value') will be credited with rates of interest, as described below. Because the Fixed Account Value becomes part of Western Reserve's General Account, Western Reserve assumes the risk of investment gain or loss on this amount. All assets in the General Account are subject to Western Reserve's general liabilities from business operations. MINIMUM GUARANTEED AND CURRENT INTEREST RATES The Fixed Account Value, including the Loan Reserve, is guaranteed to accumulate at a minimum effective annual interest rate of 4%. Western Reserve presently credits the Fixed Account Value with current rates in excess of the minimum guarantee but it is not obligated to do so. These current interest rates are influenced by, but do not necessarily correspond to, prevailing general market interest rates. Because Western Reserve, at its sole discretion, anticipates changing the current interest rate from time to time, different allocations to and from the Fixed Account Value will be credited different current interest rates. Western Reserve further guarantees that when a higher current interest rate is declared on an allocation to the Fixed Account Value, that higher interest rate will be guaranteed on such allocation for at least a one year period (the 'Guarantee Period'), unless the Cash Value associated with an allocation has been transferred to the Loan Reserve. Western Reserve reserves the right to apply a different current interest rate to that part of the Cash Value equal to the Loan Reserve. At the end of the Guarantee Period, Western Reserve reserves the right to declare a new current interest rate on such allocation and accrued interest thereon (which may be a different current interest rate than the current interest rate on new allocations to the Fixed Account 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 Policy's Cash Value in the Fixed Account in excess of the minimum guaranteed rate of 4% per year will be determined in the sole discretion of Western Reserve. The Policyowner assumes the risk that interest credited may not exceed the guaranteed minimum rate. Allocations from the Fixed Account Value to provide: a) Cash Withdrawal amounts, b) transfers to the Series Account, or c) monthly deduction charges are currently, for the purpose of crediting interest, accounted for on a last in, first out ('LIFO') method. Western Reserve reserves the right to change the method of crediting interest from time to time, provided that such changes will not have the effect of reducing the guaranteed rate of interest below 4% per annum or shorten the Guarantee Period to less than one year. FIXED ACCOUNT VALUE At the end of any Valuation Period, the Fixed Account Value is equal to: 1. The sum of all Net Premium payments allocated to the Fixed Account; plus 2. Any amounts transferred from a Sub-Account to the Fixed Account; plus 3. Total interest credited to the Fixed Account; minus 4. Any amounts charged to pay for monthly deductions as they are due; minus 5. Any Cash Withdrawals or surrenders from the Fixed Account; minus 6. Any amounts transferred to a Sub-Account from the Fixed Account. 38 ALLOCATIONS AND WITHDRAWALS Net Premium payments and transfers to the Fixed Account will be allocated to the Fixed Account on the first Valuation Date on or following the date Western Reserve receives the payment or transfer request at its Office, except that any allocation of any net premium received prior to the Policy Date will take place on the Policy Date (or the Record Date if later). For transfers from the Fixed Account to a Sub-Account, Western Reserve reserves the right to require that transfer requests be in writing and received at Western Reserve's Office within 30 days of a Policy Anniversary. Under Western Reserve's current procedures, the transfer will take effect on the later of the Policy Anniversary date or the first Valuation Date on or following the date written request is received at Western Reserve's Office. No transfer charge will apply to transfers from the Fixed Account to a Sub-Account. Amounts may be withdrawn from the Fixed Account for Cash Withdrawals and Surrenders only upon written request of the Policyowner and are subject to any applicable requirement for a signature guarantee. (See Policy Rights - Surrender Privileges, p. .) Western Reserve further reserves the right to defer payment of transfers, Cash Withdrawals, or Surrenders from the Fixed Account for up to six months. In addition, Policy provisions relating to transfers, Cash Withdrawals or Surrenders from the Series Account will also apply to Fixed Account transactions. DISTRIBUTION OF THE POLICIES The Policy will be sold by individuals who, in addition to being licensed as life insurance agents for Western Reserve, are also registered representatives of InterSecurities, Inc., an affiliate of Western Reserve and the principal underwriter of the Policies, or of broker-dealers who have entered into written sales agreements with the principal underwriter. InterSecurities, Inc. is registered with the Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. No amounts have been retained by InterSecurities, Inc. for acting as principal underwriter for the Policies. The maximum sales commission payable to Western Reserve agents or other registered representatives will be approximately 3.5% of all premium payments. In addition, certain production, persistency and managerial bonuses may be paid. FEDERAL TAX MATTERS INTRODUCTION The ultimate effect of Federal income taxes on the Cash Value and on the economic benefit to the Policyowner or Beneficiary depends on Western Reserve's tax status and upon the tax status of the individual concerned. The discussion contained herein is general in nature and is not intended as tax advice. For complete information on Federal and state tax considerations, a qualified tax adviser should be consulted. No attempt is made to consider any applicable state or other tax laws. Because the discussion herein is based upon Western Reserve's understanding of Federal income tax laws as they are currently interpreted, Western Reserve cannot guarantee the tax status of any Policy. No representation is made regarding the likelihood of continuation of the current Federal income tax laws, Treasury Regulations, or of the current interpretations by the Internal Revenue Service ('IRS'). Western Reserve reserves the right to make changes to the Policy in order to assure that it will continue to qualify as life insurance for tax purposes. TAX CHARGES At the present time, Western Reserve makes no charge for any Federal, state or local taxes (other than premium taxes) that the Company incurs that may be attributable to such Account or to the Policies. Western Reserve, however, reserves the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that it determines to be properly attributable to the Series Account or to the Policies. 39 TAX STATUS OF THE POLICY Section 7702 of the Code sets forth a definition of a life insurance contract for Federal tax purposes. The Secretary of the Treasury (the 'Treasury') has recently issued proposed regulations that would specify what will be considered reasonable mortality charges under Section 7702. Guidance as to how Section 7702 is to be applied is, however, limited. If a policy were determined not to be a life insurance contract for purposes of Section 7702, such policy would not provide most of the tax advantages normally provided by a life insurance policy. With respect to a Policy that is issued on the basis of a rate class using non-smoker ultimate select, non-smoker select, smoker ultimate standard, or smoker standard guaranteed rates, while there is some uncertainty due to the limited guidance on Section 7702, Western Reserve nonetheless believes that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy entered into after October 20, 1988, that is issued on a substandard rate class, there is even less guidance to determine whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus, it is not clear whether or not such a Policy would satisfy Section 7702, particularly if the Policyowner pays the full amount of premiums permitted under the Policy. If it is subsequently determined that a Policy does not satisfy Section 7702, Western Reserve will take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702, including possibly refunding any premiums paid that exceed the limitation allowable under Section 7702 (together with interest or other earnings on any such premiums refunded as required by law). For these reasons, Western Reserve reserves the right to modify the Policy as necessary to attempt to qualify it as a life insurance contract under Section 7702. Section 817(h) of the Code authorizes the Treasury to set standards by regulation or otherwise for the investments of the Series Account to be 'adequately diversified' in order for the Policy to be treated as a life insurance contract for Federal tax purposes. The Series Account, through the Fund, intends to comply with the diversification requirements prescribed by the Treasury in Reg. sec. 1.817-5, which affect how the Fund's assets may be invested. Western Reserve believes that the Fund will be operated in compliance with the requirements prescribed by the Treasury. In certain circumstances, owners of variable life insurance policies may be considered the owners, for Federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includible in the owner's gross income. The IRS has stated in published rulings that the owner of a variable life insurance policy will be considered the owner of separate account assets if the owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department also announced, in connection with the issuance of regulations concerning diversification, that those regulations 'do not provide guidance concerning the circumstances in which investor control of the investment of a segregated asset account may cause the investor (i.e., the policyowner), rather than the insurance company, to be treated as the owner of the assets in the account.' This announcement also stated that guidance would be issued by way of regulations or rulings on the 'extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets.' As of the date of this Prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the Policyowner has additional flexibility in allocating premium payments and Policy values. These differences could result in a Policyowner being treated as the owner of a pro rata portion of the assets of the Series Account. In addition, Western Reserve does not know what standards will be set forth, if any, in the regulations or rulings which the Treasury Department has stated it expects to issue. Western Reserve therefore reserves the right to modify the Policy as 40 necessary to attempt to prevent a Policyowner from being considered the owner of a pro rata share of the asset of the Series Account. The following discussion assumes that the Policy will qualify as a life insurance contract for Federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS 1. In general. Western Reserve believes that the proceeds and Cash Value increases of a Policy should be treated in a manner consistent with a fixed-benefit life insurance policy for Federal income tax purposes. Thus, the death benefit under the Policy should be excludable from the gross income of the Beneficiary under section 101(a)(1) of the Code. The exchange of the Policy, a change of the Policy's Specified Amount, a change in death benefit options, the taking of a Policy loan, an unscheduled premium payment, a Policy Lapse with an outstanding loan, an exchange or assignment of the Policy, a partial surrender or a total surrender may have tax consequences depending on the circumstances. In addition, Federal estate and state and local estate, inheritance, and other tax consequences of ownership or receipt of Policy proceeds depend upon the circumstances of each Owner or Beneficiary. A competent tax adviser should be consulted for further information. Generally, the Owner will not be deemed to be in constructive receipt of the Cash Value, including increments thereof, under the Policy until there is a distribution. The tax consequences of distributions from, and loans taken from, or secured by, a Policy depend on whether the Policy is classified as a 'modified endowment contract' under Section 7702A. 2. Modified Endowment Contracts. A Policy entered into after June 20, 1988 may be treated as a modified endowment contract depending upon the amount of premiums paid in relation to the death benefit provided under such Policy. The premium limitation rules for determining whether such a Policy is a modified endowment contract are extremely complex. In general, however, a Policy will be a modified endowment contract if the accumulated premiums paid at any time during the first seven Policy years exceeds the sum of the net level premiums which would have been paid on or before such time if the Policy provided for paid-up future benefits after the payment of seven level annual premiums. In addition, if a Policy (regardless of when it was entered into) is 'materially changed,' it may cause such Policy to be treated as a modified endowment contract. The material change rules for determining whether a Policy is a modified endowment contract are also extremely complex. In general, however, the determination whether a Policy will be a modified endowment contract after a material change depends upon the relationship of the death benefit at the time of change to the Cash Value at the time of such change and the additional premiums paid in the seven Policy years starting with the date on which the material change occurs. Due to the Policy's premium structure, Western Reserve believes that most Policies will be treated as modified endowment contracts. Accordingly, a prospective Policyowner should contact a competent tax adviser before purchasing a Policy to determine the circumstances under which the Policy would be a modified endowment contract. In addition, a current Policyowner should contact a competent tax adviser before making any change to, including an exchange of, a Policy to determine whether such change would cause the Policy (or the new policy in the case of an exchange) to be treated as a modified endowment contract. 3. Distributions from Policies Classified as Modified Endowment Contracts. Policies classified as modified endowment contracts will be subject to the following tax rules: First, all pre-death distributions from such a Policy (including distributions upon surrender and benefits paid at maturity, as well as distributions made in anticipation of the Policy becoming a modified endowment contract) are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Cash Value immediately before the distribution over the investment in the Policy (described below) at such time. Second, loans taken from, or secured by, such a Policy are treated as distributions from such a Policy 41 and taxed accordingly. (Unpaid Policy loan interest will be treated as a loan for these purposes.) Third, a 10% additional income tax is imposed on the portion of any distribution from, or loan taken from, or secured by, such a Policy that is included in income except where the distribution or loan is made on or after the Owner attains age 59 1/2, is attributable to the Owner's becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Owner or the joint lives (or joint life expectancies) of the Owner and the Owner's Beneficiary. 4. Distributions from Policies not Classified as Modified Endowment Contracts. Distributions from a Policy that is not classified as a modified endowment contract are generally treated as first recovering the investment in the Policy (described below) and then, only after the return of all such investment in the Policy, as distributing taxable income. An exception to this general rule occurs in the case of a partial withdrawal, decrease in the Policy's death benefit or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and that results in a cash distribution to the Owner in order for the Policy to continue complying with the Section 7702 definitional limits. Such a cash distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Loans from, or secured by, a Policy that is not a modified endowment contract are not treated as distributions. Instead, such loans are treated as indebtedness of the Owner. Finally, distributions (including distributions upon Surrender or Lapse) or loans from, or secured by, a Policy that is not a modified endowment contract are not subject to the 10% additional income tax. 5. Policy loan interest. Generally, interest paid on any loan under a Policy which is owned by an individual is not deductible. In addition, interest on any loan under a Policy owned by a taxpayer and covering the life of any individual who is an officer of or is financially interested in the business carried on by that taxpayer will not be tax deductible to the extent the aggregate amount of such loans with respect to Policies covering such individuals exceeds $50,000. No amount of Policy loan interest is, however, deductible if the Policy were deemed for Federal tax purposes to be a single premium life insurance contract. The deductibility of Policy loan interest may be further limited by other provisions of the Code. The Policyowner should consult a competent tax adviser as to whether Policy loan interest will be deductible. 6. Investment in the Policy. Investment in the Policy means (i) the aggregate amount of any premiums or other consideration paid for a Policy, minus (ii) the aggregate amount received under the Policy which is excluded from the gross income of the Policyowner (except that the amount of any loan from, or secured by, a Policy that is a modified endowment contract, to the extent such amount is excluded from gross income, will be disregarded), plus (iii) the amount of any loan from, or secured by, a Policy that is a modified endowment contract to the extent that such amount is included in the gross income of the Owner. 7. Multiple Policies. All modified endowment contracts that are issued by Western Reserve (or its affiliates) to the same Policyowner during any calendar year are treated as one modified endowment contract for purposes of determining the amount includable in gross income under section 72(e) of the Code. EMPLOYMENT-RELATED BENEFIT PLANS On July 6, 1983, the Supreme Court held in Arizona Governing Committee v. Norris that optional annuity benefits provided under an employer's deferred compensation plan could not, under Title VII of the Civil Rights Act of 1964, vary between men and women on the basis of sex. The Policies described in this Prospectus contain guaranteed purchase rates for certain payment options that generally distinguish between men and women. Accordingly, employers and employee organizations should consider, in consultation with their legal counsel, the impact of Norris, and Title VII generally, on any employment-related insurance or benefit program for which a Policy may be purchased. 42 SAFEKEEPING OF THE SERIES ACCOUNT'S ASSETS Western Reserve holds the assets of the Series Account. The assets are kept physically segregated and held separate and apart from the General Account. Western Reserve maintains records of all purchases and redemptions of Fund shares by each of the Sub-Accounts. Additional protection for the assets of the Series Account is provided by a blanket fidelity bond issued to AEGON U.S. Holding Corporation ('AEGON U.S.') and its affiliates, including Western Reserve, in the amount of $10 million (subject to a $1 million deductible), covering all of the employees of AEGON U.S. and its affiliates, to include Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S., providing fidelity coverage, covers the activities of registered representatives of InterSecurities, Inc. to a limit of $10,000,000, subject to a $100,000 deductible. VOTING RIGHTS OF THE SERIES ACCOUNT To the extent required by law, Western Reserve will vote the Fund shares held in the Series Account at shareholder meetings of the Fund in accordance with instructions received from persons having voting interests in the corresponding Sub-Accounts of the Series Account. Except as required by the 1940 Act, the Fund does not hold regular or special shareholder meetings. If the 1940 Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result Western Reserve determines that it is permitted to vote the Fund shares in its own right, it may elect to do so. The number of votes which a Policyowner has the right to instruct will be calculated separately for each Sub-Account. The number of votes which each Policyowner has the right to instruct in each Sub-Account will be determined by dividing a Policy's Cash Value in that Sub-Account by $100. Fractional shares will be counted. The number of votes of the portfolio which the Policyowner has the right to instruct will be determined as of the date coincident with the date established by that portfolio for determining shareholders eligible to vote at the meeting of the Fund. Voting instructions will be solicited by written communications prior to such meeting in accordance with procedures established by the Fund. Western Reserve will vote Fund shares as to which no timely instructions are received and Fund shares which are not attributable to Policyowners in proportion to the voting instructions which are received with respect to all Policies participating in that Portfolio. Voting instructions to abstain on any item to be voted upon will reduce the votes eligible to be cast by Western Reserve. Each person having a voting interest in a Sub-Account will receive proxy materials, reports and other materials relating to the appropriate Portfolio. DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by state insurance regulatory authorities, disregard voting instructions if the instructions require that the shares be voted so as to cause a change in the sub-classification or investment objective of the Fund or one or more of its Portfolios or to approve or disapprove an investment advisory contract for a Portfolio of the Fund. In addition, Western Reserve itself may disregard voting instructions in favor of changes initiated by a Policyowner in the investment policy or the investment adviser of a Portfolio of the Fund if Western Reserve reasonably disapproves of such changes. A change would be disapproved only if the proposed change is contrary to state law or prohibited by state regulatory authorities or Western Reserve determined that the change would have an adverse effect on its General Account in that the proposed investment policy for a Portfolio may result in overly speculative or unsound investments. In the event Western Reserve does disregard voting instructions, a summary of that action and the reasons for such action will be included in the next annual report to Policyowners. 43 STATE REGULATION OF WESTERN RESERVE As a life insurance company organized and operated under Ohio law, Western Reserve is subject to provisions governing such companies and to regulation by the Ohio Commissioner of Insurance. Western Reserve's books and accounts are subject to review and examination by the Ohio Insurance Department at all times and a full examination of its operations is conducted by the National Association of Insurance Commissioners at least once every three years. REINSURANCE Western Reserve intends to reinsure a portion of the risks assumed under the Policies. EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S) WITH WESTERN RESERVE(1) LAST FIVE YEARS - ---------------------------- --------------------------------------------------------------------- JOHN R. KENNEY Chairman of the Board of Directors (1987 - present) and Chief Chairman of the Board Executive Officer (1982 - present), President (1978 - 1987 and of Directors, President December, 1992 - present), Director (1978 - present), Western Reserve and Chief Executive Officer Life Assurance Co. of Ohio; Chairman of the Board of Directors (1985 -present), President (March, 1993 - present) WRL Series Fund, Inc.; Chairman of the Board of Directors and Chief Executive Officer (1988 to February, 1991), President (1988 - 1989), Director (1976 to February, 1991), Executive Vice President (1972 - 1988), Pioneer Western Corporation (financial services), Largo, Florida; President and Director (1985 to September, 1990) and Director (December, 1990 to present) Idex Management, Inc. (investment adviser), Largo, Florida; Trustee (1987 - present), Chairman (December, 1989 to September, 1990 and November, 1990 to present) and President and Chief Executive Officer (November, 1986 to September, 1990), IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all of Largo, Florida. RICHARD B. FRANZ, II Senior Vice President, Chief Financial Officer (1987 - present) and Senior Vice President, Treasurer (1988 - present), Western Reserve Life Assurance Co. of Chief Financial Officer Ohio; Senior Vice President and Treasurer (1988 to February, 1991), and Treasurer Pioneer Western Corporation (financial services), Largo, Florida; Treasurer (1988 to September, 1990 and November, 1990 to present), IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all of Largo, Florida; Treasurer (1988 - present), WRL Series Fund, Inc. ALAN M. YAEGER Executive Vice President (June, 1993 - present), Senior Vice Executive Vice President President (1981 - June, 1993) and Actuary (1972 - present), Western and Actuary Reserve Life Assurance Co. of Ohio; Executive Vice President (September, 1993 - present), WRL Series Fund, Inc.
44
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S) WITH WESTERN RESERVE(1) LAST FIVE YEARS - ---------------------------- --------------------------------------------------------------------- WILLIAM H. GEIGER Senior Vice President, Secretary and General Counsel (July, 1990 to Senior Vice President, present), Western Reserve Life Assurance Co. of Ohio; Vice President, Secretary and General Secretary and General Counsel of Pioneer Western Corporation and Counsel Secretary of its subsidiaries (May, 1990 to February, 1991); Vice President and Assistant Secretary (November, 1990 to present) and Secretary (June, 1990 to September, 1990) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (financial services), all of Largo, Florida; Secretary and General Counsel of Orange State Life and Health Insurance Company, and its affiliates, Largo, Florida (March, 1980 to April, 1990). G. JOHN HURLEY Executive Vice President (June, 1993 - present) Western Reserve Life Executive Vice President Assurance Co. of Ohio; Executive Vice President (June, 1993 - present), Director (March, 1994 - present) WRL Series Fund, Inc.; President and Chief Executive Officer (September, 1990 - present), Trustee (June, 1990 - present) and Executive Vice President (June, 1988 - September, 1990) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Assistant Vice President of AEGON USA Managed Portfolios, Inc. (September, 1991 - August, 1992); Vice President of Pioneer Western Corporation (May, 1988 - February, 1991). ALLAN J. HAMILTON Vice President and Controller (1987 - present), Assistant Vice Vice President President and Assistant Controller (1983 - 1987), Western Reserve and Controller Life Assurance Co. of Ohio; Vice President and Controller (1988 to February, 1991), Pioneer Western Corporation (financial services), Largo, Florida. PATRICK S. BAIRD Director (February, 1991 to present), Western Reserve Life Assurance Director Co. of Ohio; Vice President (1984 - present), Chief Financial Officer 4333 Edgewood Road, NE (1992 - present) AEGON USA, Inc., formerly known as Life Investors, Cedar Rapids, Iowa 52499 Inc., (financial services holding company), Cedar Rapids, Iowa. DWIGHT I. HURD Director (1989 - present), Western Reserve Life Assurance Co. of Director Ohio; Attorney at Law (admitted in Ohio, 1959); Of Counsel (1992 - 366 East Broad Street present) Carlile Patchen & Murphy, Columbus, Ohio; Partner (1964 - Columbus, Ohio 43215 1992), Co-Managing Director (1987 - 1992), Emens, Hurd Kegler & Ritter Co., L.P.A., Columbus, Ohio; Director (1983 - present), Ohio State Life Insurance Company, Columbus, Ohio. JACK E. ZIMMERMAN Director (1987 - present), Western Reserve Life Assurance Co. of Director Ohio; Trustee, IDEX Fund, IDEX II Series Fund and IDEX Fund 3 507 St. Michel Circle (investment companies); Director, Regional Marketing, (1986 - Kettering, Ohio 45429 January, 1993), Martin Marietta Corporation, Dayton, Ohio.
45
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S) WITH WESTERN RESERVE(1) LAST FIVE YEARS - ---------------------------- --------------------------------------------------------------------- LYMAN H. TREADWAY Director (September, 1994 - present), Western Reserve Life Assurance Director Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio. 30195 Chagrin Boulevard Suite 210N Cleveland, OH 44124
- --------------------------- (1) The principal business address of each person listed, unless otherwise indicated is Western Reserve Life Assurance Co. of Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068. LEGAL MATTERS Sutherland, Asbill & Brennan, Washington, D.C., has provided advice on certain legal matters concerning Federal securities laws in connection with the Policies. All matters of Ohio law pertaining to the Policy, including the validity of the Policy and Western Reserve's right to issue the Policy under Ohio Insurance Law, have been passed upon by William H. Geiger, Senior Vice President, Secretary and General Counsel of Western Reserve. LEGAL PROCEEDINGS There are no legal proceedings to which the Series Account is a party or to which the assets of the Series Account are subject. Western Reserve is not involved in any litigation that is of material importance in relation to its total assets or that relates to the Series Account. EXPERTS The financial statements of WRL Series Life Account as of December 31, 1994 and 1993 and for the years then ended have been included herein in reliance upon the report of Price Waterhouse LLP, independent certified public accountants, and upon the authority of that firm as experts in accounting and auditing. The financial statements of Western Reserve Life Assurance Co. of Ohio at December 31, 1994 and 1993 and for the three years in the period ended 1993, appearing in this Prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein which is based in part on the report of Price Waterhouse LLP, independent auditors. The financial statements referred to above are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. Actuarial matters included in this Prospectus have been examined by Alan Yaeger as stated in the opinion filed as an exhibit to the registration statement. ADDITIONAL INFORMATION A registration statement has been filed with the Commission, under the Securities Act of 1933, as amended, with respect to the Policy offered hereby. This Prospectus does not contain all the information set forth in the registration statement and the amendments and exhibits to the registration statement, to all of which reference is made for further information concerning the Series Account, Western Reserve and the Policy offered hereby. Statements contained in this Prospectus as to the contents of the Policy and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to such instruments as filed. 46 INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS The financial statements of Western Reserve which are included in this Prospectus (see p. ) should be considered only as bearing on the ability of Western Reserve to meet its obligations under the Policies. They should not be considered as bearing on the investment performance of the assets held in the Series Account. Financial statements for Western Reserve for the years ended December 31, 1994, 1993 and 1992 have been prepared on the basis of statutory accounting principles, rather than generally accepted accounting principles ('GAAP'). 47 APPENDIX A ILLUSTRATION OF BENEFITS The tables in Appendix A illustrate the way in which a Policy operates. They show how the death benefit, Cash Value and Net Surrender Value of a Policy issued with an Insured of a given age and a given Initial Premium could vary over an extended period of time assuming hypothetical gross rates of return equivalent to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the Policy values that would result based on the assumptions that the premium is paid as indicated, that the Owner has not requested an increase or decrease in the Specified Amount of the Policy, that no Cash Withdrawals or Policy loans have been made, and that less than twelve transfers per year have been made. The death benefits, Cash Values and Net Surrender Values under a Policy would be different from those shown if the actual rate of return averages 0%, 6% or 12% over a period of years, but fluctuated above and below those averages for individual Policy years. They would also differ if any Policy loans were made during the period of time illustrated. The illustrations on page are based on a Policy for an Insured who is a 55 year old male in the non-smoker Ultimate Select rate class, an Initial Premium of $10,000, a $31,000 Specified Amount (the minimum amount permitted under the Internal Revenue Code rounded to the next highest thousand dollars), and death benefit Option A. The illustrations on that page also assume cost of insurance charges based on Western Reserve's current rates. The illustrations on page are based on the same factors as those on page , except that cost of insurance charges are based on the guaranteed cost of insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality Table). The amounts shown for the death benefits, Cash Values and Net Surrender Values take into account (1) the daily charge for assuming mortality and expense risks assessed against each Sub-Account which is equivalent to an annual charge of 0.90% of the average net assets of the Sub-Accounts; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.__% of the average daily net assets of the Portfolios of the Fund; and (3) all applicable premium expense charges and Cash Value charges. The 0.__% expense level assumes an equal allocation of amounts among the eleven Sub-Accounts and is based on an average 0.__% investment advisory fee and 1994 average normal operating expenses of 0.__%. Calculation of the average annual expense level utilize actual expenses incurred during 1994 for the Money Market Sub-Account (0.__%), Bond Sub-Account (0.__%), Growth Sub-Account (0.__%), and Short-to-Intermediate Government Sub-Account (_____%), Emerging Growth Sub-Account (__%), Equity-Income Sub-Account (__%) and Global Sub-Account (__%). Because the Balanced Sub-Account, Utility Sub-Account and Aggressive Growth Sub-Account were not in existence during the full year of 1994 (commencement of operations was March 1, 1994); and the Tactical Asset Allocation Sub-Account had not commenced operations as of December 31, 1994, the annual expense level utilized in the calculation for each of these four Sub-Accounts is estimated to be 1.00% during 1995. During 1994, Western Reserve had undertaken to pay Fund expenses for each Portfolio to the extent normal operating expenses of a Portfolio exceeded a stated percentage of the Portfolio's average daily net assets. Western Reserve has undertaken until April 30, 1996 to pay expenses to the extent normal operating expenses of a Portfolio exceed a stated percentage of the Portfolio's average daily net assets. Taking into account the assumed charges of 1.82%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of -1.82%, 4.18%, and 10.18%. The amounts shown for the Net Surrender Values take into account all of the above charges and, during the first ten Policy years, a contingent surrender charge, which consists of the sales charge under the Policy, a charge for premium taxes charged by various states, and a first year issue charge under the Policy. 48 The hypothetical returns shown in the tables are without any tax charges that may be attributable to the Series Account since Western Reserve is not currently making such charges. In order to produce after tax returns of 0%, 6% or 12% if such charges are made in the future, the Series Account would have to earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges. (See Charges Against the Series Account - Taxes, p. .) The 'Premium Accumulated at 5%' column of each table shows the amount which would accumulate if an amount equal to the Initial Premium were invested to earn interest at 5% per year, compounded annually. Western Reserve will furnish, upon request, a comparable illustration reflecting the proposed Insured's age, sex, risk classification and desired plan features. 49 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 55 Specified Amount $31,000 Ultimate Select Class Annual Premium $10,000 Option Type A Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.82% (NET) 4.18% (NET) 10.18% (NET) 1 10,500 31,000 31,000 31,000 2 11,025 31,000 31,000 31,000 3 11,576 31,000 31,000 31,000 4 12,155 31,000 31,000 31,000 5 12,763 31,000 31,000 31,000 6 13,401 31,000 31,000 31,000 7 14,071 31,000 31,000 31,000 8 14,775 31,000 31,000 31,000 9 15,513 31,000 31,000 31,000 10 16,289 31,000 31,000 31,000 15 20,789 31,000 31,000 40,321 20(AGE 75) 26,533 * 31,000 58,618 30(AGE 85) 43,219 * * 143,800 40(AGE 95) 70,400 * * 335,915
CASH VALUE NET SURRENDER VALUE END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUSMING HYPOTHETICAL GROSS AND NET POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.82% (NET) 4.18% (NET) 10.18% (NET) -1.78% (NET) 4.22% (NET) 10.22% (NET) 1 9,595 10,190 10,785 8,695 9,920 9,885 2 9,178 10,373 11,640 8,378 9,573 10,840 3 8,745 10,547 12,573 7,945 9,747 11,773 4 8,296 10,710 13,594 7,596 10,010 12,894 5 7,826 10,860 14,711 7,126 10,160 14,011 6 7,333 10,995 15,937 6,833 10,495 15,437 7 6,811 11,110 17,284 6,411 10,710 16,884 8 6,256 11,201 18,770 5,956 10,901 18,470 9 5,661 11,264 20,412 5,461 11,064 20,212 10 5,017 11,292 22,232 5,017 11,292 22,232 15 795 10,678 34,759 795 10,678 34,759 20(AGE 75) * 7,644 54,783 * 7,644 54,783 30(AGE 85) * * 136,953 * * 136,953 40(AGE 95) * * 332,589 * * 332,589
* In the absence of an additional payment, the Policy would lapse. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. 50 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 55 Specified Amount $31,000 Ultimate Select Class Annual Premium $10,000 Option Type A Using Current Cost of Insurance Rates
DEATH BENEFIT END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.82% (NET) 4.18% (NET) 10.18% (NET) 1 10,500 31,000 31,000 31,000 2 11,025 31,000 31,000 31,000 3 11,576 31,000 31,000 31,000 4 12,155 31,000 31,000 31,000 5 12,763 31,000 31,000 31,000 6 13,401 31,000 31,000 31,000 7 14,071 31,000 31,000 31,000 8 14,775 31,000 31,000 31,000 9 15,513 31,000 31,000 31,000 10 16,289 31,000 31,000 31,000 15 20,789 31,000 31,000 42,695 20(AGE 75) 26,533 31,000 31,000 62,965 30(AGE 85) 43,219 * 31,000 159,258 40(AGE 95) 70,400 * 31,000 392,755
CASH VALUE NET SURRENDER VALUE END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET) 1 9,637 10,233 10,829 8,737 9,333 9,929 2 9,271 10,469 11,739 8,471 9,669 10,939 3 8,895 10,703 12,736 8,095 9,903 11,936 4 8,508 10,934 13,828 7,808 10,234 13,128 5 8,107 11,160 15,027 7,407 10,460 14,327 6 7,686 11,376 16,342 7,186 10,876 15,842 7 7,255 11,592 17,796 6,855 11,192 17,396 8 6,811 11,805 19,404 6,511 11,505 19,104 9 6,350 12,013 21,186 6,150 11,813 20,986 10 5,870 12,214 23,164 5,870 12,214 23,164 15 3,606 13,494 36,806 3,606 13,494 36,806 20(AGE 75) 703 14,676 58,846 703 14,676 58,846 30(AGE 85) * 15,331 151,674 * 15,331 151,674 40(AGE 95) * 7,434 388,867 * 7,434 388,867
* In the absence of an additional payment, the Policy would lapse. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. 51 APPENDIX B LONG TERM MARKET TRENDS The information below is a record of the average annual returns of common stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year holding periods.* The average annual returns assume the reinvestment of dividends, capital gains and interest. This is a historical record and is not intended as a projection of future performance. Charges associated with a variable life policy are not reflected. The data indicates that, historically, the investment performance of common stocks over long periods of time has been positive and has generally been superior to that of long-term, high grade debt securities. Common stocks have, however, been subject to more dramatic market adjustments over short periods of time. These trends indicate the potential advantages of holding a variable life insurance policy for a long period of time. The following chart illustrates the average annual returns of the Standard & Poor's Index of 500 Common Stocks ('S&P 500 Stock Index') for each of the 20 year periods shown. These returns are compared to the average annual returns of high grade corporate bonds and U.S. Treasury bills for the same periods. (The 20-year periods selected for the chart begin in 1933 and have ending periods at five year intervals.) [INSERT CHART] * Source: (c) Stocks, Bonds, Bills and Inflation 1995 Yearbook(TM), Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved. 52 Over the 50 20-year time periods beginning in 1926 and ending in 1994 (i.e. 1926-1945, 1927-1946, and so on through 1975-1994): -- The average annual return of common stocks was superior to that of high grade, long-term corporate bonds in 47 of the 50 periods. -- The average annual return of common stocks surpassed that of U.S. Treasury bills in each of the 50 periods. -- Common stock average annual returns exceeded the average annual rate of inflation in each of the 50 periods. From 1926 through 1994 the average annual return for common stocks was _____%, compared to % for high grade, long-term corporate bonds, ____% for U.S. Treasury bills and _____% for the Consumer Price Index. ------------------------------ The following table indicates what the death benefits and Cash Values of the following Policies would be on December 31, 1994 if they had been issued on January 1, 1973 and if a single net premium under each of the Policies had been invested in an underlying fund which had a gross annual investment performance based on the year-end S&P 500 Stock Index, adjusted to reflect the reinvestment of dividends, for each year in the period. The average annual rate of return for the S&P 500 Stock Index for the 20 year period ending December 31, 1994 was _____% (based on a single payment on January 1, 1973). The values shown reflect all applicable deductions from the Policies, including a deduction from invested assets of 0.87%, which is the current total of the investment advisory fee and operating expenses for 1994 of the WRL Series Fund's Growth Portfolio. This information is not necessarily indicative of future performance. Insured: Male Ultimate Select Class, Age 45 Initial Premiums: $10,000 Specified Amount: $48,000 Death Benefit Option A Death Benefit on 12/31/94 Cash Value on 12/31/94 $ $ Insured: Male Ultimate Select Class, Age 55 Initial Premium: $10,000 Specified Amount: $31,000 Death Benefit Option A Death Benefit on 12/31/94 Cash Value on 12/31/94 $ $ Insured: Male Ultimate Select Class, Age 65 Initial Premium: $10,000 Specified Amount: $22,000 Death Benefit Option A Death Benefit on 12/31/94 Cash Value on 12/31/94 $ $ 53 INDEX TO FINANCIAL STATEMENTS WRL SERIES LIFE ACCOUNT: Report of Independent Accountants dated ______________________ Statement of assets, liabilities and equity accounts at December 31, 1994 Statement of operations for the year ended December 31, 1994 and statement of changes in equity accounts for the years ended December 31, 1994 and 1993. Notes to Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO: Report of Independent Auditors dated ______________________ Statutory-Basis Balance sheet at December 31, 1994 and 1993 Statutory-Basis Statement of operations for the years ended December 31, 1994, 1993 and 1992 Statutory-Basis Statement of capital and surplus for the years ended December 31, 1994, 1993 and 1992 Statutory-Basis Statement of cash flows for the years ended December 31, 1994, 1993 and 1992 Notes to Statutory-Basis Financial Statements All other schedules are either not applicable or the information is included in the related footnotes. 54 -----END PRIVACY-ENHANCED MESSAGE-----