-----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, PULGlSkWVblaK9dMJOxYz6ZInK7BAj2sEkFxXNN6xZnw7eQKFgcX5NWMvTFNDjtR BJ14sofvhH7+RGuzeFgoNw== 0001016843-98-000495.txt : 19980831 0001016843-98-000495.hdr.sgml : 19980831 ACCESSION NUMBER: 0001016843-98-000495 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19980828 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: S-6 SEC ACT: SEC FILE NUMBER: 333-62397 FILM NUMBER: 98699694 BUSINESS ADDRESS: STREET 1: 201 HIGHLAND AVE CITY: LARGO STATE: FL ZIP: 34640 BUSINESS PHONE: 813-587-18 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 S-6 1 As filed with the Securities and Exchange Commission on August 28, 1998 Registration File Nos. __________/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM S-6 ---------------------------------- FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------------- WRL SERIES LIFE ACCOUNT ----------------------- (Exact Name of Trust) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ------------------------------------------ (Name of Depositor) 201 HIGHLAND AVENUE LARGO, FLORIDA 33770 ------------------------------------------------------------- (Complete Address of Depositor's Principal Executive Offices) THOMAS E. PIERPAN, ESQ. VICE PRESIDENT, ASSISTANT SECRETARY AND ASSOCIATE GENERAL COUNSEL WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO 201 HIGHLAND AVENUE LARGO, FLORIDA 33770 ----------------------------------------------------------------- (Name and Complete Address of Agent for Service) Copies to: Stephen E. Roth, Esq. Sutherland, Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2404 --------------------------------- Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant hereby elects to register an indefinite amount of securities being offered. -------------------------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2 N-8B-2 Item Caption in Prospectus - ----------- ----------------------------------- 1 Cover Page; The Series Account 2 Cover Page; Western Reserve Life Assurance Co. of Ohio 3 Not Applicable 4 Distribution of the Policies 5 The Series Account 6 The Series Account 7 Not Applicable 8 Not Applicable 9 Legal Proceedings 10 Introduction; Policy Benefits; Payment and Allocation of Premiums; Investments of the Series Account; Policy Rights 11 The Series Account; WRL Series Fund, Inc. 12 The Series Account; WRL Series Fund, Inc. 13 Charges and Deductions; The Series Account; Investments of the Series Account 14 Introduction; Allocation of Premiums and Cash Value 15 Allocation of Premiums and Cash Value 16 The Series Account 17 Cash Value; The Series Account; Policy Rights 18 Payment and Allocation of Premiums; Cash Value 19 Voting Rights of the Series Account; Reports and Records 20 Not Applicable 21 Loan Privileges 22 Not Applicable 2 N-8B-2 Item Caption in Prospectus - ----------- ------------------------------------------ 23 Safekeeping of the Series Account's Assets 24 Policy Rights 25 Western Reserve Life Assurance Co. of Ohio 26 Not Applicable 27 Western Reserve Life Assurance Co. of Ohio; The Series Account; WRL Series Fund, Inc. 28 Western Reserve Life Assurance Co. of Ohio; Executive Officers and Directors of Western Reserve 29 Western Reserve Life Assurance Co. of Ohio 30 Not Applicable 31 Not Applicable 32 Not Applicable 33 Not Applicable 34 Not Applicable 35 Western Reserve Life Assurance Co. of Ohio 36 Not Applicable 37 Not Applicable 38 Distribution of the Policies 39 Distribution of the Policies 40 Not Applicable 41 Distribution of the Policies; Western Reserve Life Assurance Co. of Ohio 42 Not Applicable 43 Not Applicable 44 Cash Value 45 Not Applicable 46 Cash Value 3 N-8B-2 Item Caption in Prospectus - ----------- -------------------------------------------- 47 Introduction; Allocation of Premiums and Cash Value 48 Not Applicable 49 Not Applicable 50 Not Applicable 51 Introduction; Western Reserve Life Assurance Co. of Ohio; Policy Benefits; Charges and Deductions 52 The Series Account; WRL Series Fund, Inc. 53 Federal Tax Matters 54 Not Applicable 55 Not Applicable 56 Not Applicable 57 Not Applicable 58 Not Applicable 59 Not Applicable 4 WRL FREEDOM ELITE(SM) INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Issued by WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO 201 Highland Avenue Largo, Florida 33770 1-800-851-9777 (813) 585-6565 The individual flexible premium variable life insurance policy ("Policy") issued by Western Reserve Life Assurance Co. of Ohio ("Western Reserve") and described in this Prospectus is designed to provide lifetime insurance protection and maximum flexibility in connection with premium payments and death benefits. A Policyowner may, subject to certain restrictions, vary the timing and amount of premium payments and increase or decrease the level of life insurance benefits payable under the Policy. This flexibility allows a Policyowner to provide for changing insurance needs under a single life insurance policy. The minimum Specified Amount for a Policy at issue is $250,000 for Issue Ages 0-60, and $100,000 for Issue Ages above 60. The Policy provides a death benefit payable at the Insured's death, and a Net Surrender Value that can be obtained by completely or partially surrendering the Policy. Net premiums are allocated according to the Policyowner's directions among the Sub-Accounts of the WRL Series Life Account ("Series Account"), or to a fixed interest account ("Fixed Account") or a combination of both. With respect to amounts allocated to Sub-Accounts of the Series Account, the amount of the death benefit may, and the Cash Value will, vary to reflect both the investment experience of the Sub-Accounts and the timing and amount of additional premium payments. However, as long as the Policy remains In Force, Western Reserve guarantees that the death benefit will never be less than the Specified Amount of the Policy. While additional premium payments are not required under the Policy, additional premium payments may be necessary to prevent Lapse if there is insufficient Net Surrender Value. The Policy provides a free-look period allowing the Policyowner to cancel the Policy within 10 days after receipt. Certain states require a free-look period longer than 10 days, either for all Policyowners or certain classes of Policyowners. The assets of each Sub-Account of the Series Account will be invested solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the "Fund"). The Prospectus for the Fund describes the investment objectives and the risks of investing in the Portfolios of the Fund corresponding to the Sub-Accounts currently available under the Policy. The Policyowner bears the entire investment risk for all amounts allocated to the Series Account; there is no guaranteed minimum Cash Value. It may not be to your advantage to replace existing insurance or supplement an existing flexible premium variable life insurance policy with a Policy described in this Prospectus. Please read this Prospectus and the Prospectus for the Fund carefully and retain for future reference. The Policy is not a deposit or obligation of, or guaranteed or endorsed by, any bank or depository institution, and the Policy is not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency, and involves investment risk, including possible loss of principal amount invested. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus does not constitute an offering in any jurisdiction in which such offering may not lawfully be made. No dealer, salesperson or other person is authorized to give any information or make any representations in connection with this offering other than those contained in this Prospectus, and, if given or made, such other information or representations must not be relied upon. THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS FOR THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. Prospectus Dated , 1998 TABLE OF CONTENTS Page ----- DEFINITIONS ............................................ 1 INTRODUCTION ........................................... 2 INVESTMENT EXPERIENCE INFORMATION ...................... 6 Rates of Return ....................................... 7 Death Benefit, Cash Value and Net Surrender Value Illustrations ............................... 7 Other Performance Data ................................ 12 WESTERN RESERVE AND THE SERIES ACCOUNT ......................................... 13 Western Reserve Life Assurance Co. of Ohio ........................................... 13 The Series Account .................................... 13 POLICY BENEFITS ........................................ 13 Death Benefit ......................................... 13 When Insurance Coverage Takes Effect .................. 15 Cash Value ............................................ 16 INVESTMENTS OF THE SERIES ACCOUNT ...................... 17 WRL Series Fund, Inc. ................................. 17 Addition, Deletion, or Substitution of Investments .................................... 19 PAYMENT AND ALLOCATION OF PREMIUMS ..................... 20 Issuance of a Policy .................................. 20 Premiums .............................................. 20 Allocation of Premiums and Cash Value ................. 21 Dollar Cost Averaging ................................. 22 Asset Rebalancing Program ............................. 22 Policy Lapse and Reinstatement ........................ 23 CHARGES AND DEDUCTIONS ................................. 24 Contingent Deferred Surrender Charges ................. 24 Pro Rata Decrease Charge .............................. 25 Cash Value Charges .................................... 25 Optional Cash Value Charges ........................... 26 Charges Against the Series Account .................... 26 Expenses of the Fund .................................. 26 POLICY RIGHTS .......................................... 27 Loan Privileges ....................................... 27 Surrender Privileges .................................. 28 Examination of Policy Privilege ("Free-Look") ......... 28 Conversion Rights ..................................... 28 Benefits at Maturity .................................. 28 Payment of Policy Benefits ............................ 29 GENERAL PROVISIONS ..................................... 29 Postponement of Payments .............................. 29 The Contract .......................................... 29 Suicide ............................................... 29 Page ----- Incontestability ...................................... 29 Change of Owner or Beneficiary ........................ 30 Assignment ............................................ 30 Misstatement of Age or Sex ............................ 30 Reports and Records ................................... 30 Optional Insurance Benefits ........................... 30 THE FIXED ACCOUNT ...................................... 31 Fixed Account Value ................................... 32 Minimum Guaranteed and Current Interest Rates .................................... 32 Allocations, Transfers and Withdrawals ................ 32 DISTRIBUTION OF THE POLICIES ........................... 33 FEDERAL TAX MATTERS .................................... 33 Introduction .......................................... 33 Tax Charges ........................................... 33 Tax Status of the Policy .............................. 33 Tax Treatment of Policy Benefits ...................... 34 Possible Tax Law Changes .............................. 35 Employment-Related Benefit Plans ...................... 35 SAFEKEEPING OF THE SERIES ACCOUNT'S ASSETS ....................................... 36 VOTING RIGHTS OF THE SERIES ACCOUNT .................... 36 STATE REGULATION OF WESTERN RESERVE ................................................ 36 REINSURANCE ............................................ 36 EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE ..................................... 36 LEGAL MATTERS .......................................... 37 LEGAL PROCEEDINGS ...................................... 37 EXPERTS ................................................ 37 ADDITIONAL INFORMATION ................................. 38 YEAR 2000 MATTERS ...................................... 38 INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS ................................... 38 APPENDIX A - ILLUSTRATION OF BENEFITS ............................................ 39 APPENDIX B - WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKETS ................................................ 42 INDEX TO FINANCIAL STATEMENTS ............................................. 44 The Policy is not available in the State of New York i DEFINITIONS ACCOUNTS -- Allocation options including the Fixed Account and Sub-Accounts of the Series Account. ATTAINED AGE -- The Issue Age plus the number of completed Policy years. ANNIVERSARY -- The same day and month as the Policy Date for each succeeding year the Policy remains In Force. BENEFICIARY -- The person or persons specified by the Owner as entitled to receive the death benefit proceeds under the Policy. CASH VALUE -- The sum of the values in each Sub-Account plus the Policy's value in the Fixed Account. FIXED ACCOUNT -- An allocation option other than the Series Account. The Fixed Account is part of Western Reserve's General Account. 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 under the Policy or a rider is active and the Insured's life remains insured. INITIAL PREMIUM -- The amount which must be paid before coverage begins. INSURED -- The person whose life is insured under the Policy. ISSUE AGE -- Issue Age refers to the age on the Insured's birthday nearest the Policy Date. LAPSE -- Termination of the Policy at the end of the grace period. LOAN RESERVE -- A part of the Fixed Account to which amounts are transferred as collateral for Policy loans. MATURITY DATE -- The Anniversary nearer the Insured's 95th birthday, when coverage under the Policy will terminate if the Insured is living and the Policy is In Force. The Maturity Date may be extended under the Extension of Maturity Date provision of the Policy. 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 as of the date of surrender, less any Contingent Deferred Surrender Charges, and less any outstanding Policy loan, plus unearned loan interest. OFFICE -- The administrative office of Western Reserve whose mailing address is P. O. Box 5068, Clearwater, Florida 33758-5068. PLANNED PERIODIC PREMIUM -- A scheduled premium of a level amount at a fixed interval over a specified period of time. POLICY -- The flexible premium variable life insurance policy offered by Western Reserve and described in this Prospectus. POLICY DATE -- The date set forth in the Policy when insurance coverage is effective and monthly deductions commence under the Policy. The Policy Date is used to determine Policy years and Policy Months. Policy Anniversaries are measured from the Policy Date. POLICY MONTH -- A month beginning on the Monthly Anniversary. POLICYOWNER ("OWNER") -- The person who owns the Policy and who may exercise all rights under the Policy while living. PORTFOLIO -- A separate investment portfolio of the Fund. 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. REALLOCATION ACCOUNT -- The Sub-Account where the Initial Premium will be held during the Free Look Period. The Reallocation Account is shown on the Policy Schedule Page. REALLOCATION DATE -- The date on which any premiums are reallocated from the Reallocation Account to the Accounts as elected by the Owner on the application. The Reallocation Date is shown on the Policy Schedule Page. RECORD DATE -- The date the Policy is recorded on the books of Western Reserve as an In Force Policy. SERIES ACCOUNT -- WRL Series Life Account, a separate investment account established by Western Reserve to receive and invest Net Premiums allocated under the Policy. SPECIFIED AMOUNT -- The minimum death benefit payable under the Policy as long as the Policy remains In Force. The death benefit proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. SUB-ACCOUNT -- A sub-division of the Series Account. Each Sub-Account invests exclusively in the shares of a specified Portfolio of the Fund. TERMINATION -- Condition when the Insured's life is no longer insured under the coverage provided. VALUATION DATE -- Each day on which the New York Stock Exchange is open for business. VALUATION PERIOD -- The period commencing at the end of one Valuation Date and continuing to the end of the next succeeding Valuation Date. 1 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 can 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 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 Sub-Accounts. Accordingly, the Policyowner bears the investment risk of any depreciation in value of the underlying assets of the Series Account but reaps the benefits of any appreciation in value. (See Allocation of Premiums and Cash Value - Allocation of Premiums, p. 21.) Unlike conventional fixed-benefit life insurance, a Policyowner also has the flexibility, subject to certain restrictions (see Premiums - Premium Limitations, p. 20), to vary the frequency and amount of premium payments and to adjust the death benefits payable under the Policy by decreasing the Specified Amount. Thus, unlike conventional fixed-benefit life insurance, the Policy does not require a Policyowner to adhere to a fixed premium schedule. Moreover, the failure to pay a scheduled premium ("Planned Periodic Premium") will not itself cause the Policy to Lapse, although additional premium payments may be necessary to prevent Lapse if Net Surrender Value is insufficient to pay certain monthly charges, and a grace period expires without a sufficient payment. (See Policy Lapse and Reinstatement - Lapse, p. 23.) 2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY? The Policy provides the payment of benefits upon the death of the Insured. The Policy contains two death benefit options. Under Death Benefit Option A, the death benefit is the greater of the Specified Amount of the Policy or a specified percentage times the Cash Value of the Policy on the date of death of the Insured. Under Death Benefit Option B, the death benefit is the greater of the Specified Amount of the Policy plus the Cash Value of the Policy on the date of death of the Insured or a specified percentage times the Cash Value of the Policy on the date of death of the Insured. As long as the Policy remains In Force, the minimum death benefit payable under either option will be the current Specified Amount. The amount of death benefit will be reduced by any outstanding indebtedness and any due and unpaid charges, and increased by any additional insurance benefits added by rider and any unearned loan interest. Under Western Reserve's current rules, the minimum Specified Amount for a Policy at issue is $250,000 for Issue Ages 0-60, and $100,000 for Issue Ages above 60. The minimum Specified Amount will be set forth in the Policyowner's Policy. (See Policy Benefits - Death Benefit, p. 13.) Optional insurance benefits offered under the Policy include a Children's Insurance Rider; an Other Insured Rider; an Accidental Death Benefit Rider; a Disability Waiver Rider; a Disability Waiver and Income Rider; a Primary Insured Rider and a Primary Insured Rider Plus. (See Optional Cash Value Charges - Optional Insurance Benefits, p. 26.) 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. 25.) A Terminal Illness Accelerated Death Benefit Rider is automatically included with every Policy at no additional charge (this Rider may not be available in all states). This rider makes a "Single Sum Benefit" available prior to the Insured's death if the Insured has incurred a condition resulting from illness which, as determined by a Physician, has reduced the Insured's life expectancy as defined in the rider. (See General Provisions - Optional Insurance Benefits - Terminal Illness Accelerated Death Benefit Rider, p. 31.) Benefits under the Policy may be paid in a lump sum or under one of the settlement options set forth in the Policy. (See Payment of Policy Benefits - Settlement Options, p. 29.) 3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY? Under either death benefit option, as long as the Policy remains In Force, the death benefit will not be less than the current Specified Amount of the Policy. The amount of death benefit will be reduced by any outstanding policy loan, plus any unearned loan interest and any due and unpaid charges. The death benefit may, however, exceed the Specified Amount under certain circumstances. The amount by which the death benefit exceeds the Specified Amount depends upon the option chosen and the Cash Value of the Policy. (See Policy Benefits - Death Benefit, p. 13.) 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 Sub-Accounts of the Series Account is borne by the 2 Policyowner; Western Reserve does not guarantee a minimum Cash Value. (See Policy Benefits - Cash Value, p. 16.) 4. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT? The Policyowner has significant flexibility to adjust the death benefit payable by changing the Death Benefit Option, by decreasing the Specified Amount of the Policy or by adding riders to increase the total death benefit payable. No change in the Death Benefit Option may be made during the first three Policy years. The Policyowner may change the Death Benefit Option only once each Policy year after the third Policy year. (See Death Benefit - Change in Death Benefit Option, p. 14.) No decrease in the Specified Amount may be requested during the first three Policy years. (See Policy Benefits - Death Benefit, p. 13.) (See Cash Value Charges - Cost of Insurance, p. 25.) 5. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE IN CONNECTION WITH PREMIUM PAYMENTS? A Policyowner has considerable flexibility concerning the amount and frequency of premium payments. Western Reserve will require the Policyowner to pay an Initial Premium at least equal to a minimum monthly first year premium set forth in the Policy before insurance coverage is In Force. Thereafter, a Policyowner may, subject to certain restrictions, make premium payments in any amount and at any frequency. (See Payment and Allocation of Premiums - Premiums, p. 20.) Each Policyowner will also determine a Planned Periodic Premium schedule. The schedule will provide a premium payment of a level amount at a fixed interval over a specified period of time. The amount and frequency of Planned Periodic Premium payments will be set forth in the Policy. The amount and frequency of Planned Periodic Premium payments may be changed upon written request. (See Premiums - Planned Periodic Premiums, p. 20.) 6. HOW LONG WILL THE POLICY REMAIN IN FORCE? The Policy will Lapse only when Net Surrender Value is insufficient to pay the monthly deduction (see Charges and Deductions - Cash Value Charges, p. 25), and a grace period expires without a sufficient payment by the Policyowner. (See Loan Privileges - Indebtedness, p. 27.) However, during the first three Policy years, the Policy will remain In Force and no grace period will begin provided the total premiums received (minus any withdrawals, any outstanding loans, and any pro rata Decrease Charge deducted from the Cash Value) equals or exceeds the minimum monthly guarantee premium times the number of months since the Policy Date, including the current month. The minimum monthly guarantee premium is set forth in the Policy, unless changed due to a requested change under the Policy by the Policyowner, at which time the Policyowner will be notified of the new minimum monthly guarantee premium and its effective date. The Policy, therefore, differs in two important respects from a conventional life insurance policy. First, the failure to pay a Planned Periodic Premium will not automatically cause the Policy to Lapse. Second, the Policy can lapse even if Planned Periodic Premiums or premiums in other amounts have been paid, if Net Surrender Value is insufficient to pay the monthly deduction, and a grace period expires without a sufficient payment. Such a Lapse could happen if the investment experience has been sufficiently unfavorable to have resulted in a decrease in the Net Surrender Value, or the Net Surrender Value has decreased because not enough premiums have been paid to offset the monthly deductions. 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. Upon written request, Western Reserve will extend the Maturity Date, as elected by the Policyowner, to one of the following: (1) if the Death Benefit Option Type is other than Option A, the Option Type will be changed to Option A. On each Valuation Date, the Specified Amount will be adjusted to equal the Cash Value, and the Limitation Percentage will be 100%. No additional premium payments will be permitted except to prevent lapse of the Policy. All future monthly deductions will be waived; or (2) the Maturity Date will automatically be extended until the next Policy Anniversary. The Policyowner must request in writing that the Maturity Date be extended prior to each Policy Anniversary thereafter. (See Policy Rights - Benefits at Maturity, p. 28.) 7. HOW ARE PREMIUMS ALLOCATED? The full premium is available for allocation ("Premium"). The Policyowner initially determines the allocation of the Premium among the Sub-Accounts of the Series Account, each of which invests in shares of a designated Portfolio of the Fund, or to the Fixed Account, or a combination of both. Each Portfolio has a different investment objective. (See Investments of the Series Account - WRL Series Fund, Inc., p. 17.) The allocation of future Premiums may be changed without charge at any time by providing Western Reserve with written notification from the Policyowner, or by calling Western Reserve's toll-free number, 1-800-851-9777. 8. IS THERE A "FREE-LOOK" PERIOD? Yes, the Policy provides a free-look period. The Policyowner may cancel the Policy within 10 days after the Policyowner receives it. 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 3 amounts allocated to the Accounts plus any charges previously deducted. In certain states, the refund will be the total of all premiums paid. (See Policy Rights - Examination of Policy Privilege, p. 28.) 9. MAY THE POLICY BE SURRENDERED? Yes, the Policyowner may totally surrender the Policy at any time and receive the Net Surrender Value of the Policy. Subject to certain limitations, the Policyowner may also make cash withdrawals from the Policy at any time after the first Policy year and prior to the Maturity Date. (See Policy Rights - Surrender Privileges, p. 28.) If Death Benefit Option A is in effect, cash withdrawals will reduce the Policy's Specified Amount by the amount of the cash withdrawal. 10. WHAT IS THE LOAN PRIVILEGE? After the first Policy Anniversary, a Policyowner may obtain a Policy loan in any amount which is not greater than 90% of the Cash Value less any surrender charge and any already outstanding loan. Western Reserve reserves the right to permit a Policy Loan prior to the first Policy Anniversary for Policies issued pursuant to a transfer of cash values from another life insurance policy, under Section 1035(a) of the Internal Revenue Code of 1986, as amended. It should be noted, however, that a loan taken from, or secured by, a Policy may be treated as a taxable distribution, and also may be subject to a Federal income tax penalty. (See Federal Tax Matters, p. 33.) The interest rate charged on Policy loans is at the rate of 5.2% payable annually in advance (equivalent to an effective annual rate of 5.5%). The requested loan amount, plus interest in advance, will be transferred from the Accounts to the Loan Reserve and credited at the end of each Policy year with guaranteed interest at a rate of 4% per year. Western Reserve may from time to time, and in its sole discretion, credit the Loan Reserve with additional interest at a rate higher than 4% per year. The Loan Reserve is currently credited with a rate higher than 4% per year. The minimum loan amount is generally $500. (See Policy Rights - Loan Privileges, p. 27.) Upon repayment of a loan, amounts in the Loan Reserve in excess of the outstanding value of the loan are currently transferred to the Accounts in the same manner as Premium allocations; however, Western Reserve may in the future require these amounts to be transferred to the Fixed Account. (See The Fixed Account, p. 31.) There are risks involved in taking a Policy loan, including the potential for a Policy to lapse if anticipated earnings, taking into account any outstanding loans, are not achieved, as well as adverse tax consequences which occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax Treatment of Policy Benefits, p. 34.) 11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY? "Contingent Deferred Surrender Charges" are deducted if the Policy is surrendered during the first fifteen Policy years. The surrender charges consist of an Issue Charge of $5.00 per $1,000 of Specified Amount, and also consists of a Sales Charge equal to 26.5% of the Surrender Charge Base Premium and not more than 8.4% of premiums above that amount. A declining percentage of the surrender charge is assessed after the tenth year. The Contingent Deferred Surrender Charges imposed upon early surrender or a decrease in Specified Amount will be significant. As a result, you should purchase a Policy only if you have the financial capability to keep it In Force for a substantial period of time. In addition, a pro rata Decrease Charge equal to a pro rata portion of the Contingent Deferred Surrender Charges will be calculated and charged to the Cash Value for any decreases in the Policy's Specified Amount which occur during the first fifteen Policy years. Any future Contingent Deferred Surrender Charges will be reduced proportionately according to the amount of any previous pro rata Decrease Charge. (See Charges and Deductions - Contingent Deferred Surrender Charge, p. 24 and Pro Rata Decrease Charge, p. 25.) Cost of insurance charges and a $5.00 monthly Policy Charge, are deducted monthly from the Cash Value of each Policy to compensate Western Reserve for the cost of administering the Policy. Cost of insurance charges will vary with the Policy's Specified Amount, the Death Benefit Option chosen and the investment experience of the Portfolios in which the Policy is invested. (See Charges and Deductions - Cash Value Charges, p. 25.) Optional Cash Value charges are deducted from the Policy as a result of Policyowner changes or elections made to the Policy. Optional Cash Value charges include charges for: optional insurance benefits, change in Premium allocation, certain Cash Value transfers and cash withdrawals. (See Charges and Deductions - Optional Cash Value Charges, p. 26.) Western Reserve charges the Sub-Accounts of the Series Account for the mortality and expense risks Western Reserve assumes. The charge is made daily at an effective annual rate of 0.90% of the average daily net assets of each Sub-Account of the Series Account. This charge is guaranteed to be reduced to 0.60% after the first fifteen Policy years. Western Reserve intends to reduce this charge to 0.30% starting in the sixteenth Policy year. However, such reduction is not guaranteed and Western Reserve reserves the right to maintain this charge at 4 0.60% level after the fifteenth Policy year. (See Charges and Deductions - Charges Against the Series Account, p. 26.) Each Sub-Account invests in a corresponding Portfolio of the Fund. Each Portfolio pays investment management fees based on a percentage of the Portfolio's average daily net assets. The annual management fees and other Fund expenses for the Portfolios are provided on p. 6, under the heading Fund Annual Expenses. Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act") ("Distribution Plan") and pursuant to the Plan, entered into a Distribution Agreement with InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under the Distribution Plan, the Fund, on behalf of the Portfolios, is authorized to pay to various service providers, as direct payment for expenses incurred in connection with the distribution of a Portfolio's shares, amounts equal to actual expenses associated with distributing a Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of the average daily net assets. This fee is measured and accrued daily and paid monthly. ISI has determined that it will not seek payment by the Fund of distribution expenses incurred with respect to any Portfolio until April 30, 1999. Prior to ISI seeking reimbursement, Policyowners will be notified in advance. In addition, the Portfolios incur certain operating expenses. (See Investments of the Series Account - WRL Series Fund, Inc., p. 17.) No charges are currently made from the Series Account for Federal or state income taxes. Should Western Reserve determine that such taxes may be imposed by Federal or state agencies, Western Reserve may make deductions from the Series Account to pay these taxes. (See Federal Tax Matters, p. 33.) 12. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS? Yes. A Policyowner may transfer Cash Value among the Sub-Accounts of the Series Account or from the Sub-Accounts to the Fixed Account. Transfers may also be made from the Fixed Account to the Sub-Accounts subject to certain restrictions. (See the Fixed Account - Allocations, Transfers and Withdrawals, p. 32.) Twelve Cash Value transfers are permitted without charge in a Policy year. Each additional transfer will be subject to a transfer charge of $10. This charge will not be increased. Certain restrictions apply to transfers from the Fixed Account. Western Reserve may at any time revoke or modify the transfer privilege. (See Payment and Allocation of Premiums - Allocation of Premiums and Cash Value - Transfers, p. 21.) 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-tobacco use Ultimate Select, non-tobacco use Select, tobacco use Ultimate Standard or tobacco use Standard guaranteed rates, while there is some uncertainty due to the limited guidance on Section 7702, Western Reserve nonetheless believes that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard rate class, there is even less guidance to determine whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus, it is not clear whether such a Policy would satisfy Section 7702, particularly if the Policyowner pays the full amount of premiums permitted under the Policy. If it is subsequently determined that a Policy does not qualify as a life insurance contract, Western Reserve will take whatever steps are appropriate and reasonable to attempt to have such a Policy comply with Section 7702. For these reasons, Western Reserve reserves the right to modify the Policy as necessary to attempt to qualify it as a life insurance contract under Section 7702. Assuming that a Policy qualifies as a life insurance contract for Federal income tax purposes, Western Reserve believes that the death benefit paid under the Policy generally should be fully excludable from the gross income of the Beneficiary for Federal income tax purposes. Moreover, the Owner should not be deemed in constructive receipt of Cash Values under a Policy until there is a distribution from the Policy. A Policy may be treated as a "modified endowment contract" depending upon the amount of premiums paid in relation to the death benefit. (See Tax Treatment of Policy Benefits - Modified Endowment Contracts, p. 34.) If the Policy is a modified endowment contract, then all pre-death distributions, including Policy loans and loans secured by a Policy, will be treated first as a distribution of taxable income to the extent of any gain and then as a return of basis or investment in the contract. In addition, prior to age 59-1/2 any distributions of gains generally will be subject to a 10% Federal income tax penalty. If the Policy is not a modified endowment contract, distributions generally will be treated first as a return of basis or investment in the contract and then as disbursing taxable income. Moreover, loans and loans secured by a Policy will not be treated as distributions. Finally, neither distributions nor loans from a Policy that is not a modified endowment contract are subject to the 10% Federal income tax penalty. For further elaboration on the tax consequences of a Policy, see Federal Tax Matters, p. 33. 5 FUND ANNUAL EXPENSES* (AS A % OF FUND AVERAGE NET ASSETS)
Aggressive Emerging Growth Growth Growth Portfolio Portfolio Portfolio ------------ ----------- ----------- Management Fees .............................. 0.80% 0.80% 0.80% Other Expenses (after reimbursement) ......... 0.16% 0.13% 0.07% Total Fund Annual Expenses ................... 0.96% 0.93% 0.87% C.A.S.E. Global Balanced Value Equity Growth Portfolio Portfolio Portfolio Portfolio ----------- ----------- -------------- ---------- Management Fees .............................. 0.80% 0.80% 0.80% 0.80% Other Expenses (after reimbursement) ......... 0.20% 0.14% 0.09% 0.20% Total Fund Annual Expenses ................... 1.00% 0.94% 0.89% 1.00%
Strategic Growth & Money Bond Total Return Income Market Portfolio Portfolio Portfolio Portfolio ----------- -------------- ----------- ----------- Management Fees .................... 0.45% 0.80% 0.75% 0.40% Other Expenses (after reimbursement) ............. 0.14% 0.08% 0.21% 0.08% Total Fund Annual Expenses ......... 0.59% 0.88% 0.96% 0.48% Tactical Third Real Asset International Avenue Estate Allocation Equity U.S. Equity Value Securities Portfolio Portfolio Portfolio Portfolio** Portfolio** ------------ --------------- ------------- ------------- ------------ Management Fees .................... 0.80% 1.00% 0.80% 0.80% 0.80% Other Expenses (after reimbursement) ............. 0.07% 0.50% 0.50% 0.20% 0.20% Total Fund Annual Expenses ......... 0.87% 1.50% 1.30% 1.00% 1.00% * Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan, entered into a Distribution Agreement with InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under the Distribution Plan, the Fund, on behalf of the Portfolios, is authorized to pay to various service providers, as direct payment for expenses incurred in connection with the distribution of a Portfolio's shares, amounts equal to actual expenses associated with distributing a Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of the average daily net assets. This fee is measured and accrued daily and paid monthly. ISI has determined that it will not seek payment by the Fund of distribution expenses incurred with respect to any Portfolio until April 30, 1999. Prior to ISI seeking reimbursement, Policyowners will be notified in advance. ** Because the Third Avenue Value Portfolio commenced operations on January 2, 1998, and the Real Estate Securities Portfolio commenced operations on May 1, 1998, the percentages set forth as "Other Expenses" and "Total Fund Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations.
The purpose of the preceding Table is to assist the Policyowner in understanding the various costs and expenses that a Policyowner will bear directly and indirectly. The Table reflects charges and expenses of the Portfolios of the Fund for the fiscal year ended December 31, 1997, except that the "Other Expenses" and "Total Fund Annual Expenses" for the Third Avenue Value and Real Estate Securities Portfolios are estimates. Expenses of the Fund may be higher or lower in the future. Certain states and other governmental entities may impose a premium tax, which the Table does not include. For more information on the charges described in this Table, see "Charges And Deductions" on page 24 and the Fund Prospectus which accompanies this Prospectus. WRL Investment Management, Inc. ("WRL Management") has undertaken, until at least April 30, 1999, to pay Fund expenses on behalf of the Portfolios to the extent normal operating expenses of a Portfolio exceed a stated percentage of each Portfolio's average daily net assets. The expense limitation for the Aggressive Growth, Emerging Growth, Growth, Global, Balanced, Value Equity, C.A.S.E. Growth, Third Avenue Value, Strategic Total Return, Growth & Income, Tactical Asset Allocation and Real Estate Securities Portfolios is 1.00% of the average daily net assets; 0.70% of the average daily net assets of the Bond and Money Market Portfolios; 1.50% of the average daily net assets of the International Equity Portfolio; and 1.30% of the average daily net assets of the U.S. Equity Portfolio. In 1997, WRL Management, the Fund's Investment Adviser, reimbursed the C.A.S.E. Growth Portfolio in the amount of $50,000, the International Equity Portfolio in the amount of $179,000 and the U.S. Equity Portfolio in the amount of $29,000. Without such reimbursement, the total annual Fund expenses during 1997 for the C.A.S.E. Growth Portfolio, International Equity Portfolio and U.S. Equity Portfolio would have been 1.13%, 3.12% and 1.49%, respectively. INVESTMENT EXPERIENCE INFORMATION The information provided in this section shows the historical investment experience of the Fund and hypothetical illustrations of the Policy based on the historical investment experience of the Fund. It does not represent or project future investment performance. The Policies became available for sale in of 1999. The Series Account and the Fund commenced operations on October 2, 1986. The rates of return shown below depict the historic investment experience of each Portfolio of the Fund for the periods shown and assumes that the rate of return for each Portfolio in each calendar year was uniformly earned throughout the year. The actual performance of the Portfolios, however, has and will vary throughout the year, and will result in variable monthly deductions from Cash Value that could affect performance. The illustrations of death benefits, Cash Values and Net Surrender Values shown below depict these Policy features for a hypothetical Policy as if it had been purchased on January 1, 1987, for an Insured in the age and risk classes indicated, based on the historical investment experience of the Portfolio indicated since January 1 of the year following a Portfolio's inception. The actual rate of return for each Portfolio in each calendar year was assumed to be uniformly earned throughout that year. The actual performance of the Portfolios, however, has and will vary throughout the year. 6 RATES OF RETURN The rates of return shown below are based on the historic investment performance, as described above, after the deduction of investment management fees and direct Fund expenses, of the Portfolios of the Fund. The rates are average annual compounded rates of return for the periods ended on December 31, 1997. (See Investments of the Series Account - WRL Series Fund, Inc., p. 17.) These rates of return do not reflect the annual charge against the assets of the Series Account for mortality and expense risks. These rates of return also do not reflect the monthly deductions from Cash Value, or surrender charges. (See Contingent Deferred Surrender Charges, p. 24; and Cash Value Charges, p. 25.) 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, below.) Moreover, these rates of return are not an estimate, projection or guarantee of future performance. Also shown are comparable figures for the unmanaged Standard & Poor's Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market performance. As an unmanaged index, the S&P 500 does not reflect any deduction for the expense of operating and managing an investment portfolio. AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 1997
10 5 3 1 Fund Portfolio Inception* Years Years Years Year - ------------------------ ------------ ---------- ---------- ---------- ---------- Growth 17.65% 18.66% 14.23% 26.83% 17.54% Global 20.41% N/A 20.38% 23.13% 18.75% Bond 7.77% 8.98% 7.24% 10.37% 9.16% Money Market 5.00% 5.06% 4.31% 5.22% 5.24% Emerging Growth 20.33% N/A N/A 28.45% 21.45% Strategic Total Return 15.07% N/A N/A 20.43% 21.85% Aggressive Growth 17.72% N/A N/A 23.73% 24.25% Balanced 10.44% N/A N/A 15.81% 17.10% Growth & Income 14.17% N/A N/A 20.35% 24.65% Tactical Asset Allocation 17.04% N/A N/A 17.01% 16.59% C.A.S.E Growth 20.09% N/A N/A N/A 15.03% Value Equity 23.14% N/A N/A N/A 25.04% International Equity 7.50% N/A N/A N/A 7.50% U.S. Equity 27.01% N/A N/A N/A 27.01% S&P 500 16.95% 18.06% 20.27% 31.15% 33.36% * The Growth, Bond and Money Market Portfolios of the Fund commenced operations on October 2, 1986. The Global Portfolio commenced operations on December 3, 1992. The Emerging Growth and Strategic Total Return Portfolios commenced operations on March 1, 1993. The Aggressive Growth, Balanced and Growth & Income Portfolios commenced operations on March 1, 1994. The Tactical Asset Allocation Portfolio commenced operations on January 3, 1995. The C.A.S.E. Growth Portfolio commenced operations on May 1, 1995. The Value Equity Portfolio commenced operations on May 1, 1996. The International Equity and U.S. Equity Portfolios commenced operations on January 2, 1997. The S&P 500 returns are based on an inception date of October 2, 1986.
Because the Third Avenue Value and Real Estate Securities Portfolios had not yet commenced operations as of December 31, 1997, the above chart does not reflect rates of return for these Portfolios. Additional information regarding the investment performance of the Portfolios of the Fund appears in the attached Prospectus for the Portfolios of the Fund. DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS In order to demonstrate how the historic investment experience of the Portfolios could have affected the Option A death benefits, the Policy Cash Value and the Net Surrender Value, the following hypothetical illustrations are based on the historic investment experience of each Portfolio. These hypothetical illustrations are designed to show the performance that could have resulted if the Policy available for purchase today had been in existence during the period of time illustrated. The actual rate of return in each calendar year was assumed to be uniformly earned throughout that year. The actual performance of the Portfolios, however, has and will vary throughout the year, and will result in variable monthly deductions from Cash Value that could affect performance. These illustrations do not represent what may happen in the future. For each Portfolio, the illustrations show Option A based on the payment of annual premiums of $5,500 at the beginning of each Policy year, and a Specified Amount of $500,000 for a male age 35. The illustrations assume that the Insured is placed in Western Reserve's non-tobacco use Ultimate Select underwriting rate class. (See Cash Value Charges - Cost of Insurance, p. 25.) The illustrations also assume that the Policy's entire Cash Value is allocated to the Sub-Account corresponding to the Portfolio shown. The illustrated values would be different if the Policyowner had chosen Option B death benefits. The amounts shown for death benefits, Cash Values and Net Surrender Values take into account all charges and deductions from the Policy, the Series Account and the Fund (see Charges and Deductions - Charges Against the Series Account, p. 26, and Investments of the Series Account - WRL Series Fund, Inc., p. 17). For each Portfolio of the Fund, one illustration is based on the guaranteed cost of insurance rates, while the other illustration is based on the current cost of insurance rates. These examples of Policy performance are for the specific age, sex, rate class, premium payment pattern and Policy set forth above. The amount and timing of premium payments would affect individual Policy benefits as would any withdrawals or loans. This Prospectus also contains illustrations based on hypothetical rates of return. (See Appendix A, pages 39-41.) The following example shows how the hypothetical net return of the Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. This example assumes that the 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. 7 GROWTH PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ ---------- ------------ ---------- ----------- 1988 ............................... $ 5,230 $ 5,157 $ 1,357 $ 1,284 1989* .............................. 11,490 11,310 7,155 6,975 1990* .............................. 24,123 23,719 19,325 18,921 1991* .............................. 27,907 27,375 22,647 22,115 1992* .............................. 52,102 51,062 46,381 45,340 1993* .............................. 57,475 56,266 51,291 50,083 1994* .............................. 63,480 62,076 56,834 55,431 1995* .............................. 61,646 60,203 54,539 53,096 1996* .............................. 97,318 95,030 89,749 87,460 1997* .............................. 118,226 115,441 110,195 107,409 1998* .............................. 144,947 141,570 138,152 134,776 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Bond Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. BOND PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1988 ............................... $ 4,421 $ 4,354 $ 548 $ 481 1989* .............................. 9,648 9,486 5,313 5,151 1990* .............................. 16,440 16,134 11,643 11,337 1991* .............................. 22,369 21,896 17,110 16,637 1992* .............................. 31,344 30,631 25,623 24,910 1993* .............................. 38,503 37,574 32,320 31,390 1994* .............................. 47,783 46,571 41,138 39,926 1995* .............................. 48,358 47,060 41,251 39,953 1996* .............................. 64,439 62,697 56,870 55,127 1997* .............................. 67,734 65,890 59,702 57,859 1998* .............................. 78,666 76,562 71,871 69,767 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
8 The following example shows how the hypothetical net return of the Money Market Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1987. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. MONEY MARKET PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1988 ............................... $ 4,939 $ 4,868 $ 1,066 $ 995 1989* .............................. 10,133 9,968 5,798 5,632 1990* .............................. 15,862 15,569 11,065 10,772 1991* .............................. 21,837 21,376 16,578 16,117 1992* .............................. 27,578 26,942 21,857 21,220 1993* .............................. 32,839 32,026 26,655 25,843 1994* .............................. 37,883 36,884 31,238 30,239 1995* .............................. 43,418 42,206 36,311 35,098 1996* .............................. 49,882 48,468 42,312 40,899 1997* .............................. 56,352 54,748 48,320 46,717 1998* .............................. 63,090 61,330 56,295 54,536 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Global Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1993. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GLOBAL PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1994 ............................... $ 6,383 $ 6,302 $ 2,509 $ 2,428 1995* .............................. 11,008 10,839 6,673 6,504 1996* .............................. 19,249 18,919 14,452 14,121 1997* .............................. 29,868 29,295 24,609 24,036 1998* .............................. 41,264 40,416 35,543 34,694 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Emerging Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1994. This example assumes that 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, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1995 ............................... $ 4,281 $ 4,214 $ 407 $ 341 1996* .............................. 13,323 13,117 8,987 8,781 1997* .............................. 21,002 20,642 16,205 15,845 1998* .............................. 31,182 30,587 25,923 25,328 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
9 The following example shows how the hypothetical net return of the Strategic Total Return Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1994. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. STRATEGIC TOTAL RETURN PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1995 ............................... $ 4,631 $ 4,562 $ 758 $ 689 1996* .............................. 11,644 11,460 7,309 7,124 1997* .............................. 18,395 18,069 13,598 13,271 1998* .............................. 28,146 27,589 22,887 22,330 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Aggressive Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1995. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. AGGRESSIVE GROWTH PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current an Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1996 ............................... $ 6,666 $ 6,583 $ 2,792 $ 2,709 1997* .............................. 12,314 12,132 7,978 7,797 1998* .............................. 21,153 20,803 16,355 16,005 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Balanced Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1995. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. BALANCED PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1996 ............................... $ 5,654 $ 5,578 $ 1,781 $ 1,704 1997* .............................. 11,244 11,069 6,908 6,734 1998* .............................. 18,785 18,457 13,988 13,660 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
10 The following example shows how the hypothetical net return of the Growth & Income Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1995. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GROWTH & INCOME PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1996 ............................... $ 5,950 $ 5,872 $ 2,077 $ 1,999 1997* .............................. 11,584 11,407 7,249 7,071 1998* .............................. 20,274 19,929 15,477 15,132 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the Tactical Asset Allocation Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1995. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. TACTICAL ASSET ALLOCATION PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1996 ............................... $ 5,703 $ 5,626 $ 1,829 $ 1,753 1997* .............................. 11,672 11,492 7,336 7,157 1998* .............................. 18,980 18,652 14,183 13,855 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
The following example shows how the hypothetical net return of the C.A.S.E. Growth Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1996, if the C.A.S.E. Growth Portfolio had been offered by the Policy as of January 1, 1996. This example assumes that Premiums and related Cash Values were in the Sub-Account for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. C.A.S.E. GROWTH PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1997 ............................... $ 5,447 $ 5,373 $1,574 $1,499 1998* .............................. 11,759 11,577 7,424 7,242 * For each year shown, benefits and values reflect only premiums paid during previous Policy years.
11 The following example shows how the hypothetical net return of the Value Equity Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1997. This example assumes that 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. VALUE EQUITY PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1998 ............................... $5,906 $5,829 $2,033 $1,955
The following example shows how the hypothetical net return of the U.S. Equity Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1997. This example assumes that 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. U.S. EQUITY PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1998 ............................... $6,006 $5,927 $2,133 $2,054
The following example shows how the hypothetical net return of the International Equity Portfolio of the Fund would have affected benefits for a Policy dated January 1, 1997. This example assumes that 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. INTERNATIONAL EQUITY PORTFOLIO Male, Issue Age 35, $5,500 Annual Premium ($500,000 Specified Amount, Non-Tobacco Use Ultimate Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed - ------------------------------------ --------- ------------ --------- ----------- 1998 ............................... $5,035 $4,964 $1,162 $1,090
Because the Third Avenue Value Portfolio and Real Estate Securities Portfolio had not yet commenced operations as of December 31, 1997, there are no hypothetical illustrations for these Portfolios. OTHER PERFORMANCE DATA Western Reserve may compare the performance of each Sub-Account in advertising and sales literature to the performance of other variable life issuers in general, or to the performance of particular types of variable life insurance policies investing in mutual funds, or investment series of mutual funds, with investment objectives similar to each of the Sub-Accounts whose performance is reported by Lipper Analytical Services, Inc. ("Lipper") and Morningstar, Inc. ("Morningstar") or reported by other services, companies, individuals or other industry or financial publications of general interest, such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Kiplinger's Personal Finance and Fortune. Lipper and Morningstar are widely used independent research services which monitor and rank the performance of variable life insurance policies in each of the major categories of investment objectives on an industry-wide basis. Lipper's and Morningstar's rankings include variable annuity contracts as well as variable life insurance policies. The performance analyses prepared by Lipper and Morningstar rank such policies and contracts on the basis of total return, assuming reinvestment of distributions, but do not take sales charges, redemption fees or certain expense deductions at the separate account level into consideration. Western Reserve may also compare the performance of each Sub-Account in advertising and sales literature to the S&P 500, a widely used measure of stock market performance, or 12 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. Western Reserve is a member of the Insurance Marketplace Standards Association ("IMSA"), and as such may include the IMSA logo and information about IMSA membership in its advertisements. Companies that belong to IMSA subscribe to a set of ethical standards covering the various aspects of sales and service for individually sold life insurance and annuities. In addition, Western Reserve may, as appropriate, compare each Sub-Account's performance to that of other types of investments such as certificates of deposit, savings accounts and U.S. Treasuries, or to certain interest rate and inflation indices, such as the Consumer Price Index, which is published by the U.S. Department of Labor and measures the average change in prices over time of a fixed "market basket" of certain specified goods and services. Similar comparisons of Sub-Account performance may also be made with appropriate indices measuring the performance of a defined group of securities widely recognized by investors as representing a particular segment of the securities markets. For example, Sub-Account performance may be compared with Donoghue Money Market Institutional Average (money market rates), Lehman Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers Government Bond Index (long-term U.S. Government obligation interest rates). 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 33758-5068. 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 USA"). AEGON USA is a financial services holding company whose primary emphasis is on life and health insurance and annuity and investment products. AEGON USA is a wholly-owned indirect subsidiary of AEGON nv, a Netherlands corporation, which is a publicly traded international insurance group. PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to time publish in advertisements, sales literature and reports to Policyowners, the ratings and other information assigned to it by one or more independent rating organizations such as A.M. Best Company ("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps Credit Rating Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. Standard & Poor's and Duff & Phelps provide ratings which measure the claims-paying ability of insurance companies. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms. Claims-paying ability ratings do not refer to an insurer's ability to meet non-policy obligations (I.E., debt/commercial paper). These ratings do not apply to the Series Account, its Sub-Accounts, the Fund, its Portfolios, or to their performance. THE SERIES ACCOUNT WRL Series Life Account ("Series Account") was established by Western Reserve as a separate account on July 16, 1985. The Series Account meets the definition of a "separate account" under the Federal securities laws. The Series Account will receive and invest the Net Premiums paid under this Policy and other flexible premium variable life insurance policies issued by Western Reserve. Although the assets of the Series Account are the property of Western Reserve, the Code of Ohio, under which the Series Account was established, provides that the assets in the Series Account attributable to the Policies are not chargeable with liabilities arising out of any other business which Western Reserve may conduct. The assets of the Series Account shall, however, be available to cover the liabilities of the General Account of Western Reserve to the extent that the Series Account's assets exceed its liabilities arising under the Policies supported by it. The Series Account is currently divided into sixteen Sub-Accounts. Each Sub-Account invests exclusively in shares of a single Portfolio of the Fund. Income and both realized and unrealized gains or losses from the assets of each Sub-Account of the Series Account are credited to or charged against that Sub-Account without regard to income, gains or losses from any other Sub-Account of the Series Account or arising out of any other business Western Reserve may conduct. POLICY BENEFITS DEATH BENEFIT Policyowners designate in the initial application one of two death benefit options offered under the Policy: Death Benefit Option A ("Option A") and Death Benefit Option B ("Option B"). As long as the Policy remains In Force, (see Policy Lapse and Reinstatement - Lapse, p. 23), 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. 29.) Western Reserve guarantees that as long as the Policy remains In Force (see Policy Lapse and Reinstatement - Lapse, p. 23), the death benefit proceeds under either option will never be less than the 13 Specified Amount of the Policy, but the proceeds will be reduced by any outstanding indebtedness and any due and unpaid charges. These proceeds will be increased by any additional insurance In Force provided by rider and any unearned loan interest. OPTION A. The death benefit is the greater of (i) the Specified Amount of the Policy or (ii) a specified percentage (the "limitation percentage") times the Cash Value of the Policy on the date of death of the Insured. 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 $500,000 Specified Amount will generally pay $500,000 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 $200,000, the death benefit will exceed the $500,000 Specified Amount. Each additional dollar added to Cash Value above $200,000 will increase the death benefit by $2.50. Similarly, so long as the Cash Value exceeds $200,000, each dollar taken out of the 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 PER YEAR OF INSURED LESS OVER AGE - ---------------------- ------ --------- 40 and under ......... 250% 41 - 45 .............. 250% 7% 40 46 - 50 .............. 215% 6% 45 51 - 55 .............. 185% 7% 50 56 - 60 .............. 150% 4% 55 61 - 65 .............. 130% 2% 60 66 - 70 .............. 120% 1% 65 71 - 75 .............. 115% 2% 70 76 - 90 .............. 105% 0% 75 91 - 95 .............. 105% 1% 90 OPTION B. The death benefit is equal to the greater of (i) the Specified Amount plus the Cash Value of the Policy on the date of death of the Insured or (ii) the limitation percentage times the Cash Value of the Policy on or prior to the date of death of the Insured. The applicable percentage is 250% for an Insured age 40 or below on the Policy Anniversary prior to the date of death. For Insureds with an Attained Age over 40 on a Policy Anniversary, the percentage declines as shown in the Limitation Percentage Table above. Accordingly, under Option B the amount of the death benefit will always vary as the Cash Value varies. ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that the Insured is under the age of 40 and that there is no outstanding indebtedness. Under Option B, a Policy with a Specified Amount of $500,000 will generally pay a death benefit of $500,000 plus Cash Value. Thus, for example, a Policy with a Cash Value of $100,000 will have a death benefit of $600,000 ($500,000 + $100,000). The death benefit, however, must be at least 250% of Cash Value. As a result, if the Cash Value of the Policy exceeds $333,333, the death benefit will be greater than the Specified Amount plus Cash Value. Each additional dollar of Cash Value above $333,333 will increase the death benefit by $2.50. Similarly, any time Cash Value exceeds $333,333, 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. Assuming the death benefit is not determined by reference to the limitation percentage, Option A will provide a Specified Amount of death benefit which does not vary with changes in Cash Value. Thus, under Option A, as Cash Value increases, Western Reserve's net amount at risk and therefore the pure insurance protection under the Policy will decline. In contrast, Option B involves a constant net amount at risk, assuming that the death benefit is not determined by reference to the limitation percentage. Assuming positive investment experience, the deduction for cost of insurance under a Policy with an Option A death benefit will be less than under a corresponding Policy with an Option B death benefit. Because of this, if investment performance is positive, Cash Value under Option A will increase faster than under Option B but the total death benefit under Option B will generally be greater. Thus, Option A could be considered more suitable for Policyowners whose goal is increasing Cash Value based upon positive investment experience while Option B could be considered more suitable for Policyowners whose goal is increasing total death benefit. CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in effect may be changed by the Policyowner once each Policy year after the third Policy year by sending Western Reserve a written request for change. A change in death benefit option may have Federal income tax consequences. (See Federal Tax Matters, p. 33.) Under Western Reserve's current rules, no change may be made if it would result in a Specified Amount less than the minimum Specified Amount set forth in the Policy. The effective date of any change will be the Monthly Anniversary on or following receipt of the request. No charges will be imposed for making a change in death benefit option. If the death benefit option is changed from Option B to Option A, the Specified Amount will be increased by an 14 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. The Policyowner may either change the Death Benefit Option or decrease the Specified Amount, but not both, only once each Policy year after the third Policy year. CORRIDOR PERCENTAGE. If, pursuant to requirements of the Internal Revenue Code of 1986, as amended, the death benefit under a Policy is determined by reference to the limitation percentages discussed above, the Policy is described as "in the corridor," and an increase in the Cash Value of the Policy will increase the net amount at risk assumed by Western Reserve and consequently increase the cost of insurance deducted from the Cash Value of the Policy. (See Cash Value Charges - Cost of Insurance, p. 25.) INSURANCE PROTECTION. A Policyowner may increase or decrease the pure insurance protection provided by a Policy (I.E., the difference between the death benefit and the Cash Value) in one of several ways as insurance needs change. These ways include decreasing the Specified Amount of insurance, changing the level of premium payments, and, to a lesser extent, making a cash withdrawal from the Policy. Although the consequences of each of these methods will depend upon the individual circumstances, they may be generally summarized as follows: (a) A decrease in the Specified Amount will, subject to the limitation percentage (see Policy Benefits - Death Benefit, p. 13), in general decrease the insurance protection and the charges under the Policy without reducing the Cash Value. A pro rata Decrease Charge will be assessed against Cash Value at the time of decrease during the first fifteen Policy years. (See Charges and Deductions - Pro Rata Decrease Charge, p. 25) (b) If Option A is elected, an increased level of premium payments will reduce the pure insurance protection, until the limitation percentage times the Cash Value exceeds the Specified Amount. Increased premiums should increase the amount of Net Surrender Value available to keep the Policy In Force. (c) A cash withdrawal will reduce the death benefit. (See Surrender Privileges - Cash Withdrawals, p. 28.) However, it has no effect on the amount of pure insurance protection and charges under the Policy, unless the death benefit payable is governed by the limitation percentages. It results in a reduced amount of Net Surrender Value available to pay the monthly deduction, thereby increasing the possibility that the Policy will lapse. (d) A reduced level of premium payments also generally increases the amount of pure insurance protection if Option A is elected, or maintains the same amount of pure insurance protection if Option B is elected, again depending on the limitation percentage. It results in a reduced amount of Cash Value and increases the possibility that the Policy will Lapse. HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In Force, Western Reserve guarantees that the death benefit will never be less than the Specified Amount of the Policy. These proceeds will be reduced by any outstanding policy loan, plus any unearned loan interest, and any due and unpaid charges. The death benefit may, however, vary with the Policy's Cash Value. Under Option A, the death benefit will only vary when the Cash Value multiplied by the limitation percentage exceeds the Specified Amount of the Policy. The death benefit under Option B will always vary with the Cash Value because the death benefit equals either the Specified Amount plus the Cash Value or the limitation percentage times the Cash Value. DECREASE IN SPECIFIED AMOUNT. Subject to certain limitations, a Policyowner may decrease the Specified Amount of a Policy. A decrease in Specified Amount may affect the net amount at risk, which may affect a Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of Insurance, p. 25.) A decrease in Specified Amount may also have Federal income tax consequences. (See Federal Tax Matters, p. 33.) The Policyowner may either change the death benefit Option or decrease the Specified Amount, but not both, only once each Policy year after the third Policy year. A pro rata Decrease Charge will be assessed against Cash Value at the time of decrease during the first fifteen Policy years. (See Charges and Deductions - Pro Rata Decrease Charge, p. 25.) No requested decrease in the Specified Amount will be permitted during the first three Policy years. Thereafter, 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. The Specified Amount remaining In Force after any requested decrease may not be less than the minimum Specified Amount set forth in the Policy. Western Reserve reserves the right to limit any decrease to no more than 20% of the Specified Amount immediately prior to the decrease. If, following the decrease in Specified Amount, the Policy would not comply with the maximum premium limitations required by Federal tax law (see Premiums - Premium Limitations, p. 20), the decrease may be limited to the extent necessary to meet these requirements. NO INCREASE IN SPECIFIED AMOUNT. No increase in Specified Amount will be permitted. WHEN INSURANCE COVERAGE TAKES EFFECT No life insurance coverage shall take effect unless the proposed Insured and all additional Insureds proposed for coverage are alive and in the same condition of health as described in the application when the policy is delivered to the Policyowner and the full Initial Premium is paid. However, if the full Initial Premium is paid as set forth in the conditional receipt attached to the application, and the conditional receipt is delivered to the Policyowner, the terms of the conditional receipt shall apply. 15 CONDITIONAL INSURANCE COVERAGE. Each and every person proposed for insurance must be insurable and acceptable to Western Reserve under its underwriting rules for the amount, Policy and risk classification applied for on the later of: (a) the date of application, or (b) the date of completion of all medical tests and examinations required by Western Reserve. Any check given for payment must be honored on first presentation. The conditional receipt and all coverages applied for on the application are void if a check or draft received for payment of the Initial Premium is not honored when first presented for payment. AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE. If conditional insurance coverage becomes effective under the terms of the conditional receipt, then the amount of conditional life insurance coverage on any person proposed for insurance is the lesser of: (a) the amount of life insurance applied for on such person, or (b) $300,000 reduced by the amounts payable under all other life insurance or accidental death benefits then in force or pending with Western Reserve. WHEN CONDITIONAL LIFE INSURANCE COVERAGE BEGINS. If the conditions listed above are fulfilled, then the amount of conditional insurance coverage specified above shall take effect on the later of: (a) the date of the application, or (b) the date of the completion of all medical tests and examinations required by Western Reserve. All conditional coverages for each and every person proposed for insurance will be deemed void if the application contains material misrepresentation or is fraudulently completed. Benefits under the conditional receipt coverage will be denied if any person proposed for insurance commits suicide. WHEN CONDITIONAL LIFE INSURANCE COVERAGE ENDS. Conditional life insurance coverage shall terminate automatically, without notice, on the earliest of the following dates: (a) the date Western Reserve approves the Policy as applied for, or (b) 10 days following any counteroffer by Western Reserve to offer insurance to any person proposed for insurance under a different Policy or at an increased premium or on a different rate class or (c) at the end of the fraction of a year which the payment bears to the premium required to provide one month of insurance coverage in the amount as described above, or (d) at the beginning of the 60th day following the date of the conditional receipt. CASH VALUE At the end of any Valuation Period, the Cash Value of the Policy is equal to the sum of the Policy's value in each Sub-Account of the Series Account plus the Fixed Account Value. There is no guaranteed minimum Cash Value. NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender Privileges, p. 30.) The Net Surrender Value as of any date is equal to: (1) the Cash Value as of such date; minus (2) any surrender charge as of such date (as described on p. 24); minus (3) any outstanding Policy loan; plus (4) any unearned loan interest. DETERMINATION OF VALUES IN THE SERIES ACCOUNT. On the Reallocation Date, the Policy's value in a Sub-Account of the Series Account will equal the portion of any 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. 21.) Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of the Series Account will equal the number of units in the Sub-Account, multiplied by the unit value of that Sub-Account. The number of units that the Policy has in each Sub-Account is equal to: (1) The initial units purchased on the Policy Date; plus (2) Units purchased at the time additional Premiums are allocated to the Sub-Account; plus (3) Units purchased through transfers from another Sub-Account or the Fixed Account; minus (4) Units redeemed to pay for monthly deductions as they are due; minus (5) Units redeemed to pay for any cash withdrawals; minus (6) Units redeemed as part of any transfer to another Sub-Account or the Fixed Account; minus (7) Units redeemed to pay for a pro rata Decrease Charge because of any Specified Amount decreases. The Policy's total value in the Series Account equals the sum of the Policy's value in each Sub-Account. (For a description of how the values of the Fixed Account are calculated, see The Fixed Account - Fixed Account Value, p. 32.) Because the Cash Value is dependent upon a number of variables, including the investment experience of the chosen Sub-Accounts of the Series Account, the frequency and amount of premium payments, transfers and surrenders, and charges assessed in connection with the Policy, a Policy's Cash Value cannot be predetermined. UNIT VALUE. The unit value of each Sub-Account was originally established at $10 per unit. The unit value may increase or decrease from one Valuation Period to the next. Unit values also will vary between Sub-Accounts. The unit value of any Sub-Account at the end of a Valuation Period is the result of: (1) The total value of the assets held in the Sub-Account, determined by multiplying the number of shares of the designated Portfolio owned by the Sub-Account times the Portfolio's net asset value per share; minus (2) A deduction for the charge for mortality and expense risks. This charge is used to compensate Western Reserve for its assumption of certain mortality and expense risks. The daily amount of this charge is equal to the net assets of the Sub-Account times the daily 16 pro rata portion of the annual Mortality and Expense Risk Charge rate. This annual rate is equal to ninety one-hundredths of one percent (0.90%). This charge is guaranteed to be reduced to 0.60% after the first fifteen Policy years. Western Reserve intends to reduce this charge to 0.30% starting in the sixteenth Policy year. However, such reduction is not guaranteed; minus (3) The accrued amount of reserve for any taxes or other economic burden resulting from the application of tax laws that are determined by Western Reserve to be properly attributable to the Sub-Account; and the result divided by (4) The number of outstanding units in the Sub-Account. VALUATION DATE AND VALUATION PERIOD. The net asset value per share of shares of the Fund is determined, once daily, as of the close of the regular session of business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern time), on each day the Exchange is open. INVESTMENTS OF THE SERIES ACCOUNT WRL SERIES FUND, INC. The Series Account invests in shares of the Fund, a series mutual fund which is registered with the Commission as an open-end management investment company. Such registration does not involve supervision of the management or investment practices or policies of the Fund by the Commission. Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of the Series Account are: Aggressive Growth Portfolio, Emerging Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio, C.A.S.E. Growth Portfolio, Value Equity Portfolio, U.S. Equity Portfolio, International Equity Portfolio, Third Avenue Value Portfolio and Real Estate Securities 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 objective and policies of each Portfolio are summarized below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE. More detailed information, including a description of risks, can be found in the Prospectus for the Fund which should be read carefully. AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities. EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by investing primarily in common stocks of small and medium sized companies. GROWTH PORTFOLIO: This Portfolio seeks growth of capital by investing primarily in common stocks listed on a national securities exchange or traded on NASDAQ. GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a manner consistent with preservation of capital, primarily through investments in common stocks of foreign and domestic issuers. BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced volatility, and superior long-term risk adjusted returns by investing primarily in common stock, convertible securities and fixed-income securities. STRATEGIC TOTAL RETURN PORTFOLIO: This Portfolio seeks to provide current income, long-term growth of income and capital appreciation by investing primarily in a blend of equity and fixed-income securities, including common stocks, income producing securities convertible into common stocks, and fixed-income securities. BOND PORTFOLIO: This Portfolio seeks the highest possible current income within the confines of the primary goal of insuring the protection of capital by investing at least 65%, and usually a higher percentage, of its assets in debt securities issued by the U.S. Government and its agencies and instrumentalities and in other medium to high-quality debt securities. GROWTH & INCOME PORTFOLIO: This Portfolio's objective is to seek total return by investing in securities that have defensive characteristics. The Portfolio will invest primarily in a diversified portfolio of equity and debt securities with an emphasis on sector investing. MONEY MARKET PORTFOLIO: This Portfolio seeks to obtain maximum current income consistent with preservation of principal and maintenance of liquidity. The Portfolio maintains a dollar-weighted average portfolio maturity of not more than 90 days by investing in U.S. dollar-denominated securities which have effective maturities of not more than 13 months and present minimal credit risks. TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of capital and competitive investment returns by investing primarily in stocks, United States Treasury bonds, notes and bills, and money market funds. C.A.S.E. GROWTH PORTFOLIO: This Portfolio seeks annual growth of capital through investment in companies whose management, financial resources and fundamentals appear attractive on a scale measured against each company's present value. 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. 17 INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks long-term growth of capital by investing primarily in the common stock of foreign issuers traded on overseas exchanges and in foreign over-the-counter markets. U.S. EQUITY PORTFOLIO: This Portfolio seeks long-term growth of capital by investing primarily in equity securities of U.S. companies. THIRD AVENUE VALUE PORTFOLIO: This Portfolio seeks long-term capital appreciation by investing primarily in a portfolio of equity securities of well-financed companies believed to be priced below their private market values and debt securities providing strong protective covenants and high, effective yields. REAL ESTATE SECURITIES PORTFOLIO: This Portfolio seeks long-term total return from investments primarily in equity securities of real estate companies. Total return will consist of realized and unrealized capital gains and losses plus income. WRL Investment Management, Inc. ("WRL Management"), located at 201 Highland Avenue, Largo, FL 33770, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the Fund and manages the Fund in accordance with policies and guidelines established by the Board of Directors of the Fund. Each Sub-Adviser is a registered investment adviser under the Investment Advisers Act of 1940, as amended. Janus Capital Corporation ("Janus") is sub-adviser to the Growth and Global Portfolios of the Fund. WRL Management and Janus will divide equally monthly compensation at a current annual rate of 0.80% of the aggregate average daily net assets each of the Growth Portfolio and Global Portfolio. AEGON USA Investment Management, Inc. ("AIMI") is sub-adviser to the Bond and Balanced Portfolios of the Fund. AIMI is a wholly-owned subsidiary of AEGON USA and thus is an affiliate of Western Reserve. WRL Management and AIMI will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Balanced Portfolio. WRL Management will receive monthly compensation at the current annual rate of 0.45% and AIMI will receive 0.20% of the aggregate average daily net assets of the Bond Portfolio. AIMI's compensation will be reduced by 50% of the amount paid by WRL Management on behalf of the Bond and Balanced Portfolios pursuant to any expense limitation or other reimbursement. Van Kampen American Capital Asset Management, Inc. ("Van Kampen American Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van Kampen American Capital is an indirect wholly-owned subsidiary of VK/AC Holding, Inc. ("VK/AC Holding"). VK/AC Holding is a wholly-owned subsidiary of MSAM Holdings II, Inc., which, in turn, is a wholly-owned subsidiary of Morgan Stanley Group, Inc. WRL Management and Van Kampen American Capital will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Emerging Growth Portfolio. Van Kampen American Capital's compensation will be reduced by 50% of the amount paid by WRL Management on behalf of the Emerging Growth Portfolio pursuant to any expense limitation or other reimbursement. Luther King Capital Management Corporation ("Luther King") is sub-adviser to the Strategic Total Return Portfolio of the Fund. Ultimate control of Luther King is exercised by J. Luther King, Jr. WRL Management and Luther King will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Strategic Total Return Portfolio. Federated Investment Counseling ("Federated") is sub-adviser to the Growth & Income Portfolio of the Fund. Federated is a wholly-owned subsidiary of Federated Investors. WRL Management will receive monthly compensation at the current annual rate of 0.75% of the aggregate average daily net assets of the Growth & Income Portfolio. From this amount, as compensation 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 Growth & Income Portfolio. Fred Alger Management, Inc. ("Fred Alger") is sub-adviser to the Aggressive Growth Portfolio of the Fund. Fred Alger is a wholly-owned subsidiary of Fred Alger & Company, Incorporated, which, in turn, is a wholly-owned subsidiary of Alger Associates, Inc., a financial services holding company. WRL Management and Fred Alger will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Aggressive Growth Portfolio. Dean Investment Associates, a Division of C.H. Dean and Associates, Inc. ("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the Fund. Dean is wholly-owned by C.H. Dean and Associates, Inc. WRL Management and Dean will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Tactical Asset Allocation Portfolio. Dean's compensation will be reduced by 50% of the amount paid by WRL Management on behalf of the Tactical Asset Allocation Portfolio pursuant to any expense limitation or other reimbursement. J.P. Morgan Investment Management Inc. ("J.P. Morgan") is sub-adviser to the Money Market and Real Estate Securities Portfolios of the Fund. J.P. Morgan is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated. WRL Management will receive monthly compensation at the current annual rate of 0.40% of the aggregate average daily net assets of the Money Market Portfolio and 0.80% of the aggregate average daily net assets of the Real Estate Securities 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 and 0.40% of the average daily net assets of the Real Estate Securities Portfolio. C.A.S.E. Management, Inc. ("C.A.S.E.") is sub-adviser to the C.A.S.E. Growth Portfolio of the Fund. C.A.S.E. is a 18 wholly-owned subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William Edward Lange, president and chief executive officer of C.A.S.E. WRL Management and C.A.S.E. will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the C.A.S.E. Growth Portfolio. NWQ Investment Management Company, Inc. ("NWQ Investment") is sub-adviser to the Value Equity Portfolio of the Fund. NWQ Investment was founded in 1982 and is a wholly-owned subsidiary of United Asset Management Corporation. WRL Management and NWQ Investment will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Value Equity Portfolio. NWQ Investment's compensation will be reduced by 50% of the amount paid by WRL Management on behalf of the Value Equity Portfolio pursuant to any expense limitation or other reimbursement. Scottish Equitable Investment Management Limited ("Scottish Equitable") is co-sub-adviser to the International Equity Portfolio. Scottish Equitable is a wholly-owned subsidiary of Scottish Equitable plc, successor to Scottish Equitable Life Assurance Society, which was founded in Edinburgh in 1831. Scottish Equitable is also an indirect wholly-owned subsidiary of AEGON nv. WRL Management receives monthly compensation at the annual rate of 1.00% of the aggregate average daily net assets of the International Equity Portfolio. From this amount, Scottish Equitable receives 0.50% of average daily net assets of the Portfolio managed by Scottish Equitable. GE Investment Management Incorporated ("GEIM") also is a co-sub-adviser to the International Equity Portfolio and is sub-adviser to the U.S. Equity Portfolio. GEIM is a wholly-owned subsidiary of General Electric Company ("GE"). GEIM's principal officers and directors serve in similar capacities with respect to General Electric Investment Corporation ("GEIC," and, together with GEIM, collectively referred to as "GE Investments"), which like GEIM is a wholly-owned subsidiary of GE. WRL Management receives monthly compensation at the annual rate of 1.00% of the aggregate average daily net assets of the International Equity Portfolio. From this amount, GEIM, receives 0.50% of average daily net assets managed by GEIM. With respect to the U.S. Equity Portfolio, WRL Management and GEIM will divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the U.S. Equity Portfolio. EQSF Advisers, Inc. ("EQSF") is sub-adviser to the Third Avenue Value Portfolio. EQSF is a New York corporation organized in 1988 and is controlled by Martin J. Whitman. WRL Management and EQSF divide equally monthly compensation at the current annual rate of 0.80% of the aggregate average daily net assets of the Third Avenue Value Portfolio. EQSF's compensation will be reduced by 50% of the amount paid by WRL Management on behalf of the Third Avenue Value 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, and to various separate accounts of PFL Life Insurance Company and AUSA Life Insurance Company, Inc., all affiliates of Western Reserve. It is conceivable that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the Fund simultaneously. Although neither Western Reserve nor the Fund currently foresees any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners, the Fund's Board of Directors intends to monitor events in order to identify any material conflicts between the interests of such variable life insurance policyowners and variable annuity contract owners and to determine what action, if any, it should take. Such action could include the sale of Fund shares by one or more of the separate accounts, which could have adverse consequences. Material conflicts could result from, for example, (1) changes in state insurance laws, (2) changes in Federal income tax laws, or (3) differences in voting instructions between those given by variable life insurance policyowners and those given by variable annuity contract owners. If the Board of Directors were to conclude that separate funds should be established for variable life and variable annuity separate accounts, Western Reserve will bear the attendant expenses, but variable life insurance policyowners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined fund. ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS Western Reserve reserves the right to transfer assets of the Series Account to another separate account which Western Reserve determines to be associated with the class of contracts to which the Policy belongs. Western Reserve also reserves the right, subject to compliance with applicable law, to make additions to, deletions from, or substitutions for the investments that are held by any Sub-Account or that any Sub-Account may purchase. Any such addition, deletion or substitution by Western Reserve of shares of another Portfolio of the Fund or of another open-end, registered investment company, will only be taken if the shares of a Portfolio are no longer available for investment, or if in Western Reserve's judgement further investment in any Portfolio should become inappropriate in view of the purposes of the Series Account. Western Reserve will not add, delete or substitute any shares attributable to a Policyowner's interest in a Sub-Account of the Series Account without notice to and prior approval of the Commission, to the extent required by the 1940 Act or other applicable law. Nothing contained herein shall prevent the Series Account from purchasing other securities for other Portfolios or classes of 19 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 make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If deemed by Western Reserve to be in the best interests of persons having voting rights under the Policies, and when permitted by law, the Series Account may be (1) operated as a management company under the 1940 Act, (2) deregistered under the 1940 Act in the event such registration is no longer required, (3) managed under the direction of a committee, or (4) combined with one or more other separate accounts, or sub-accounts. PAYMENT AND ALLOCATION OF PREMIUMS ISSUANCE OF A POLICY Individuals wishing to purchase a Policy must send a completed application to Western Reserve, P.O. Box 628069, Orlando, Florida 32862-8069 for Policies submitted by World Marketing Alliance distribution systems; and to Western Reserve, P.O. Box 628078, Orlando, Florida 32862-8078 for Policies submitted by all other distribution systems, including ISI. Under Western Reserve's current rules, the minimum Specified Amount of a Policy is $250,000 for Issue Ages 0-60, and $100,000 for Issue Ages above 60. Policies will generally be issued only to Insureds 80 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 80. Acceptance is subject to Western Reserve's underwriting rules and Western Reserve reserves the right to reject an application for any reason permitted by law. PREMIUMS Subject to certain limitations, a Policyowner has flexibility in determining the frequency and amount of premiums. PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy frees the Policyowner from the requirement that premiums be paid in accordance with a rigid and inflexible premium schedule. Western Reserve may require the Policyowner to pay an Initial Premium at least equal to a minimum monthly guarantee premium set forth in the Policy before issuing the Policy. Thereafter, subject to the minimum and maximum premium limitations described on p. 21, a Policyowner may make unscheduled premium payments at any time in any amount. PLANNED PERIODIC PREMIUMS. Each Policyowner will determine a Planned Periodic Premium schedule that provides for the payment of a level premium at a fixed interval over a specified period of time. The Policyowner is not required to pay premiums in accordance with this schedule. Furthermore, the Policyowner has considerable flexibility to alter the amount, frequency, and the time period over which Planned Periodic Premiums are paid. The payment of a Planned Periodic Premium will not guarantee that the Policy remains In Force. Instead, the duration of the Policy depends upon the Policy's Net Surrender Value. Thus, even if Planned Periodic Premiums are paid by the Policyowner, the Policy will nonetheless lapse any time Net Surrender Value is insufficient to pay certain monthly charges, and a grace period expires without a sufficient payment. However, during the first three Policy years, the Policy will remain In Force and no grace period will begin provided the total premiums received (minus any withdrawals, any outstanding loans and any pro rata Decrease Charge deducted from the Cash Value) is equal to or exceeds the minimum monthly guarantee premium times the number of months since the Policy Date, including the current month. (See Policy Lapse and Reinstatement - Lapse, p. 23.) The minimum monthly guarantee premium is set forth in the Policy, unless changed due to a requested change under the Policy by the Policyowner, at which time the Policyowner will be notified of the new minimum monthly guarantee premium. PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both scheduled and unscheduled, exceed the current maximum premium limitations which qualify the Policy as life insurance according to Federal tax laws. If at any time a premium is paid which would result in total premiums exceeding the current maximum premium limitation, Western Reserve will only accept that portion of the premium which will make total premiums equal the maximum. Any part of the premium in excess of that amount will be returned and no further premiums will be accepted until allowed by the current maximum premium limitations set forth in the Policy. Every premium payment, whether scheduled or unscheduled, must be at least the minimum payment amount required. Under Western Reserve's current rules, the minimum payment amount is $84. Premium payments less than this minimum amount may be returned to the Policyowner. PAYMENT OF PREMIUMS. As an accommodation to Policyowners, Western Reserve will accept transmittal of initial and subsequent premiums of at least $1,000 by wire transfer. For an Initial Premium, the wire transfer must be accompanied by a simultaneous telephone facsimile transmission ("FAX") of a completed application. An Initial Premium accepted via wire transfer with FAX will be allocated in accordance with current procedures explained in the next section entitled, "Allocation of Premiums and Cash Value - Allocation 20 of Premiums," below. An Initial Premium made by wire transfer not accompanied by a simultaneous FAX, or accompanied by a FAX of an incomplete application, will be retained for a period up to five business days while Western Reserve attempts to obtain the FAX or complete the essential information required to establish the Policy and allocate the Initial Premium at the unit value next determined after receipt of the FAX or information necessary to complete the application. If Western Reserve cannot obtain the FAX or essential information within five business days, Western Reserve will return the Initial Premium to the applicant, unless the applicant consents to allow Western Reserve to retain the Initial Premium until the required FAX or essential information is received. In the event the application with original signature is later received and the allocation instructions in that application, for any reason, are inconsistent with those previously designated on the FAX, the Initial Premium will be reallocated on the first Valuation Date on or following the Reallocation Date in accordance with the allocation instructions in the application with original signature. Policyowners wishing to make payments via bank wire should instruct their banks to wire Federal Funds as follows: Barnett Bank of Pinellas County ABA # 063000047 For credit to: Western Reserve Life Account #: 2452641830 Policyowner's Name: Policy Number: Attention: General Accounting Fax Number: (813) 588-1600 ALLOCATION OF PREMIUMS AND CASH VALUE PREMIUMS. When an Initial Premium accompanies the application, monthly deductions from the Cash Value of the Policy commence on the Policy Date. ALLOCATION OF PREMIUMS. In the application for a Policy, the Policyowner will allocate 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, will first be allocated on the first Valuation Date on or following the Policy Date, to the Reallocation Account of the Series Account as specified on the Policy Schedule Page and will be reallocated in accordance with the Policyowner's directions in the application on the first Valuation Date on or following the Reallocation Date. The Record Date of the Policy will be the date on which the Policy is recorded on Western Reserve's books as an In Force Policy. (See Payment and Allocation of Premiums beginning on page 20, and Policy Benefits - When Conditional Life Insurance Coverage Begins, p. 16.) Premiums paid after the Reallocation Date will be allocated in accordance with the Policyowner's instructions. Western Reserve does not currently require that allocation of Premiums to an Account meet a minimum percentage. Western Reserve does reserve the right to limit allocation of Premiums to any Account to no less than 1% of each Premium payment. No fractional percentages are permitted. The allocation of future Premiums may be changed at any time by providing Western Reserve with written notification from the Policyowner, or by calling Western Reserve's toll-free number, 1-800-851-9777. Western Reserve reserves the right to impose a $25 charge for each allocation change in excess of one per Policy year quarter. 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 Premiums. Western Reserve reserves the right to limit the number of changes of the allocation of Premiums to one per year. INVESTMENT RETURNS FROM THE AMOUNTS ALLOCATED TO SUB-ACCOUNTS OF THE SERIES ACCOUNT WILL VARY WITH THE INVESTMENT EXPERIENCE OF THESE SUB-ACCOUNTS AND THE POLICYOWNER BEARS THE ENTIRE INVESTMENT RISK. TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the Series Account or from the Sub-Accounts to the Fixed Account. Transfers may also be made from the Fixed Account to the Sub-Accounts, subject to certain restrictions. (See The Fixed Account - Allocations, Transfers and Withdrawals, p. 32.) The amount of Cash Value available for transfer from any Sub-Account, or the Fixed Account, is determined at the end of the Valuation Period during which the transfer request is received at Western Reserve's Office. The net asset value for each share of the corresponding Portfolio of any Sub-Account is determined, once daily, as of the close of the regular business session of the New York Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern time), which coincides with the end of each Valuation Period. (See Policy Benefits - Cash Value - Valuation Date and Valuation Period, p. 17.) Therefore, any transfer request received after the close of the regular business session of the Exchange, on any day the Exchange is open, will be processed on the next day the Exchange is open for business, utilizing the net asset value for each share of the applicable Portfolio determined as of the close of the regular business session of the Exchange. Cash Value available for transfer from the Fixed Account will be determined in the same manner. Policyowners may make transfer requests in writing, or by telephone. Written requests must be in a form acceptable to Western Reserve. The registered representative/agent of record for the Policy may, upon instructions from the Policyowner for each transfer, make telephone transfers upon request without the necessity for the Policyowner to have previously authorized telephone transfers in writing. If, for any reason, a Policyowner does not want the ability to make transfers by telephone, the Policyowner should provide written notice to Western Reserve at its Office. All telephone transfers should be made by calling Western Reserve at the toll-free number 1-800-851-9777. Western Reserve will not be liable for complying with telephone instructions it reasonably believes to be authentic, nor for any loss, damage, cost or expense in acting on such telephone instructions, and Policyowners will bear the risk of any 21 such loss. Western Reserve will employ reasonable procedures to confirm that telephone instructions are genuine. If Western Reserve does not employ such procedures, it may be liable for losses due to unauthorized or fraudulent instructions. Such procedures may include, among others, requiring forms of personal identification prior to acting upon such telephone instructions, providing written confirmation of such transactions to Policyowners, and/or tape recording of telephone instructions received from Policyowners. Western Reserve may, at any time, revoke or modify the transfer privilege. Under Western Reserve's current procedures, it will effect transfers and determine all values in connection with transfers at the end of the Valuation Period during which the transfer request is received at Western Reserve's Office. Twelve Cash Value transfers are permitted without charge during any one Policy year. Western Reserve may impose a charge of $10 for each subsequent transfer. The transfer charge will not be increased. (See Optional Cash Value Charges - Cash Value Transfers, p. 26.) All transfers made in any one day will be considered a single transfer and any transfer charges will be deducted in an equal amount from each Sub-Account from which a transfer was made. Transfers resulting from policy loans, the exercise of conversion rights, and the reallocation of Cash Value immediately after the Reallocation Date, will not be treated as a transfer for the purpose of this charge. No transfer charge will apply to transfers from the Fixed Account to a Sub-Account or to the exercise of the Conversion Rights. (See Policy Rights - Conversion Rights, p. 28.) Western Reserve or an affiliate may provide administrative or other support services to independent third parties authorized by Policyowners to conduct transfers on a Policyowner's behalf, or who provide recommendations as to how Sub-Account values should be allocated. This includes, but is not limited to, transferring Sub-Account values among Sub-Accounts in accordance with various investment allocation strategies such third party may employ. Such independent third parties may or may not be appointed Western Reserve agents for the sale of Policies. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON A POLICYOWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge a Policyowner any additional fees for providing these support services. DOLLAR COST AVERAGING The Policyowner may direct Western Reserve to automatically transfer specified amounts from the Money Market Sub-Account, the Bond Sub-Account, the Fixed Account or any combination of these Accounts on a monthly basis to a Sub- Account. This service is intended to allow the Owner to utilize "Dollar Cost Averaging," a long-term investment strategy which provides for regular, level investments over time. Western Reserve makes no guarantees that Dollar Cost Averaging will result in a profit or protect against loss. To qualify for Dollar Cost Averaging a minimum of $5,000 must be in each Account from which transfers will be made and at least $100, in the aggregate, must be transferred each month, unless Western Reserve consents to a smaller amount. To further qualify for Dollar Cost Averaging from the Fixed Account, no more than one-tenth (1/10) of the amount in the Fixed Account at the commencement of Dollar Cost Averaging can be transferred each month. Other types of transfers from the Fixed Account may also be subject to certain other restrictions. (See The Fixed Account - Allocations, Transfers and Withdrawals on p. 32.) A written election of this service, on a form provided by Western Reserve, must be completed by the Policyowner in order to begin transfers. The first transfer will occur during the month which follows receipt of the form, providing the form is received by the 25th day of the month. Once elected, transfers from the Money Market or Bond Sub-Accounts or the Fixed Account will be processed monthly until the entire value of each Account from which transfers are made is completely depleted or the Policyowner instructs Western Reserve in writing to cancel the monthly transfers. For example, if $15,000 was allocated to the Money Market Sub-Account and $10,000 was allocated to the Bond Sub-Account and transfers of $500 are made each month from each of these Sub-Accounts to the Growth Sub-Account, transfers of $500 per month would continue to be made from the Money Market Sub-Account even though transfers from the Bond Sub-Account had ceased as a result of depletion of value. There is no charge for Dollar Cost Averaging. Each transfer which occurs under the Dollar Cost Averaging service will not be counted towards the twelve free transfers allowed during each Policy year. (See Payment and Allocation of Premiums - Allocation of Premiums and Cash Value - Transfers on p. 21.) Western Reserve may discontinue, modify, or suspend Dollar Cost Averaging at any time, following prior written notice to Policyowners. Dollar Cost Averaging is not available if the Owner has elected the Asset Rebalancing Program, or has elected an asset allocation service provided by a third party. ASSET REBALANCING PROGRAM Western Reserve will offer a program under which the Policyowner may authorize Western Reserve to transfer automatically Cash Value periodically to maintain a particular percentage allocation among the Sub-Accounts. The Cash Value allocated to each Sub-Account will grow or decline in value at different rates. The Asset Rebalancing Program automatically reallocates the Cash Value in the Sub-Accounts at the end of each period to match the Contract's currently effective Net Premium allocation schedule. The Asset Rebalancing Program is intended to transfer Cash Value from those Sub-Accounts that have increased in value to those Sub-Accounts that have declined in value. Over time, this method of investing may help 22 an Owner buy low and sell high. This investment method does not guarantee gains, nor does it assure that any Sub-Account will not have losses. To qualify for Asset Rebalancing, a minimum Cash Value of $5,000 for an existing Policy, or a minimum Initial Premium of $5,000 for a new Policy, is required. To participate in the Asset Rebalancing Program, a properly completed Asset Rebalancing Request Form must be received by Western Reserve at its Administrative Office. An Asset Rebalancing Request Form is available upon request. Owners may elect rebalancing to occur on each quarterly, semi-annual or annual anniversary of the Policy Date. Following receipt of the Asset Rebalancing Request Form, Western Reserve will effect the initial rebalancing of Cash Value on the next such anniversary, in accordance with the Policy's current Net Premium allocation schedule. The amounts transferred will be credited at the unit value next determined on the dates the transfers are made. If a day on which rebalancing would ordinarily occur falls on a day on which the New York Stock Exchange is closed, rebalancing will occur on the next day the New York Stock Exchange is open. The Asset Rebalancing Program is available only before the Maturity Date, and is not available if the Policyowner has elected Dollar Cost Averaging, or has elected an asset allocation service provided by a third party. There is no charge for the Asset Rebalancing Program. Each reallocation which occurs under the Asset Rebalancing Program will not be counted towards the twelve free transfers allowed during each Policy year. (See Payment and Allocation of Premiums - Allocation of Premiums and Cash Value - Transfers on p. 21.) The Policyowner may terminate participation at any time in the Asset Rebalancing Program by oral or written request to Western Reserve. Participating in the Asset Rebalancing Program will terminate automatically if any transfer is made to, or from, any Sub-Account, other than on account of a scheduled rebalancing. If the Policyowner wishes to resume the Asset Rebalancing Program after it has been canceled, a new Asset Rebalancing Request Form must be completed and sent to Western Reserve. The Policyowner may start and stop participation in the Asset Rebalancing Program at any time; however, Western Reserve reserves the right to restrict entry into the Asset Rebalancing Program to once per Policy Year. Cash Value allocated to the Fixed Account may not be included in the Asset Rebalancing Program. Western Reserve may discontinue, modify, or suspend, the Asset Rebalancing Program at any time, following prior written notice to Policyowners. POLICY LAPSE AND REINSTATEMENT LAPSE. Unlike conventional life insurance policies, the failure to make a Planned Periodic Premium payment will not itself cause the Policy to lapse. Conversely, paying all Planned Periodic Premium payments will not necessarily guarantee that the Policy will not lapse (except if certain conditions are met during the first three Policy years, as explained below). Lapse will only occur where Net Surrender Value is insufficient to cover the monthly deduction, and a grace period expires without a sufficient payment by the Policyowner. If the Net Surrender Value on any Monthly Anniversary is insufficient to cover the monthly deduction on such day, Western Reserve will mail a notice to the last known address of the Policyowner and any assignee of record. A grace period of 61 days after the mailing date of the notice will be allowed for the payment of premiums. The notice will specify the minimum payment and the final date on which such payment must be received by Western Reserve to keep the Policy In Force. (See Charges and Deductions, p. 24.) 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 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 Premiums, p. 21 and Charges and Deductions - Cash Value Charges, p. 25.) 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. However, until the No Lapse Date as provided in the Policy, the Policy will not lapse and no grace period will begin provided: (1) no riders have been added since the Policy Date, including the current month, and (2) the total of the premiums received (minus any withdrawals and outstanding loans and any pro rata Decrease Charge deducted from the Cash Value) equals or exceeds the minimum monthly guarantee premium shown in the Policy times the number of months since the Policy Date, including the current month. Should the Policyowner request the addition of any rider after the Policy Date but prior to the No Lapse Date, the Policyowner will be notified as to the effect on grace period processing prior to the date the rider is effective. Essentially, the Policy will not lapse prior to the No Lapse Date, as long as the conditions in (1) and (2) above have been met, and even though Net Surrender Value at any point during the No Lapse Date is insufficient to cover the monthly deduction and a grace period has expired without a payment sufficient to cover the monthly deduction. Such a Lapse could happen if the investment experience has been sufficiently unfavorable to have resulted in a decrease in the Net Surrender Value, or the Net Surrender Value has decreased because not enough premiums have been paid to offset the monthly charges. 23 REINSTATEMENT. A lapsed Policy may be reinstated any time within five years after the date of Lapse and before the Maturity Date by submitting the following items to Western Reserve: 1. A written application for reinstatement from the Policyowner; 2. Evidence of insurability satisfactory to Western Reserve; and 3. A premium that is large enough to cover: (a) one monthly deduction at the time of termination; (b) the next two monthly deductions which will become due after the time of reinstatement; and (c) an amount sufficient to cover any surrender charge (as described below) as of the date of reinstatement. Any indebtedness on the date of Lapse will not be reinstated. The Cash Value of the Loan Reserve on the date of reinstatement will be zero. The amount of Net Surrender Value on the date of reinstatement will be equal to the Net Premiums paid at reinstatement, less the amounts paid in accordance with 3(a) and (c) above. Upon approval of the application for reinstatement, the effective date of reinstatement will be the first Monthly Anniversary on or next following the date Western Reserve approves the application for reinstatement. Western Reserve reserves the right to decline a reinstatement request. 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. CONTINGENT DEFERRED SURRENDER CHARGES If the Policy is totally surrendered (or the Net Surrender Value is applied under a settlement option) prior to the end of the fifteenth (15th) Policy year, a surrender charge for the Specified Amount at issue will be deducted from the Policy's Cash Value. The surrender charge consists of the sum of: (a) an Issue Charge and (b) a Sales Charge. The sum of (a) and (b) are multiplied by (c), the applicable SURRENDER CHARGE FACTOR. (a) ISSUE CHARGE. The Issue Charge is a level charge of $5.00 per thousand of Specified Amount at issue. (b) SALES CHARGE. The Sales Charge is (1) 26.5% of the sum of all premiums paid up to the Surrender Charge Base Premium shown in the Policy and, (2) for the sum of all premiums paid in excess of the first Surrender Charge Base Premium ("excess premium charge"), a percentage which varies by the Issue Age and sex of the Insured as follows:
Issue Age Percentage Unisex - --------------------- ------------ ------------------------- Male Female Issue Age Percentage - --------- --------- ----------- ----------- 0 - 55 0 - 62 8.4% 0 - 55 8.95% 56 - 63 63 - 69 4.4% 56 - 63 6.84% 64 - 68 70 - 74 3.6% 64 - 68 3.52% 69 - 73 75 - 79 3.1% 69 - 73 2.31% 74 - 78 80+ 2.5% 74 - 78 1.79% 79+ 2.0% 79+ 1.20%
(c) SURRENDER CHARGE FACTOR. As stated above, the factor is applied to the sum of the Issue Charge and Sales Charge due upon any surrender of a Policy during the first fifteen Policy years. In Policy years 1-10 this factor is 1.00 for male Insureds at Issue Ages 0-65 and female Insureds at Issue Ages 0-70, and then declines at the rate of .20 per year until reaching zero at the end of the fifteenth (15th) Policy year as shown below. For Insureds with older Issue Ages, this factor is less than 1.00 at the end of the tenth (10th) Policy year and declines to 0 at the end of the fifteenth (15th) Policy year. Therefore, application of the factor to the sum of the Issue Charge and Sales Charge in the event of any surrender during the eleventh through fifteenth Policy years will result in reduced surrender charges. If a surrender occurs after the fifteenth (15th) Policy year, there are no Issue Charge or Sales Charge due. See Example (2) below. SURRENDER CHARGE FACTORS MALES ISSUE AGES 0-65 FEMALES ISSUE AGES 0-70
Surrender Charge Factor End of Policy Year* Factor - ------------------------ ------- At Issue 1.00 1-10 1.00 11 .80 12 .60 13 .40 14 .20 15 0 16+ 0 * THE FACTOR ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE INTERPOLATED BETWEEN THE TWO END OF YEAR PERCENTAGES.
(d) EXAMPLE (1) Assume a male Insured purchases the Policy when age 35 for $250,000 of Specified Amount, paying the Surrender Charge Base Premium of $2,518, and an additional premium amount of $482 in excess of the Surrender Charge Base Premium, for a total premium of $3,000 per year for four years ($12,000 total for four years), and then surrenders the Policy. The surrender charge would be calculated as follows: 24 (i) ISSUE CHARGE - [250 x $5.00] ($5.00/$1,000 of Initial Specified Amount at issue) = $1,250.00 (ii) SALES CHARGE: (1) 26.5% of Surrender Charge Base Premium paid [26.5% x $2,518], and = $ 667.27 (2) 8.4% of premiums paid in excess of Surrender Charge Base Premium [8.4% x $9,482] = $ 796.49 (iii) APPLICABLE SURRENDER CHARGE FACTOR = 1.00 [(a)$1,250 + (b)($667.27 + $796.49)] x 1.00 SURRENDER CHARGES = [$1,250.00 + $1,463.76] x 1.00 = $2,713.76 =========
EXAMPLE (2) - Assume the same facts as in Example (1), EXCEPT the Owner surrenders the Policy on the 14th Policy Anniversary: (i) ISSUE CHARGE - [250 x $5.00] = $1,250.00 (ii) SALES CHARGE (1) [26.5% x $2,518], and = $ 667.27 (2) [8.4% x $39,482] = $3,316.49 (iii) APPLICABLE SURRENDER CHARGE FACTOR = .20 [(a)$1,250.00 + (b)($667.27 + $3,316.49)] x .20 SURRENDER CHARGE = [$1,250.00 + $3,983.76] x .20 = $1,046.75 =========
If the Owner waits until the 15th Policy Anniversary or after, there will be no surrender charges. PRO RATA DECREASE CHARGE If, during the first 15 Policy years, the Specified Amount is decreased, a pro rata Decrease Charge will be deducted from the Cash Value. The pro rata Decrease Charge is equal to: (1) the amount of the Specified Amount decrease; divided by (2) the Specified Amount at issue; multiplied by (3) The then current Contingent Deferred Surrender Charges as of the date of the decrease applicable to the Specified Amount at issue, as determined under the Surrender Charge provision. This pro rata Decrease Charge will not be deducted from the Cash Value when a Specified Amount decrease results from (a) a change in the Death Benefit Option, or (b) a withdrawal when the Death Benefit is Option A, as described in the Cash Withdrawals section, p. 26. If a pro rata Decrease Charge is deducted due to a decrease in Specified Amount, any future Contingent Deferred Surrender Charges incurred during the first fifteen Policy years will be reduced proportionately. CASH VALUE CHARGES Charges will be deducted monthly from the Cash Value of each Policy ("monthly deduction") to compensate Western Reserve for certain administrative costs, the cost of insurance and optional benefits added by rider. The monthly deduction will be deducted on each Monthly Anniversary and will be allocated among the Accounts on the same basis as 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 1.0024663 (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 3%), less (b) the Cash Value at the beginning of the Policy Month. Cost of insurance rates will be based on the sex, Attained Age and rate class of the Insured, and the length of time a Policy has been In Force. The actual monthly cost of insurance rates will be based on Western Reserve's expectations as to future experience. They will not, however, be greater than the guaranteed cost of insurance rates set forth in the Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and the Insured's sex, Attained Age and rate class. For standard rate classes, these rates will not exceed rates contained in the 1980 C.S.O. Tables. Western Reserve also may guarantee that actual cost of insurance rates will not be changed for a specified period of time (E.G., one year). Any change in the cost of insurance rates will apply to all Insureds of the same age, sex, and rate class whose Policies have been In Force for the same length of time. The Policies offered by this Prospectus are based on mortality tables that distinguish between men and women. As a result, the Policy pays different benefits to men and women of the same age. The State of Montana prohibits the use of actuarial tables that distinguish between men and women in determining premiums and policy benefits for policies issued on the lives of its residents. The State of Massachusetts formerly had a similar prohibition and has introduced legislation which would reinstate such prohibition. Therefore, Policies offered by this Prospectus to insure residents of the states of Montana and Massachusetts will have premiums and benefits which are based on actuarial tables that do not differentiate on the basis of sex. The rate class of an Insured will affect the cost of insurance rate. Western Reserve currently places Insureds into the following five standard rate classes: Ultimate Select, non-tobacco use; Select, non-tobacco use; Ultimate Standard, tobacco use; Standard, tobacco use; and Juvenile (under 18); as 25 well as various other sub-standard rate classes involving a higher mortality risk. In an otherwise identical Policy, the cost of insurance rate is generally higher for tobacco use than for non-tobacco use and, within these two categories, higher for Insureds not in the Ultimate category than for Insureds in the Ultimate category. Ultimate rate classes are available only if the Specified Amount (Primary Insured) or Face Amount of Riders for other Insureds require blood testing at the proposed Insured's age under current Western Reserve underwriting guidelines. Western Reserve may also issue certain Policies on a "simplified" or expedited basis to certain categories of individuals (for example, Policies issued at a predetermined Specified Amount or underwritten on a group basis). Policies issued on this basis will have guaranteed cost of insurance rates no higher than the guaranteed rates for Select, non-tobacco use or Standard tobacco use categories (as appropriate); however, due to the special underwriting criteria established for these issues, actual rates may be higher or lower than the current cost of insurance rates charged under otherwise identical Policies that are underwritten using standard underwriting criteria. MONTHLY POLICY CHARGE. Western Reserve has primary responsibility for the administration of the Policy and the Series Account. Annual administrative expenses include recordkeeping, processing death benefit claims, Policy changes, reporting and overhead costs. As reimbursement for administrative expenses related to the maintenance of each Policy and the Series Account, Western Reserve assesses a monthly administration charge from each Policy. This charge is currently $5.00 per Policy Month and will not be increased. Western Reserve reserves the right to waive the Monthly Policy Charge on additional policies issued to existing Policyowners at the time the second policy is issued. 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. CHANGE IN PREMIUM ALLOCATION. Western Reserve does not currently levy or charge when changes are made to allocation of Premium. However, Western Reserve reserves the right to impose a $25 charge for each change of Premium allocation in excess of one change per Policy year quarter. If Western Reserve decides to impose this charge, Policyowners will be notified in writing in advance. CASH VALUE TRANSFERS. After twelve (12) free transfers per year, Western Reserve will impose and deduct from each amount transferred a transfer charge of $10 to compensate Western Reserve for the costs in effectuating the transfer. The transfer charge will not be increased in the future. CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of the amount withdrawn will be deducted from amounts withdrawn from the Policy and the balance will then be paid to the Policyowner. This fee will not be increased. CHARGES AGAINST THE SERIES ACCOUNT Certain expenses will be deducted as a percentage of the value of the net assets of the Series Account to compensate Western Reserve for certain risks assumed in connection with the Policy. MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily charge from the Series Account at an annual rate of 0.90% of the average daily net assets of the Series Account. Western Reserve guarantees to reduce this charge to 0.60% after the first fifteen Policy years. Western Reserve intends to reduce this charge to 0.30% starting in the sixteenth Policy year. However, such reduction is not guaranteed and Western Reserve reserves the right to maintain this charge at 0.60% level after the sixteenth Policy year. Under Western Reserve's current procedures, these amounts are paid to the General Account monthly. The mortality risk assumed by Western Reserve is that Insureds may live for a shorter time than projected. The expense risk assumed is that expenses incurred in issuing and administering the Policies will exceed the limits on administrative charges set in the Policies. Western Reserve also assumes risks with respect to other contingencies including the incidence of Policy loans, which may cause Western Reserve to incur greater costs than anticipated when designing the Policies. TAXES. Currently no charge is made to the Series Account for Federal income taxes that may be attributable to the Series Account. Western Reserve may, however, make such a charge in the future. Charges for other taxes, if any, attributable to the Series Account may also be made. (See Federal Tax Matters, p. 33.) EXPENSES OF THE FUND Because the Series Account purchases shares of the Fund, the net assets of the Series Account will reflect the investment management fee and other expenses incurred by the Fund. (See p. 6 for a table of the Fund Annual Expenses and pp. 18-19 for a discussion of the investment management fees of each Portfolio.) Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan, entered into a Distribution Agreement with ISI, principal underwriter for the Fund. Under the Distribution Plan, the Fund, on behalf of the Portfolios, is authorized to pay to various service providers, as direct payment for expenses incurred in connection with the distribution of a Portfolio's shares, amounts equal to actual expenses associated with distributing a Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of the average daily net assets. This fee is measured and accrued daily and paid monthly. ISI has determined that it will not seek payment by the Fund of 26 distribution expenses incurred with respect to any Portfolio until April 30, 1999. Prior to ISI seeking reimbursement, Policyowners will be notified in advance. POLICY RIGHTS LOAN PRIVILEGES POLICY LOAN. After the first Policy year and so long as the Policy remains In Force, the Policyowner may borrow money from Western Reserve using the Policy as the only security for the loan. Western Reserve reserves the right to permit a Policy loan prior to the first Policy Anniversary for Policies issued pursuant to a transfer of cash values from another life insurance policy under Section 1035(a) of the Internal Revenue Code of 1986, as amended. The maximum amount that may be borrowed is 90% of the Cash Value, less any surrender charge and any already outstanding Policy loan. Western Reserve reserves the right to limit the amount of any Policy loan to not less than $500. Outstanding loans have priority over the claims of any assignee or other person. The loan may be repaid totally or in part before the Maturity Date of the Policy and while the Policy is In Force. A loan which is taken from, or secured by, a Policy may have Federal income tax consequences. (See Federal Tax Matters, p. 33.) An amount equal to the loan plus interest in advance until the next Policy Anniversary will be withdrawn from the Account or Accounts specified and transferred to the Loan Reserve until the loan is repaid. The Loan Reserve is a portion of the Fixed Account used as collateral for a Policy loan. The Sub-Accounts of the Series Account may be specified. If no Account is specified, the loan amount will be withdrawn from each Account in the same manner as the current allocation instructions. The amount of the loan will normally be paid within seven days after receipt of a proper request in a manner permitted by Western Reserve. Postponement of loans may take place under certain conditions. (See General Provisions - Postponement of Payments, p. 29.) Under Western Reserve's current procedures, at each Anniversary, Western Reserve will compare the amount of the outstanding loan (including loan interest in advance until the next Policy Anniversary, if not paid) to the amount in the Loan Reserve (including interest credited to the Loan Reserve during the previous Policy year). Western Reserve will also make this comparison any time the Policyowner repays all of the loan, or makes a request to borrow an additional amount. At each such time, if the amount of the outstanding loan exceeds the amount in the Loan Reserve, Western Reserve will withdraw the difference from the Accounts and transfer it to the Loan Reserve in the same manner as when a loan is made. If the amount in the Loan Reserve exceeds the amount of the outstanding loan, Western Reserve will withdraw the difference from the Loan Reserve and transfer it to the Accounts in accordance with the Policyowner's current allocation instructions. Western Reserve reserves the right to require the transfer of such amounts to the Fixed Account, if such loans were originally transferred from the Fixed Account. (See The Fixed Account, p. 31.) No charge will be imposed for these transfers. INTEREST RATE CHARGED. The interest rate on a Policy loan is 5.2% payable annually in advance. If unpaid when due, interest will be added to the amount of the loan and will become part of the loan and bear interest at the same rate. Interest paid on a Policy loan is generally not tax deductible. LOAN RESERVE INTEREST RATE CREDITED. The amount transferred to the Loan Reserve will accrue interest at a minimum effective annual rate not less than 4%. Western Reserve may credit a higher rate, but it is not obligated to do so. Currently, Western Reserve is crediting, in arrears, an effective annual interest rate of 4.75%, on all amounts borrowed during the first ten Policy years. On amounts borrowed after the tenth Policy year that are part of the Cash Value in excess of the cost basis (premiums less withdrawals) of the Policy the interest rate credited is currently equal to the interest rate being charged on the total loan while the remaining portion, if any, of the loan is credited the current rate of 4.75% for loans during the first ten Policy years. EFFECT OF POLICY LOANS. A Policy loan affects the Policy, because the death benefit and Net Surrender Value under the Policy are reduced by the amount of the loan. Repayment of the loan causes the death benefit and Net Surrender Value to increase by the amount of the repayment. As long as a loan is outstanding, an amount equal to the loan plus interest in advance until the next Policy Anniversary is held in the Loan Reserve. This amount will not be affected by the Series Account's investment performance. Amounts transferred from the Series Account to the Loan Reserve will affect the Series Account value because such amounts will be credited with an interest rate declared by Western Reserve rather than a rate of return reflecting the investment performance of the Series Account. (See The Fixed Account - Minimum Guaranteed and Current Interest Rates, p. 32.) There are risks involved in taking a Policy loan, a few of which include the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved, as well as adverse tax consequences which occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax Treatment of Policy Benefits, p. 34.) INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any unearned loan interest on the loans. If indebtedness exceeds the Cash Value less the then applicable surrender charge, Western Reserve will notify the Policyowner and any assignee of record. If a sufficient payment equal to excess indebtedness is not received by Western Reserve within 61 days from the date notice is sent, the Policy will Lapse and terminate without value. The Policy, however, may later be reinstated. (See Policy Lapse and Reinstatement, p. 23.) REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the Maturity Date of the Policy and while the Policy is In Force. Payments made by the Policyowner while there is indebtedness will be treated as premium payments unless the Policyowner indicates that the payment should be treated as a loan repayment. (See Policy Rights - Benefits at Maturity, p. 28.) If not repaid, Western Reserve may 27 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 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. A Surrender Charge may apply. The amount available for surrender is the Net Surrender Value at the end of the Valuation Period during which the surrender request is received at Western Reserve's Office. The Net Surrender Value is equal to the Cash Value as of the date of Surrender, less any surrender charge, and less any outstanding Policy loan, plus any unearned loan interest. (See Charges and Deductions - Contingent Deferred Surrender Charges, p. 24.) 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. 29.) Additional restrictions may be applied to surrenders from the Fixed Account. (See The Fixed Account - Allocations, Transfers and Withdrawals, p. 32.) For the protection of Policyowners, all requests for cash withdrawals or total surrenders of more than $100,000, or where the withdrawal or surrender proceeds are to be sent to an address other than the address of record will require a signature guarantee. All required guarantees of signatures must be made by a national or state bank, a member firm of a national stock exchange or any other institution which is an eligible guarantor institution as defined by rules and regulations of the Commission. If the Policyowner is a corporation, partnership, trust or fiduciary, evidence of the authority of the person seeking redemption is required before the request for withdrawal is accepted, including withdrawals under $100,000. For additional information, Policyowners may call Western Reserve at 1-800-851-9777. A cash withdrawal or total surrender may have Federal income tax consequences. (See Federal Tax Matters, p. 33.) TOTAL SURRENDERS. When the Policy is being totally surrendered, the Policy itself must be returned to Western Reserve along with the request. A Policyowner may elect to have the amount paid in a lump sum or under a settlement option. (See Payment of Policy Benefits - Settlement Options, p. 29.) CASH WITHDRAWALS. For a cash withdrawal, the amount available may be limited to no less than $500 and to no more than 10% of the Net Surrender Value. Western Reserve intends to allow a cash withdrawal up to 25% of the Net Surrender Value after the tenth Policy year. The amount paid plus a processing fee equal to the lesser of $25 or 2% of the amount withdrawn will be deducted from the Policy's Cash Value at the end of the Valuation Period during which the request is received. The amount will be deducted from the Accounts in the same manner as the current allocation instructions unless the Policyowner directs otherwise. Cash withdrawals are allowed only once each Policy year after the first Policy year. Cash withdrawals will affect both the Policy's Cash Value and the death benefit payable under the Policy. The Policy's Cash Value will be reduced by the amount of the cash withdrawal. Moreover, the death benefit proceeds payable under a Policy will generally be reduced by at least the amount of the cash withdrawal. In addition, when death benefit Option A is in effect, the Specified Amount will be reduced by the cash withdrawal. No cash withdrawal will be permitted which would result in a Specified Amount lower than the minimum Specified Amount set forth in the Policy or would deny the Policy status as life insurance under the Internal Revenue Code and applicable regulations. (See Cash Value Charges - Cost of Insurance, p. 25; Death Benefit - Insurance Protection, p. 15; and Federal Tax Matters - Tax Treatment of Policy Benefits, p. 34.) EXAMINATION OF POLICY PRIVILEGE ("FREE-LOOK") The Policyowner may cancel the Policy within 10 days after the Policyowner receives it. 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 equal to 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. 16.) 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 will extend the Maturity Date provided the Policy is still In Force on the Maturity Date. Extension of the Maturity Date will be made upon written request to Western Reserve, between 90 and 180 days prior to the Maturity Date, as elected by the Policyowner, to one of the following: (1) if the Death Benefit Option Type is other than Option A, the Option Type will be changed to Option A. On each 28 Valuation Date, the Specified Amount will be adjusted to equal the Cash Value, and the Limitation Percentage will be 100%. No additional premium payments will be permitted except to prevent lapse of the Policy. All future monthly deductions will be waived; or (2) the Maturity Date will automatically be extended until the next Policy Anniversary. The Policyowner must request in writing that the Maturity Date be extended prior to each Policy Anniversary thereafter. 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. 29 and The Fixed Account - Allocations, Transfers and Withdrawals, p. 32.) The Policyowner may decide the form in which the benefits will be paid. During the Insured's lifetime, the Policyowner may arrange for the death benefits to be paid in a lump sum or under one or more of the settlement options described below. These choices are also available if the Policy is surrendered or matures. If no election is made, Western Reserve will pay the benefits in a lump sum. When death benefits are payable in a lump sum, the Beneficiary may select one or more of the settlement options. If death benefits become payable under a settlement option and the Beneficiary has the right to withdraw the entire amount, the Beneficiary may name and change contingent Beneficiaries. SETTLEMENT OPTIONS. Policyowners and Beneficiaries, subject to a prior election of the Policyowner, may elect to have benefits paid in a lump sum or in accordance with a variety of settlement options offered under the Policy. Once a settlement option is in effect, there will no longer be value in the Series Account or the Fixed Account. Western Reserve may make other settlement options available on the Fixed Account in the future. The effective date of a settlement provision will be either the date of surrender or the date of death of the Insured. For additional information concerning these options, see the Policy itself. OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will be paid in equal monthly installments for the period chosen until 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, Transfers and Withdrawals, p. 32. PAYMENT BY CHECK. Payments under the Policy of any amounts derived from premiums paid by check or bank draft may be delayed until such time as the check or bank draft has cleared the Policyowner's bank. THE CONTRACT The Policy and attached copy of the application and any supplemental applications are the entire contract. Only statements in the application and any supplemental applications can be used to void the Policy or defend a claim. The statements are considered representations and not warranties. No Policy provision can be waived or changed except by endorsement. Only the President or Secretary of Western Reserve can agree to change or waive any provisions of the Policy. SUICIDE If the Insured, while sane or insane, commits suicide within two years after the Policy Date, Western Reserve will pay only the premiums received, less any cash withdrawals and outstanding indebtedness. In the event of Lapse of the Policy, the suicide period will be measured from the effective date of reinstatement. If the Insured, while sane or insane, commits suicide within two years after the effective date of any increase in insurance or any reinstatement, Western Reserve's total liability with respect to such increase or reinstatement will be the cost of insurance charges deducted for such increase or reinstatement. INCONTESTABILITY Western Reserve cannot contest the Policy as to the initial Specified Amount after it has been In Force during the lifetime of the Insured for two years from the Policy Date. If a lapsed Policy is reinstated, a new two year contestability period (apart 29 from any remaining contestability period) will apply from the date of the application for reinstatement and will apply only to statements made in the application for reinstatement. CHANGE OF OWNER OR BENEFICIARY The Beneficiary, as named in the Policy application or subsequently changed, will receive the Policy benefits at the Insured's death. If the named Beneficiary dies before the Insured, the contingent Beneficiary, if named, becomes the Beneficiary. If no Beneficiary survives the Insured, the benefits payable at the Insured's death will be paid to the Policyowner or the Policyowner's estate. As long as the Policy is In Force, the Policyowner or Beneficiary may be changed by written request from the Policyowner in a form acceptable to Western Reserve. The Policy need not be returned unless requested by Western Reserve. The change will take effect as of the date the request is signed, regardless of whether the Insured is living when the request is received by Western Reserve. Western Reserve will not, however, be liable for any payment made or action taken before receipt of the request. ASSIGNMENT The Policy may be assigned by the Policyowner. Western Reserve will not be bound by the assignment until a written copy has been received at its Office and will not be liable with respect to any payment made prior to receipt. Western Reserve assumes no responsibility for determining whether an assignment is valid or the extent of the assignee's interest. MISSTATEMENT OF AGE OR SEX If the age or sex of the Insured has been misstated, the death benefit will be adjusted based on what the cost of insurance charge for the most recent monthly deduction would have purchased based on the correct age and sex. REPORTS AND RECORDS Western Reserve will maintain all records relating to the Series Account and the Fixed Account. Western Reserve will mail to each Policyowner, at the last known address of record, reports required by applicable laws and or regulations. Western Reserve will send Policyowners written confirmation within seven days of the following transactions: unplanned and certain planned premium payments, Cash Value transfers, change in death benefit option or Specified Amount, total surrender or cash withdrawals, and Policy loans or repayments. Western Reserve will also send each Policyowner an annual statement at the end of the Policy year showing for the year, among other things, the month and amount of each: premium payment made, monthly deduction, transfer, cash withdrawal and Policy loan or repayment. The annual statement will also show Policy year-end Net Surrender Value, death benefit and Policy loan value, as well as other Policy activity during the year. OPTIONAL INSURANCE BENEFITS Subject to certain requirements, one or more of the following optional insurance benefits may be added to a Policy by rider. The cost of any optional insurance benefits will be deducted as part of the monthly deduction. (See Charges and Deductions - Optional Cash Value Charges, p. 26.) For purposes of the riders, the person insured under the Policy is referred to as the Primary Insured, and the term "Face Amount" refers to the level term insurance amount payable at death. CHILDREN'S INSURANCE RIDER: Provides a Face Amount on each of the Primary Insured's children, as defined in the rider. Under the terms of the rider, the death benefit will be payable to the Primary Insured upon receipt of proof that the death of an insured child occurred while the rider and coverage on such child was In Force. Upon the Primary Insured's death, while the rider is In Force, the rider will terminate 31 days after such death and a separate life insurance policy will be offered to each insured child for an amount equal to the level death benefit amount of the rider at a premium based upon the attained age of each insured child. ACCIDENTAL DEATH BENEFIT RIDER: Provides a Face Amount if the Primary Insured's death results from accidental bodily injury, as defined in the rider. Certain risks, as defined in the rider, are not covered. Under the terms of the rider, the additional benefits provided in the rider will be paid upon receipt of proof by Western Reserve that death resulted from bodily injuries effected directly and independently of all other causes through external, violent and accidental means; occurred within 90 days from the date of accident causing such injuries; and occurred while the rider was In Force. The rider will terminate on the earliest of the Policy Anniversary nearest the Primary Insured's 70th birthday, the date the Policy terminates, or the Monthiversary on which the rider is terminated on request by the Policyowner. OTHER INSURED RIDER: Provides that Western Reserve will pay the Face Amount of the rider to the Primary Insured upon receipt of due proof of the other Insured's death. On any Monthiversary while the rider is In Force, the Policyowner may exchange the rider without evidence of insurability for a new Policy on the other Insured's life upon written request subject to the following: (a) the rider has not reached the Anniversary nearest the other Insured's 70th birthday; (b) the new policy is any permanent plan of insurance then offered by Western Reserve; (c) the amount of insurance upon conversion will equal the Face Amount then In Force under the rider; and (d) the payment of the premium will be based on the other Insured's rate class under the rider. DISABILITY WAIVER RIDER: Provides a waiver of the monthly deductions for the Policy while the Insured is disabled. Under the terms of the rider, the monthly deductions will be waived upon receipt of proof adequate to Western Reserve that: the Insured is totally disabled, as defined in the rider; the disability commenced while the rider was In Force; the disability began before the Anniversary nearest the Insured's 60th birthday; and total disability has existed continuously for at least six months. No monthly deduction will be waived which falls due more than one year prior to receipt by Western Reserve of written notice of a claim. Certain risks, as defined in the rider, are not covered. 30 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 (|P`PIR|P') AND PRIMARY INSURED RIDER PLUS (|P`PIR PLUS|P'): Provides term insurance coverage for the insured on a basis different from the coverage provided under the Policy. The PIR may be purchased at any time, either at the time of application for the Policy, or after the Record Date. The PIR Plus may only be purchased at the time of application. PIR or PIR Plus increases the death benefit provided under the Policy by the Face Amount of the rider. The PIR terminates at age 90; the PIR Plus terminates at age 85. No additional Surrender Charge is assessed in connection with PIR or PIR Plus coverage. Generally, coverage provided by PIR or PIR Plus has a lower cost than that provided under the Policy, but has no Cash Value associated with it. Owners may reduce or cancel coverage under a PIR or PIR Plus rider separately from reducing the Specified Amount of a Policy. Likewise, the Specified Amount of a Policy may be decreased, subject to certain minimums, without reducing the coverage under PIR or PIR Plus. Continuing coverage on an increment of Specified Amount under the Policy may have a cost of insurance that is higher than the cost of the same amount of coverage under PIR or PIR Plus. There may be circumstances in which it will be to your advantage to obtain a portion of your insurance coverage under PIR or PIR Plus. These circumstances depend on many factors, including the premium levels, amounts and duration of coverage needed, as well as the age, sex and risk classification of the Insured. Your registered representative can provide you with further information explaining how PIR and PIR Plus coverage can affect your Policy values under different assumptions. Western Reserve reserves the right to discontinue the availability of these riders for new Policies at any time, and also reserves the right to modify the terms of these riders for new Policies, subject to approval by the state insurance departments. TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER: In states where this rider has been approved by that state's department of insurance, upon receipt of proof satisfactory to Western Reserve that the Insured has incurred a condition resulting from illness which, as determined by a Physician, has reduced life expectancy to not more than 12 months from the date of the Physician's Statement (a "Terminal Condition"), Western Reserve will pay to the Policyowner a "Single Sum Benefit", equal to: (a) the Death Benefit in effect on the date the Single Sum Benefit is paid; multiplied by (b) the Election Percentage; divided by (c) 1 + i, where i equals the greater of (A) and (B) on the date the Single Sum Benefit is paid. (A) equals the interest rate determined under Internal Revenue Code section 846(c)(2), as it may be amended from time to time; and (B) equals the Policy Loan Interest Rate; minus (d) indebtedness, if any, at the time the Single Sum Benefit is paid, multiplied by the Election Percentage. "Death Benefit" under the Rider means the amount payable at death of the Insured under the Policy, plus the benefit payable under any In Force Primary Insured Rider. (See Optional Insurance Benefits - Primary Insured Rider, above) "Election Percentage" means a percentage, selected by the Policyowner, not to exceed 100% of the Policy's Death Benefit, as defined under the Rider; however, in no event will the Election Percentage result in a Single Sum Benefit greater than $500,000. A "Physician" may be a Doctor of Medicine or a Doctor of Osteopathy, licensed to practice medicine and treat injury or illness in the state in which treatment is received and who is acting within the scope of that license, and must be someone other than the Insured, the Policyowner, a person who lives with the Insured or Policyowner, or a person who is part of the Insured's or Policyowner's "Immediate Family" (spouse, child, brother, sister, parent, grandparent or grandchild of the Insured). The "Physician's Statement" must be a written statement signed by a Physician which provides the Physician's diagnosis of the Insured's non-correctable medical condition. It must state with reasonable medical certainty that the non-correctable medical condition will result in the death of the Insured within 12 months of the Physician's Statement, taking into consideration the ordinary and reasonable medical care, advice and treatment available in the same or similar communities. The Rider will not pay benefits for a Terminal Condition resulting from self-inflicted bodily injuries occurring within the same period specified in the Policy's suicide provision. The Rider terminates at the earliest of (a) the date the Policy terminates, (b) the effective date of a settlement option elected under the Policy, (c) the date the Single Sum Benefit is paid, or (d) the date the Policyowner elects to terminate the Rider. Pursuant to the recently enacted Health Insurance Portability and Accountability Act of 1996, Western Reserve believes that for Federal income tax purposes a Single Sum Benefit payment made under the Terminal Illness Accelerated Death Benefit Rider should be fully excludable from the gross income of the Beneficiary, as long as the Beneficiary is the insured under the Policy. However, a Policyowner should consult a qualified tax advisor about the consequences of adding this Rider to a Policy or requesting a Single Sum Benefit payment under this Rider. There is no additional charge for this rider. This rider may not be available in all states or, if available, the terms of the rider may vary, in accordance with the requirements of each state's insurance laws. THE FIXED ACCOUNT A Policyowner may allocate Premiums and transfer Cash Value to the Fixed Account, which is part of Western Reserve's 31 General Account. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933 and neither the Fixed Account nor the General Account has been registered as an investment company under the 1940 Act. Accordingly, neither the Fixed Account, the General Account nor any interests therein are generally subject to the provisions of these acts and Western Reserve has been advised that the staff of the Commission has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and completeness of statements made in prospectuses. The portion of the Cash Value allocated to the Fixed Account (the "Fixed Account Value") will be credited with rates of interest, as described below. Because the Fixed Account Value becomes part of Western Reserve's General Account, Western Reserve assumes the risk of investment gain or loss on this amount. All assets in the General Account are subject to Western Reserve's general liabilities from business operations. FIXED ACCOUNT VALUE At the end of any Valuation Period, the Fixed Account Value is equal to: 1. The sum of all 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; minus 7. Any amounts withdrawn from the Fixed Account to pay the pro rata Decrease Charge incurred as a result of a decrease in the Specified Amount. MINIMUM GUARANTEED AND CURRENT INTEREST RATES The Fixed Account Value is guaranteed to accumulate at a minimum effective annual interest rate of 3% per year on unloaned amounts, and a minimum guaranteed effective annual interest rate of 4% per year for loaned amounts. 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. Western Reserve has no specific formula for determining current interest rates. Some of the factors that Western Reserve may consider, in its sole discretion, in determining whether to credit interest in excess of the 3% guaranteed rate are: general economic trends, rates of return currently available and anticipated on the company's investments, regulatory and tax requirements, and competitive factors. The Fixed Account Value will not share in the investment performance of the company's general account or any portion thereof. Because Western Reserve, at its sole discretion, anticipates changing the current interest rate from time to time, different allocations to and from the Fixed Account Value will be credited different current interest rates. Western Reserve further guarantees that when a higher current interest rate is declared on an allocation to the Fixed Account, that interest rate will be guaranteed on such allocation for at least a one year period (the "Guarantee Period"), unless the Cash Value associated with an allocation has been transferred to the Loan Reserve. Western Reserve reserves the right to apply a different current interest rate to that part of the Cash Value equal to the Loan Reserve. At the end of the Guarantee Period, Western Reserve reserves the right to declare a new current interest rate on such allocation and accrued interest thereon (which may be a different current interest rate than the current interest rate on new allocations to the Fixed Account on that date). The rate declared on such allocation and accrued interest thereon at the end of each Guarantee Period will be guaranteed again for another Guarantee Period. At the end of any Guarantee Period, any interest credited on the Policy's Cash Value in the Fixed Account in excess of the minimum guaranteed rate of 3% 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 3% per annum or shorten the Guarantee Period to less than one year. ALLOCATIONS, TRANSFERS AND WITHDRAWALS 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 Premium received prior to the Reallocation Date will take place on the Policy Date (or the Reallocation Date, if later). For transfers from the Fixed Account to a Sub-Account, Western Reserve reserves the right to limit the transfers to one per Policy year and require that transfer requests be in writing and received at Western Reserve's Office within 30 days after a Policy Anniversary. The maximum amount that may be transferred is limited to the greater of (a) 25% of the amount in the Fixed Account, or (b) the amount transferred in the prior Policy year from the Fixed Account, unless Western Reserve consents otherwise. Please consult your Policy for details. No transfer charge will apply to transfers from the Fixed Account to a Sub-Account. Amounts may be withdrawn from the Fixed 32 Account for cash withdrawals and surrenders only upon written request of the Policyowner, and are subject to any applicable requirement for a signature guarantee. (See Policy Rights - Surrender Privileges, p. 28.) Western Reserve further reserves the right to defer payment of transfers, cash withdrawals, or surrenders from the Fixed Account for up to six months. In addition, Policy provisions relating to transfers, cash withdrawals or surrenders from the Series Account will also apply to Fixed Account transactions. DISTRIBUTION OF THE POLICIES The Policy will be sold by individuals who, in addition to being licensed as life insurance agents for Western Reserve, are also registered representatives of ISI, an affiliate of Western Reserve and the principal underwriter of the Policies, or of broker-dealers who have entered into written sales agreements (|P`Sales Agreements|P') with the principal underwriter for promotion and sale of the Policies. ISI is registered with the Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. No amounts have been retained by ISI for acting as principal underwriter for the Policies. The compensation payable to registered representatives who are appointed agents of Western Reserve for sales of the Policies may vary with the Sales Agreement, but is not expected to exceed 65% of all premiums paid during the first Policy year, and 2.10% of all premium payments in years 2 through 10. An additional sales commission of up to 0.10% (ten one-hundredths of one percent) of the Policy's Cash Value is payable on the fifth Policy Anniversary, and on each Anniversary thereafter, provided the Policy's Cash Value at such times, minus any amounts attributable to Policy loans, is at least $10,000. 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. Western Reserve makes no representations regarding the likelihood of continuation of the current Federal income tax laws, Treasury Regulations, or of the current interpretations by the Internal Revenue Service ("IRS"). Western Reserve reserves the right to make changes to the Policy in order to assure that it will continue to qualify as life insurance for tax purposes. TAX CHARGES At the present time, Western Reserve makes no charge for any Federal, state or local taxes (other than premium taxes) that the Company incurs that may be attributable to such Account or to the Policies. Western Reserve, however, reserves the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that it determines to be properly attributable to the Series Account or to the Policies. TAX STATUS OF THE POLICY Section 7702 of the Code sets forth a definition of a life insurance contract for Federal tax purposes. The Secretary of the Treasury (the "Treasury") has recently issued proposed regulations that would specify what will be considered reasonable mortality charges under Section 7702. Guidance as to how Section 7702 is to be applied is, however, limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such Policy would not provide most of the tax advantages normally provided by a life insurance policy. With respect to a Policy that is issued on the basis of a rate class using Ultimate Select, non-tobacco use; Select, non-tobacco use; Ultimate Standard, tobacco use; Standard tobacco use, guaranteed rates or Juvenile, while there is some uncertainty due to the limited guidance on Section 7702, Western Reserve nonetheless believes that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard rate class, there is even less guidance to determine whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus, it is not clear whether such a Policy would satisfy Section 7702, particularly if the Policyowner pays the full amount of premiums permitted under the Policy. If it is subsequently determined that a Policy does not satisfy Section 7702, Western Reserve will take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702, including possibly refunding any premiums paid that exceed the limitation allowable under Section 7702 (together with interest or other earnings on any such premiums refunded as required by law). For these reasons, Western Reserve reserves the right to modify the Policy as necessary to attempt to qualify it as a life insurance contract under Section 7702. Section 817(h) of the Code authorizes the Treasury to set standards by regulation or otherwise for the investments of the Series Account to be "adequately diversified" in order for the Policy to be treated as a life insurance contract for Federal tax purposes. The Series Account, through the Fund, intends to comply with the diversification requirements prescribed by the Treasury in Reg. sec. 1.817-5, which affect how the Fund's assets may be invested. Western Reserve believes that the Fund will be operated in compliance with the requirements prescribed by the Treasury. In certain circumstances, owners of variable life insurance policies may be considered the owners, for Federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and 33 gains from the separate account assets would be includable in the owner's gross income. The IRS has stated in published rulings that the owner of a variable life insurance policy will be considered the owner of separate account assets if the owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (I.E., the policyowner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets." The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the Policyowner has additional flexibility in allocating premium payments and Policy values. These differences could result in a Policyowner being treated as the owner of a pro rata portion of the assets of the Series Account. In addition, Western Reserve does not know what standards will be set forth, if any, in the regulations or rulings which the Treasury Department has stated it expects to issue. Western Reserve therefore reserves the right to modify the Policy as necessary to attempt to prevent a Policyowner from being considered the owner of a pro rata share of the assets of the Series Account. The following discussion assumes that the Policy will qualify as a life insurance contract for Federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS 1. IN GENERAL. Western Reserve believes that the proceeds and Cash Value increases of a Policy should be treated in a manner consistent with a fixed-benefit life insurance policy for Federal income tax purposes. Thus, the death benefit under the Policy should be excludable from the gross income of the Beneficiary under section 101(a)(1) of the Code. A change in a Policy's Specified Amount, the payment of an unscheduled premium, the taking of a Policy loan, a cash withdrawal, a total surrender, a Policy Lapse with an outstanding indebtedness, a change in death benefit options, the exchange of a Policy, or the assignment of a Policy may have tax consequences depending upon the circumstances. In addition, Federal estate and state and local estate, inheritance, and other tax consequences of ownership or receipt of Policy proceeds depend upon the circumstances of each Policyowner or Beneficiary. A competent tax adviser should be consulted for further information. The Policy may also be used in various arrangements, including nonqualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if a Policyowner is contemplating the use of a Policy in any arrangement the value of which depends in part on its tax consequences, that Policyowner should be sure to consult a qualified tax adviser regarding the tax attributes of the particular arrangement. Generally, the Policyowner will not be deemed to be in constructive receipt of the Cash Value, including increments thereof, under the Policy until there is a distribution. The tax consequences of distributions from, and loans taken from, or secured by, a Policy depend on whether the Policy is classified as a "modified endowment contract" under Section 7702A. Section 7702A generally applies to Policies entered into or materially changed after June 20, 1988. 2. MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as a modified endowment contract depending upon the amount of premiums paid in relation to the death benefit provided under such Policy. The premium limitation rules for determining whether such a Policy is a modified endowment contract are extremely complex. In general, however, a Policy will be a modified endowment contract if the accumulated premiums paid at any time during the first seven Policy years exceed the sum of the net level premiums which would have been paid on or before such time if the Policy provided for paid-up future benefits after the payment of seven level annual premiums. In addition, if a Policy is "materially changed," it may cause such Policy to be treated as a modified endowment contract. The material change rules for determining whether a Policy is a modified endowment contract are also extremely complex. In general, however, the determination whether a Policy will be a modified endowment contract after a material change depends upon the relationship of the death benefit at the time of change to the Cash Value at the time of such change and the additional premiums paid in the seven Policy years starting with the date on which the material change occurs. Under Western Reserve's current procedures, the Policyowner will be notified at the time a Policy is issued whether, according to Western Reserve's calculations, the Policy is or is not classified as a modified endowment contract based on the premium then received. The Policyowner will also be notified of the amount of the maximum annual premium which can be paid without causing a Policy to be classified as a modified endowment contract. Due to the Policy's flexibility, classification of a Policy as a modified endowment contract will depend upon the circumstances of each Policy. Accordingly, a prospective Policyowner should contact a competent tax adviser before purchasing a Policy to determine the circumstances under which the Policy would be a modified endowment contract. In addition, a Policyowner should contact a competent tax adviser before making any change to, including an exchange of, a Policy to determine whether such change would cause the Policy (or the new policy in the case of an exchange) to be treated as a modified endowment contract. 34 If a Policy becomes a modified endowment contract, distributions that occur during the Policy year it becomes a modified endowment contract and any subsequent Policy year will be taxed as distributions from a modified endowment contract. In addition, distributions from a Policy within two years before it becomes a modified endowment contract will be taxed in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. 3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies classified as modified endowment contracts are subject to the following tax rules: First, all pre-death distributions from such a Policy (including distributions upon surrender, distributions made in anticipation of the Policy becoming a modified endowment contract, and benefits paid at maturity) are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Cash Value immediately before the distribution over the investment in the Policy (described below) at such time. Second, loans taken from, or secured by, such a Policy are treated as distributions from such a Policy and taxed accordingly. (Unpaid Policy loan interest will be treated as a loan for these purposes.) Third, a 10% Federal income tax penalty is imposed on the portion of any distribution from, or loan taken from, or secured by, such a Policy that is included in income except where the distribution or loan is made on or after the Owner attains age 59-1/2, is attributable to the Policyowner's becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Policyowner or the joint lives (or joint life expectancies) of the Policyowner and the Policyowner'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 cash withdrawal, a decrease in the Policy's death benefit, or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and results in a cash distribution to the Policyowner in order for the Policy to continue complying with the Section 7702 definitional limits. In that case, such distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Loans from, or secured by, a Policy that is not a modified endowment contract are generally not treated as distributions. Instead, such loans are treated as indebtedness of the Policyowner. However, the tax treatment of a loan from a Policy that is not a modified endowment contract is uncertain to the extent that the interest rate credited is equal to the interest rate charged on the amount borrowed. A tax advisor should be consulted. 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% Federal income tax penalty. 5. POLICY LOAN INTEREST. Interest paid on a Policy loan generally is not tax deductible. Therefore, a Policyowner should consult a competent tax advisor before deducting any Policy loan interest. 6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate amount of any premiums or other consideration paid for a Policy, minus (ii) the aggregate amount received under the Policy which is excluded from the gross income of the Policyowner (except that the amount of any loan from, or secured by, a Policy that is a modified endowment contract, to the extent such amount is excluded from gross income, will be disregarded), plus (iii) the amount of any loan from, or secured by, a Policy that is a modified endowment contract to the extent that such amount is included in the gross income of the Policyowner. 7. MULTIPLE POLICIES. All modified endowment contracts that are issued by Western Reserve (or its affiliates) to the same Policyowner during any calendar year are treated as one modified endowment contract for purposes of determining the amount includable in gross income under Section 72(e) of the Code. 8. TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. Pursuant to the recently enacted Health Insurance Portability and Accountability Act of 1996, Western Reserve believes that for Federal income tax purposes a Single Sum Benefit payment made under the Terminal Illness Accelerated Death Benefit Rider should be fully excludable from the gross income of the beneficiary, as long as the beneficiary is the Insured under the Policy. However, a Policyowner should consult a qualified tax advisor about the consequences of adding this Rider to a Policy or requesting a Single Sum Benefit payment under this Rider. 9. BUSINESS-OWNED INSURANCE. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new Policy or a change in an existing Policy should consult a tax advisor. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Policy could change by legislation or otherwise. For instance, the President's 1999 Budget Proposal recommended legislation that, if enacted, would adversely modify the Federal taxation of this Policy. It is possible that any legislative change could be retroactive (that is, effective prior to the date of the change.) A tax advisor should be consulted with respect to legislative developments and their effect on the Policy. 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 35 between men and women on the basis of sex. The Policy described in this Prospectus contains guaranteed cost of insurance rates and guaranteed purchase rates for certain payment options that distinguish between men and women. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of NORRIS, and Title VII generally, on any employment-related insurance or benefit program for which a Policy may be purchased. SAFEKEEPING OF THE SERIES ACCOUNT'S ASSETS Western Reserve holds the assets of the Series Account. The assets are kept physically segregated and held separate and apart from the General Account. Western Reserve maintains records of all purchases and redemptions of Fund shares by each of the Sub-Accounts. Additional protection for the assets of the Series Account is provided by a blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the amount of $5 million (subject to a $1 million deductible), covering all of the employees of AEGON U.S. and its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. provides additional fidelity coverage, to a limit of $12 million. VOTING RIGHTS OF THE SERIES ACCOUNT To the extent required by law, Western Reserve will vote the Fund shares held in the Series Account at shareholder meetings of the Fund in accordance with instructions received from persons having voting interests in the corresponding Sub-Accounts of the Series Account. Except as required by the 1940 Act, the Fund does not hold regular or special shareholder meetings. If the 1940 Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result Western Reserve determines that it is permitted to vote the Fund shares in its own right, it may elect to do so. The number of votes which a Policyowner has the right to instruct will be calculated separately for each Sub-Account. The number of votes which each Policyowner has the right to instruct will be determined by dividing a Policy's Cash Value in that Sub-Account by $100. Fractional shares will be counted. The number of votes of the Portfolio which the Policyowner has the right to instruct will be determined as of the date coincident with the date established by that Portfolio for determining shareholders eligible to vote at the meeting of the Fund. Voting instructions will be solicited by written communications prior to such meeting in accordance with procedures established by the Fund. Western Reserve will vote Fund shares as to which no timely instructions are received and Fund shares which are not attributable to Policyowners in proportion to the voting instructions which are received with respect to all Policies participating in that Portfolio. Voting instructions to abstain on any item to be voted upon will reduce the votes eligible to be cast by Western Reserve. Each person having a voting interest in a Sub-Account will receive proxy materials, reports and other materials relating to the appropriate Portfolio. DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by state insurance regulatory authorities, disregard voting instructions if the instructions require that the shares be voted so as to cause a change in the sub-classification or investment objective of the Fund or one or more of its Portfolios or to approve or disapprove an investment advisory contract for a Portfolio of the Fund. In addition, Western Reserve itself may disregard voting instructions in favor of changes initiated by a Policyowner in the investment policy or the investment adviser of a Portfolio of the Fund if Western Reserve reasonably disapproves of such changes. A change would be disapproved only if the proposed change is contrary to state law or prohibited by state regulatory authorities or Western Reserve determined that the change would have an adverse effect on its General Account in that the proposed investment policy for a Portfolio may result in overly speculative or unsound investments. In the event Western Reserve does disregard voting instructions, a summary of that action and the reasons for such action will be included in the next annual report to Policyowners. STATE REGULATION OF WESTERN RESERVE As a life insurance company organized and operated under Ohio law, Western Reserve is subject to provisions governing such companies and to regulation by the Ohio Commissioner of Insurance. Western Reserve's books and Accounts are subject to review and examination by the Ohio Insurance Department at all times and a full examination of its operations is conducted by the National Association of Insurance Commissioners at least once every three years. REINSURANCE Western Reserve intends to reinsure a portion of the risks assumed under the Policies. EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE JOHN R. KENNEY(1), CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER AND PRESIDENT. Chairman of the Board of Directors (1987 - present) and Chief Executive Officer (1982 - present), President, (1978 - 1987 and December, 1992 - present), Director (1978 - present), Western Reserve Life Assurance Co. of Ohio; Chairman of the Board of Directors (1985 - present), President (March, 1993 - present), WRL Series Fund, Inc.; Chairman of the Board (September, 1996 - present), WRL Investment Management, Inc.; Chairman of the Board (September, 1996 - present), WRL Investment Services, Inc.; Chairman of the Board of Directors (February, 1997 - present), AEGON Asset Management Services, Inc., Largo, Florida; Chairman of the Board of Directors and Chief Executive Officer (1988 - February, 1991), President 36 (1988 - 1989), Director (1976 - February, 1991), Executive Vice President (1972 - 1988), Pioneer Western Corporation (financial services), Largo, Florida; Trustee (1987 - present), Chairman (December, 1989 to September, 1990 and November, 1990 to present) and President and Chief Executive Officer (November, 1986 to September, 1990), IDEX Series Fund; former Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all of Largo, Florida. ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL OFFICER. Executive Vice President (June, 1993 - present), Chief Financial Officer (December, 1995 - present), Senior Vice President (1981 - June, 1993) and Actuary (1972 - present), Western Reserve Life Assurance Co. of Ohio; Director (September, 1996 - present), WRL Investment Management, Inc.; Director (September, 1996 - present), WRL Investment Services, Inc.; Executive Vice President (September, 1993 - present), WRL Series Fund, Inc. WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND CORPORATE COUNSEL. Senior Vice President, Secretary and Corporate Counsel (July, 1990 - present) of Western Reserve Life Assurance Co. of Ohio; Vice President, Secretary and General Counsel of Pioneer Western Corporation (financial services) and Secretary of its subsidiaries (May, 1990 to February, 1991); Vice President and Assistant Secretary (November, 1990 to present) and Secretary (June, 1990 to September, 1990) IDEX Series Fund, former Vice President and Assistant Secretary of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all of Largo, Florida. ALLAN J. HAMILTON(1), VICE PRESIDENT, TREASURER AND CONTROLLER. Vice President and Controller (1987 - present), Treasurer, (February, 1997 - present), Assistant Vice President and Assistant Controller (1983 - 1987), Western Reserve Life Assurance Co. of Ohio; Treasurer and Principal Financial Officer (February, 1997 - present), WRL Series Fund, Inc.; Vice President and Controller (1988 to February 1991), Pioneer Western Corporation (financial services), Largo, Florida. PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52499, Director (February, 1991 to present), Western Reserve Life Assurance Co. of Ohio; Vice President and Chief Tax Officer (1984 - present), Chief Financial Officer (1992 - present) AEGON USA, Inc., formerly known as Life Investors, Inc., (financial services holding company), Cedar Rapids, Iowa. - ------------------------------ (1) The principal business address is Western Reserve Life Assurance Co. of Ohio, P.O. Box 5068, Clearwater, Florida 33758-5068 JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429, Director (1987 - present), Western Reserve Life Assurance Co. of Ohio; Trustee, IDEX Series Fund, former Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies); Director, Regional Marketing, (1986 - January, 1993), Martin Marietta Corporation, Dayton, Ohio. LYMAN H. TREADWAY, DIRECTOR, 30195 Chagrin Blvd. Ste. 210N, Cleveland, Ohio 44124, Director (September, 1994 - present), Western Reserve Life Assurance Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio. JAMES R. WALKER, DIRECTOR, 3320 Office Park Dr., Dayton, Ohio 45439, Director (June, 1996 - present) Western Reserve Life Assurance Co. of Ohio; Self-employed, Public Accountant (1996 - present); Partner, C.P.A. (1990 - 1995), Walker-Davis C.P.A.'s, Dayton, Ohio. LEGAL MATTERS Sutherland, Asbill & Brennan LLP, Washington, D.C., has provided advice on certain legal matters concerning Federal securities laws in connection with the Policies. All matters of Ohio law pertaining to the Policy, including the validity of the Policy and Western Reserve's right to issue the Policy under Ohio Insurance Law, have been passed upon by Thomas E. Pierpan, Vice President, Assistant Secretary and Associate General Counsel of Western Reserve. LEGAL PROCEEDINGS Western Reserve, like other life insurance companies, is involved in lawsuits. Western Reserve is not aware of any class action lawsuits naming it as a Defendant or involving the Series Account. In some lawsuits involving other insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, Western Reserve believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse impact on the Series Account or Western Reserve. EXPERTS The financial statements of WRL Series Life Account as of December 31, 1997 and for the year then ended have been included herein in reliance upon the report of PricewaterhouseCoopers LLP, independent accountants, and upon the authority of that firm as experts in accounting and auditing. The financial statements and schedules of Western Reserve Life Assurance Co. of Ohio at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein which are based in part on the reports of Price Waterhouse LLP, independent accountants. The financial statements referred to above are included in reliance upon such 37 reports given upon the authority of such firms as experts in accounting and auditing. Actuarial matters included in this Prospectus have been examined by Alan Yaeger as stated in the opinion filed as an exhibit to the registration statement. ADDITIONAL INFORMATION A registration statement has been filed with the Securities and Exchange Commission, under the Securities Act of 1933, as amended, with respect to the Policy offered hereby. This Prospectus does not contain all the information set forth in the registration statement and the amendments and exhibits to the registration statement, to all of which reference is made for further information concerning the Series Account, Western Reserve and the Policy offered hereby. Statements contained in this Prospectus as to the contents of the Policy and other legal instruments are summaries. For a complete statement of the terms thereof reference is made to such instruments as filed. YEAR 2000 MATTERS In October 1996, Western Reserve adopted and presently has in place a Year 2000 Assessment and Planning Project (the "Plan") to review and analyze existing hardware and software systems, as well as voice and data communications systems, to determine if they are Year 2000 compatible. Western Reserve has also engaged the services of a third-party provider that is specialized in Year 2000 issues to work on the Plan. As of the date of this Prospectus, Western Reserve has identified and made available what it believes are the appropriate resources of hardware, people, and dollars, including the engagement of outside third parties, to ensure that the Plan will be completed. The Year 2000 computer problem, and its resolution, is complex and multifaceted, and success of a response plan cannot be conclusively known until the Year 2000 is reached (or an earlier date to the extent that the systems or equipment addresses Year 2000 data prior to the Year 2000). Even with the appropriate and diligent pursuit of a well-conceived response plan, including testing procedures, there is no certainty that any company will achieve complete success. Further, notwithstanding its efforts or results, Western Reserve's ability to function unaffected to and through the Year 2000 may be adversely affected by actions (or failure to act) of third parties beyond our knowledge or control. See the Fund's prospectus for information on the Fund's preparation for Year 2000. INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS The financial statements of Western Reserve which are included in this Prospectus (see p. 65) 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, 1997, 1996 and 1995, have been prepared on the basis of statutory accounting principles, rather than generally accepted accounting principles ("GAAP"). 38 APPENDIX A ILLUSTRATION OF BENEFITS The tables in Appendix A illustrate the way in which a Policy operates. They show how the death benefit, Cash Value and Net Surrender Value of a Policy issued to an Insured of a given age and a given premium could vary over an extended period of time assuming hypothetical gross rates of return equivalent to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the Policy values that would result based on the assumptions that the premium is paid as indicated, that the Owner has not requested a decrease in the Specified Amount of the Policy, and that no cash withdrawals or Policy loans have been made. The death benefits, Cash Values and Net Surrender Values under a Policy would be different from those shown if the actual rate of return averages 0%, 6% or 12% over a period of years, but fluctuates above and below those averages for individual Policy years. They would also differ if any Policy loans were made during the period of time illustrated. The illustration on page 40 is based on a Policy for an Insured who is a 35 year old male in the non-tobacco user Ultimate Select rate class, annual premiums of $5,500, a $500,000 Specified Amount and Death Benefit Option A. The illustrations on that page also assume cost of insurance charges based on Western Reserve's CURRENT cost of insurance rates. The illustration on page 41 is based on the same factors as those on page 40, except that cost of insurance rates are based on the GUARANTEED cost of insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality Table). The 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 during the first fifteen Policy years and 0.30% thereafter. However, the reduced annual charge after the first fifteen Policy years is guaranteed to be at least 0,60%; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.95% of the average daily net assets of the Portfolios of the Fund; and (3) applicable Cash Value charges. The 0.95% average Portfolio expense level assumes an equal allocation of amounts among the sixteen Sub-Accounts and is based on an average 0.76% investment advisory fee and estimated 1997 average normal operating expenses of 0.19% for each of the Portfolios in operation during 1997. Calculation of the average annual expense level utilized annualized actual audited expenses incurred during 1997 for the Money Market (0.48%), Bond (0.64%), Growth (0.85%) (including voluntary fee reductions effective May 1, 1998), Strategic Total Return (0.88%), Emerging Growth (0.93%), Global (1.00%), Aggressive Growth (0.96%), Balanced (0.94%), Growth & Income (0.96%), C.A.S.E. Growth (1.00%), Tactical Asset Allocation (0.87%), Value Equity (0.89%), International Equity (1.50%), and U.S. Equity (1.30%). In addition, because the Third Avenue Value and Real Estate Securities Portfolios had not commenced operations as of December 31, 1997, the estimated average annual Portfolio expense level reflects estimated expenses for each of these two Portfolios at 1.00%, for 1998. WRL Management has undertaken until April 30, 1999 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 1.85%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of - -1.85%, 4.15% and 10.15% during the first fifteen Policy years and -1.25%, 4.75% and 10.75% thereafter. The hypothetical returns shown in the tables are without any tax charges that may be attributable to the Series Account, because Western Reserve is not currently making such charges. In order to produce after tax returns of 0%, 6% or 12% if such charges are made in the future, the Series Account would have to earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges. (See Charges Against the Series Account - Taxes, p. 26.) The "Premium Accumulated at 5%" column of each table shows the amount which would accumulate if an amount equal to the premium were invested to earn interest at 5% per year, compounded annually. Western Reserve will furnish, upon request, a comparable illustration reflecting the proposed Insured's age, sex, risk classification and desired plan features. 39 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Specified Amount $500,000 Ultimate Select Class Annual Premium $5,500 Option Type A Using Current Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.85% (NET) YEARS 1-15 4.15% (NET) YEARS 1-15 10.15% (NET) YEARS 1-15 -1.25% (NET) YEARS 16+ 4.75% (NET) YEARS 16+ 10.75% (NET) YEARS 16+ 1 5,775 500,000 500,000 500,000 2 11,839 500,000 500,000 500,000 3 18,206 500,000 500,000 500,000 4 24,891 500,000 500,000 500,000 5 31,911 500,000 500,000 500,000 6 39,281 500,000 500,000 500,000 7 47,020 500,000 500,000 500,000 8 55,146 500,000 500,000 500,000 9 63,678 500,000 500,000 500,000 10 72,637 500,000 500,000 500,000 15 124,616 500,000 500,000 500,000 20 190,956 500,000 500,000 500,000 30(AGE 65) 383,684 500,000 500,000 1,095,334 40(AGE 75) 697,619 500,000 500,000 2,724,666 50(AGE 85) 1,208,985 * 845,195 7,423,634 60(AGE 95) 2,041,946 * 1,335,588 19,490,445
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) -1.85% (NET) 4.15% (NET) 10.15% (NET) -1.85% (NET) 4.15% (NET) 10.15% (NET) YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 -1.25% (NET) 4.75% (NET) 10.75% (NET) -1.25% (NET) 4.75% (NET) 10.75% (NET) YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ 1 4,581 4,885 5,189 708 1,011 1,315 2 9,065 9,960 10,892 4,730 5,625 6,557 3 13,445 15,225 17,155 8,647 10,428 12,357 4 17,726 20,693 24,039 12,467 15,434 18,779 5 21,879 26,339 31,575 16,158 20,618 25,854 6 25,902 32,169 39,828 19,719 25,985 33,645 7 29,789 38,181 48,866 23,143 31,536 42,220 8 33,542 44,386 58,771 26,435 37,279 51,664 9 37,098 50,726 69,569 29,528 43,157 62,000 10 40,488 57,237 81,388 32,456 49,206 73,356 15 54,796 92,444 159,866 54,796 94,444 159,866 20 66,653 136,754 294,347 66,653 136,754 294,347 30(AGE 65) 83,405 263,904 897,815 83,405 263,904 897,815 40(AGE 75) 73,075 468,412 2,546,417 73,075 468,412 2,546,417 50(AGE 85) * 804,948 7,070,127 * 804,948 7,070,127 60(AGE 95) * 1,322,364 19,297,470 * 1,322,364 19,297,470
* In the absence of an additional payment, the Policy would lapse. The hypothetical investment rates of return shown above and elsewhere in the Prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual investment rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations by an Owner and the different investment rates of return for the Fund. The Death Benefit, Cash Value and Net Surrender Value for a Policy would be different from those shown if the actual investment rates of return averaged 0%, 6% and 12% over a period of years, but fluctuated above or below that average for individual Policy years. No representation can be made by Western Reserve or the Fund that these hypothetical investment rates of return can be achieved for any one year or sustained over any period of time. This illustration must be preceded or accompanied by a current Prospectus. 40 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Specified Amount $500,000 Ultimate Select Class Annual Premium $5,500 Option Type A Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.85% (NET) YEARS 1-15 4.15% (NET) YEARS 1-15 10.15% (NET) YEARS 1-15 -1.25% (NET) YEARS 16+ 4.75% (NET) YEARS 16+ 10.75% (NET) YEARS 16+ 1 5,775 500,000 1500,000 500,000 2 11,839 500,000 500,000 500,000 3 18,206 500,000 500,000 500,000 4 24,891 500,000 500,000 500,000 5 31,911 500,000 500,000 500,000 6 39,281 500,000 500,000 500,000 7 47,020 500,000 500,000 500,000 8 55,146 500,000 500,000 500,000 9 63,678 500,000 500,000 500,000 10 72,637 500,000 500,000 500,000 15 124,616 500,000 500,000 500,000 20 190,956 500,000 500,000 500,000 30(AGE 65) 383,684 500,000 500,000 1,058,623 40(AGE 75) 697,619 * 500,000 2,593,787 50(AGE 85) 1,208,985 * 720,735 6,923,820 60(AGE 95) 2,041,946 * 1,106,564 17,490,930
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) -1.85% (NET) 4.15% (NET) 10.15% (NET) -1.85% (NET) 4.15% (NET) 10.15% (NET) YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 -1.25% (NET) 4.75% (NET) 10.75% (NET) -1.25% (NET) 4.75% (NET) 10.75% (NET) YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ 1 4,513 4,814 5,116 640 941 1,243 2 8,911 9,797 10,719 4,576 5,461 6,384 3 13,182 14,940 16,847 8,385 10,143 12,049 4 17,326 20,249 23,548 12,066 14,990 18,289 5 21,334 25,721 30,876 15,613 20,000 25,154 6 25,207 31,361 38,891 19,023 25,178 32,707 7 28,933 37,164 47,654 22,287 30,518 41,009 8 32,516 43,138 57,246 25,409 36,030 50,139 9 35,946 49,280 67,744 28,377 41,710 60,174 10 39,227 55,599 79,246 31,196 47,568 71,215 15 53,072 89,802 155,713 53,072 89,802 155,713 20 63,465 131,831 286,041 63,465 131,831 286,041 30(AGE 65) 68,562 245,033 867,724 68,562 245,033 867,724 40(AGE 75) * 406,533 2,424,100 * 406,533 2,424,100 50(AGE 85) * 686,414 6,594,114 * 686,414 6,594,114 60(AGE 95) * 1,095,608 17,317,752 * 1,095,608 7,317,752
* In the absence of an additional payment, the Policy would lapse The hypothetical investment rates of return shown above and elsewhere in the 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. 41 APPENDIX B WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKETS The information below graphically depicts the growth of $1.00 invested in large company stocks, small company stocks, long-term government bonds, Treasury bills, and a hypothetical asset returning the inflation rate over the period from the end of 1925 to the end of 1997. All results assume reinvestment of dividends on stocks or coupons on bonds and no taxes. Transaction costs are not included, except in the small stock index starting in 1982. Each of the cumulative index values is initialized at $1.00 at year-end 1925. The graph illustrates that large company stocks and small company stocks have the best performance over the entire 72-year period; investments of $1.00 in these assets would have grown to $1,828.33 and $5,519.97, respectively, by year-end 1997. This higher growth was earned by investments involving substantial risk. In contrast, long-term government bonds (with an approximate 20-year maturity), which exposed the holder to much less risk, grew to only $39.07. The lowest-risk strategy over the past 72 years (for those with short-term time horizons) was to buy U.S. Treasury bills. Since Treasury bills tended to track inflation, the resulting real (inflation-adjusted) returns were near zero for the entire 1926 - 1997 period. [GRAPHIC OMITTED]
COMPOUND ANNUAL RETURN - Small Company Stocks 12.7% Dimensional Fund Advices Small Company Fund - Large Company Stocks 11.0% S&P 500 - Long-Term Government Bonds 5.2% 20-year U.S. Government Bonds - Treasury Bills 3.8% 30-day U.S. T-Bills - Inflation 3.1% Consumer Price Index
* Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1998 YEARBOOK/trademark/, Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved. 42 COMPOUND ANNUAL RATES OF RETURN BY DECADE
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1988-97 Large Company ............. 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 16.6% 18.0% Small Company ............. -4.5 1.4 20.7 16.9 15.5 11.5 15.8 16.5 16.5 Long-Term Corp. ........... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 10.2 10.8 Long-Term Govt. ........... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 10.7 11.3 Inter-Term Govt. .......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.0 8.3 Treasury Bills ............ 3.7 0.6 0.4 1.9 3.9 6.3 8.9 5.0 5.4 Inflation ................. -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.1 3.4
- ------------------------------ * Based on the period 1926-1929. ** Based on the period 1990-1997. Source: (c) STOCKS, BONDS, BILLS AND INFLATION 1998 YEARBOOK/trademark/, Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved. THE WRL FREEDOM ELITE(SM) AND THE "DOLLAR COST AVERAGING" INVESTMENT STRATEGY As the Long Term Market Trends graph indicates, the investment performance of many common stocks has generally been positive over certain relatively long periods. Common stocks have, however, also been subject to market declines, often dramatic ones, and general volatility of prices over shorter time periods. The price fluctuations of common stocks has historically been greater than that of high grade debt securities. The relative volatility of common stock prices as compared with prices of high grade debt instruments offers both advantages and disadvantages to investors. Unfortunately, many investors who otherwise might be interested in common stocks see only the disadvantages and not the advantages of stock price fluctuation. The primary disadvantage, of course, is that price declines can be prolonged and substantial, and when this occurs, investors cannot liquidate their investments without realizing losses. Price declines, however, also offer investors important opportunities. Opportunity arises from the fact that investors can purchase more common stock for the same amount of money than they would before prices declined. Investors may take advantage of this if they remain willing to continue investing in both rising and falling markets. The dollar cost averaging strategy of investing demonstrates this. In this method of investing: /bullet/ Relatively constant dollar amounts are invested at regular intervals (monthly, quarterly, or annually), /bullet/ Stock Market fluctuations, especially the savings on purchases from price declines, are exploited for the investor's benefit. HOW DOLLAR COST AVERAGING WORKS
Investments at Common Stock Shares Regular Intervals Market Price Purchased - ------------------- -------------- ---------- $150 $20 7.5 150 15 10.0 150 10 15.0 150 5 30.0 150 10 15.0 150 15 10.0 ----------- ---- $900 87.5 Total Value of 87.5 shares @ $15/share $1,312.50 Less Investment made (900.00) --------- Gain/Profit $ 412.50
Though the market price has not returned to the initial high of $20 per share, dollar cost averaging has permitted the investor to purchase more shares at a savings and thus realize a significant gain. Obviously, the dollar cost averaging strategy is for the investor who can continue to invest relatively constant amounts over a long period of time. This plan of investing does not assure a profit or protect against a loss in declining markets; it does allow investors to take advantage of market fluctuations. Since the success of this strategy is dependent on systematic investing, purchasers should consider their ability to sustain their payments through all periods of market fluctuations. How does the dollar cost averaging method relate to the WRL Freedom Elite(sm)? A Policyowner may invest his or her Premium in a Sub-Account, and although a Policy's value in a Sub-Account or Sub-Accounts is affected by several factors other than investment experience (E.G., Cash Value charges and charges against the Series Account), the dollar cost averaging strategy can be generally applied to the Policy to the extent that the Policyowner pays a Planned Periodic Premium on a regular basis and he or she allocates Premium resulting from those Planned Periodic Premiums to Sub-Accounts in relatively constant amounts. 43 INDEX TO FINANCIAL STATEMENTS WRL SERIES LIFE ACCOUNT: Report of Independent Accountants dated January 30, 1998 Statements of assets, liabilities and equity accounts and statements of operations for the year ended December 31, 1997 Statements of changes in equity accounts for the years ended December 31, 1997 and 1996 Selected per unit data and ratios for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 Notes to Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO: Report of Independent Auditors dated February 27, 1998 Statutory-Basis Balance Sheets at December 31, 1997 and 1996 Statutory-Basis Statements of Operations for the years ended December 31, 1997, 1996 and 1995 Statutory-Basis Statements of changes in Capital and Surplus for the years ended December 31, 1997, 1996 and 1995 Statutory-Basis Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 Notes to Statutory-Basis Financial Statements Statutory-Basis Financial Statement Schedules WRL00005-01/99 44 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Western Reserve. STATEMENT WITH RESPECT TO INDEMNIFICATION Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. OHIO GENERAL CORPORATION LAW SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: II-1 (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (a) By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years; (c) By the shareholders; (d) By the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5)(a) Unless at the time of a director's act or omission that is the subject of an action, suit or proceeding referred to in divisions (E)(1) and (2) of this section, the articles or the regulations of a corporation state by specific reference to this division that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with II-2 deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) A corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in which the corporation has a financial interest. (8) The authority of a corporation to indemnify persons pursuant to divisions (E)(1) and (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to divisions (E)(5), (6), or (7). (9) As used in this division, references to "corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE ARTICLE EIGHTH EIGHTH: (1) The corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' II-3 fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) and (2) of this article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under sections (1) and (2) of this article, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections (1) and (2) of this article. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under section (4)(a) or by independent legal counsel under section (4)(b) of this article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under section (2) of this article, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) Expenses, including attorneys' fees incurred in defending any action, suit, or proceeding referred to in sections (1) and (2) of this article, may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of a written undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this article. If a majority vote of a quorum of disinterested directors so directs by resolution, said written undertaking need not be submitted to the corporation. Such a determination II-4 that a written undertaking need not be submitted to the corporation shall in no way affect the entitlement of indemnification as authorized by this article. (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. AMENDED CODE OF REGULATIONS OF WESTERN RESERVE ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS Each Director, officer and member of a committee of this Corporation, and any person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. II-5 RULE 484 UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet The Prospectus, consisting of 44 pages The undertaking to file reports Representation Pursuant to Section 26(e)(2) (A) The statement with respect to indemnification The Rule 484 undertaking The signatures Written consent of the following persons: (a) Alan Yaeger (b) Thomas E. Pierpan, Esq. (c) Sutherland, Asbill & Brennan LLP (d) Ernst & Young LLP (e) Pricewaterhouse Coopers LLP The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Western Reserve establishing the Series Account (1) (2) Not Applicable (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement (2) (b) Broker/Dealer Supervisory and Service Agreement (2) (c) See Exhibit 1.A.(3)(b)(ii) (4) Not Applicable (5) Specimen Flexible Premium Variable Life Insurance Policy (6) (6) (a) Second Amended Articles of Incorporation of Western Reserve (2) (b) Amended Code of Regulations (By-Laws) of Western Reserve (2) (7) Not Applicable (8) (a) Investment Advisory Agreement with the Fund (1) (b) Sub-Advisory Agreement (1) (9) Not Applicable (10) Application for Flexible Premium Variable Life Insurance Policy (11) Memorandum describing issuance, transfer and redemption procedures(5) II-6 2. See Exhibit 1.A.(3) 3. Opinion of Counsel as to the legality of the securities being registered (6) 4. No financial statement will be omitted from the Prospectus pursuant to Instruction 1(b) or (c) of Part I 5. Not Applicable 6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered (6) 7. Consent of Thomas E. Pierpan, Esq. (6) 8. Consent of Sutherland, Asbill & Brennan LLP (6) 9. Consent of Ernst & Young LLP (6) 10. Consent of PricewaterhouseCoopers LLP (6) 11. (a) Powers of Attorney (4) (b) Power of Attorney - James R. Walker (5) - ---------------------------------------- (1) This exhibit was previously filed on Post-Effective Amendment No. 28 to Form N-1A Registration Statement dated April 28, 1997 (File No. 33-507) and is incorporated herein by reference. (2) This exhibit was previously filed on Post-Effective Amendment No. 11 to Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556) and is incorporated herein by reference. (3) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 16 to Form S-6 Registration Statement dated April 21, 1998 (File No. 33-31140) and in incorporated herein by reference. (5) This exhibit was previously filed on Post-Effective Amendment No. 13 to Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140) and is incorporated herein by reference. (6) To be filed by amendment. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL Series Life Account, has duly caused this Initial Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Largo, County of Pinellas, Florida on this 27th day of August, 1998. (SEAL) WRL SERIES LIFE ACCOUNT ----------------------- Registrant WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ------------------------------ Depositor ATTEST: /s/ THOMAS E. PIERPAN By: /s/ JOHN R. KENNEY - --------------------- ------------------- Thomas E. Pierpan John R. Kenney Vice President, Assistant Secretary Chairman of the Board, and Associate General Counsel Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Initial Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE AND TITLE DATE ------------------- ---- /s/ JOHN R. KENNEY* August 27, 1998 - ------------------------------- John R. Kenney, Chairman of the Board, Chief Executive Officer and President /s/ ALLAN J. HAMILTON August 27, 1998 - ---------------------------------- Allan J. Hamilton, Vice President, Treasurer and Controller /s/ ALAN M. YAEGER August 27, 1998 - ------------------------------ Alan M. Yaeger, Executive Vice President, Actuary and Chief Financial Officer* /s/ PATRICK S. BAIRD August 27, 1998 - -------------------------- Patrick S. Baird, Director ***/ - ------------ *Principal Financial Officer /s/ JAMES R. WALKER August 27, 1998 - ------------------------- James R. Walker, Director ***/ /s/ LYMAN H. TREADWAY August 27, 1998 - --------------------------- Lyman H. Treadway, Director ***/ /s/ Jack E. Zimmerman August 27, 1998 - --------------------------- Jack E. Zimmerman, Director ***/ ***/ /s/ THOMAS E. PIERPAN ---------------------------- Signed by: Thomas E. Pierpan as Attorney-in-fact Exhibit Index EXHIBIT DESCRIPTION NO. OF EXHIBIT - ------- ----------- 1.A(10) Application for Flexible Premium Variable Life Insurance Policy EX-99.1A 2 Exhibit 1.A.(10) Application for Flexible Premium Variable Life Insurance Policy A HISTORY OF PERFORMANCE/R/ WRL PRIORITY: P.O. BOX 628069 ORLANDO, FL 32862-8069 STREET ADDRESS-USE FOR CARRIER [WRL LOGO] OTHER THAN POST OFFICE: 570 CARILLON PKWY INSURANCE /bullet/ ANNUITIES ST. PETERSBURG, FL 33716 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO 1-800-443-9975 (x6582) APPLICATION FOR LIFE INSURANCE FOR USE BY WMA REGISTERED REPRESENTATIVE Agent Name:_______________________________________________________________ Agent Number:______________________________________________________________ Marketing Director:____________________________ MD Code#:__________________ Branch Manager_____________________________________ Branch#:_______________ CEO:___________________________________________ CEO Code#:_________________ Date Faxed: (If Applicable)________________________________________________ Amount of initial premium with application $_________________________ Amount to be applied to application $_________________________ $_________________________ $_________________________
DO: DON'T: --- ------ [ ] Complete the entire application (front and back). [ ] Do not use pencil or whiteout. [ ] Print application in black ink. [ ] Do not accept or send money on applications that total more than $1,000,000.00 [ ] Have applicant initial all changes. [ ] Do not submit an agent check as the initial premium. [ ] Obtain all required signatures. [ ] Do not submit starter checks or deposit slips for [ ] Complete and sign the Agents Report. checkomatic withdrawals. [ ] Use supplement if more than one Other Insured Rider is required. [ ] Include certification if a trust is owner of the policy.
U000286-WMA WRL PRIORITY: P.O. BOX 628069 A HISTORY OF PERFORMANCE ORLANDO, FL 32862-8069 STREET ADDRESS-USE FOR CARRIER OTHER THAN POST OFFICE: [WRL LOGO] 570 CARILLON PKWY ST. PETERSBURG, FL 33716 INSURANCE /bullet/ ANNUITIES 1-800-443-9975 (X6420 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO APPLICATION FOR LIFE INSURANCE Agent Name:________________________________________________________ Agent Number:______________________________________________________ Broker/Dealer______________________________________________________ Date Faxed: (If Applicable)________________________________________ Amount of initial premium with application $___________________ Amount to be applied to application 0000999999 $___________________ $___________________ $___________________
DO: DON'T: --- ------ [ ] Complete the entire application (front and back). [ ] Do not use pencil or whiteout. [ ] Print application in black ink. [ ] Do not accept or send money on applications that total more than $1,000,000.00 [ ] Have applicant initial all changes. [ ] Do not submit an agent check as the initial premium. [ ] Obtain all required signatures. [ ] Do not submit starter checks or deposit slips for [ ] Complete and sign the Agents Report. checkomatic withdrawals. [ ] Use supplement if more than one Other Insured Rider is required. [ ] Include certification if a trust is owner of the policy.
U000286 ATTACH VOIDED SAMPLE OF YOUR PERSONAL CHECK HERE So that you may comply with your depositor's authorization and direction as set forth on the reverse side hereof, this Company agrees: 1. To indemnify you and hold you harmless from any loss you may suffer as a consequence of your actions resulting from or in connection with the execution and issuance of any check or draft, whether or not genuine, or payment of any preauthorized ACH electronic fund transfer debit received by you in the regular course of business for the purpose of payment to this Company, including any cost or expenses reasonably incurred in connection therewith. 2. In the event that any such check, draft or debit shall be dishonored whether with or without cause, and whether intentionally or inadvertently, to indemnify you for any loss even though dishonor results in a forfeiture of the insurance. 3. To defend at our own cost and expense any action which might be brought by any depositor or any other persons because of your actions taken pursuant to the foregoing request, or in any manner arising by reason of your participation in the foregoing plan of premium collections.
Authorized in a resolution adopted by the Executive Committee of WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO the Board of Directors of the WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO on October 29, 1991. /s/ WILLIAM H. GEIGER --------------------- TO: WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Secretary
As a convenience to me, I hereby request and authorize you to obtain payment of amounts becoming due you by initiating charges in the form of check, drafts or debits via ACH electronic fund transfers on my account maintained at the ____________________________________ ______________________________________ (Name of Bank) (Address of Bank)
for the payment of each monthly premium under Policy No.____________________ LIST ANY OTHER POLICIES TO BE PAID on the life of ___________________________ BY SAME CHECK, DRAFT OR DEBIT This authority is to remain in effect until revoked by me in writing, and until you actually receive such notice, I agree that you shall be fully protected in _________________________________ drawing any such check or draft or initiating such debit. I understand that if _________________________________ any such check, draft or debit be dishonored by my Bank and any monthly amount _________________________________ due the WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO is not paid within the time _________________________________ stipulated in the policy, said policy shall become null and void except as otherwise provided therein.
AUTHORIZATION FOR PREAUTHOFIIZED PAYMENTS TO: WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO P.O. BOX 5068, CLEARWATER, FL 34618-5068 "I elect _______ day (select 1 to 27) of As a convenience to me, I hereby request and authorize you to pay and charge to each month to have the payment of my bank checking account checks or drafts drawn by and payable to the order of $_______ taken from my account. If no WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO or to debit my account identified below date is indicated the draft date will be via ACH electronic fund transfers provided there are sufficient collected funds in the policy issue date." said account to pay the same upon presentation. This authority is to remain in effect until revoked by me in writing, and until you actually receive such notice I agree that you shall be fully protected in honoring any such check, draft or debit. I further agree that if any such check, draft or debit be dishonored, whether with or without cause and whether intentionally or inadvertently, you shall be under no liability whatsoever even though such dishonor results in the forfeiture of insurance. _________ 1 (X)________________________________________ _________ 2 (X)________________________________________ Both Authorized Signatures Required on Joint Accts. PLEASE NOTE: There is an Indemnification Agreement stated above.
U000286 LIFE APPLICATION - The Western Life Assurance Co. of Ohio APPLICATION# SECTION 1. PROPOSED PRIMARY INSURED 1. Last Name First Name M.I. - ------------------------------------------------------------------------------- 2. Address Apt# City - ------------------------------------------------------------------------------- State/Zip Code/3. Years at Address/4. Home Phone/5. Driver License Number/State ( )- - - ------------------------------------------------------------------------------- 6. Sex 7. Date 8. Insurable 9. Place of Birth 10. Social Security Number of Birth Age - State/Country [ ] Male [ ] Female - - - ------------------------------------------------------------------------------- 11. Height 12. Weight 13. Marital Status 14. Employer Years ft in lbs - ------------------------------------------------------------------------------- 15. Occupation & Duties - ------------------------------------------------------------------------------- 16. Employer's Address 17. Business Phone Number ( )- - - ------------------------------------------------------------------------------- 18. Have you used TOBACCO or any other product containing NICOTINE in the last 12 months? [ ] Yes [ ] No 19. Rate Class Quoted: [ ] Ult Select [ ] Select [ ] Ult Standard [ ] Standard [ ] Juvenile - ------------------------------------------------------------------------------- SECTION 2. PROPOSED OTHER/JOINT INSURED RIDER - IF MORE THAN ONE PLEASE USE A SUPPLEMENTAL APPLICATION 1. Last Name First Name M.I. - ------------------------------------------------------------------------------- 2. Address Apt# City - ------------------------------------------------------------------------------- State/ Zip Code / 3. Years at Address/ 4. Home Phone/ 5. Driver / State License Number ( )- - - ------------------------------------------------------------------------------- 6. Sex / 7. Date of Birth/ 8. Insurable/ 9. Place of Birth/ 10. Social Security Age - State/ Country Number [ ] Male [ ] Female MM - DD - YYYY - - - ------------------------------------------------------------------------------- 11. Height/ 12. Weight/ 13. Marital/ 14. Relationship to/ 15. Employer Years Status Proposed Insured ft in lbs - ------------------------------------------------------------------------------- 16. Occupation & Duties - ------------------------------------------------------------------------------- 17. Employer's Address 18. Business Phone Number ( )- - - ------------------------------------------------------------------------------- 19. Have you used TOBACCO or any other product containing NICOTINE in the last 12 months? [ ] Yes [ ] No 20. Rate Class Quoted: [ ] Ult Select [ ] Select [ ] Ult Standard [ ] Standard [ ] Juvenile - ------------------------------------------------------------------------------- SECTION 3. APPLICANT/OWNER IF OTHER THAN THE PROPOSED PRIMARY INSURED 1. Last Name First Name M.I. - ------------------------------------------------------------------------------- 2. Address Apt# City - ------------------------------------------------------------------------------- State Zip Code 3. Home Phone 4. Social Security Number/ Tax ID# ( )- - - ------------------------------------------------------------------------------- 5. Date of Birth/Trust Date 6. Relationship to the Proposed Primary Insured: MM-DD-YYY - ------------------------------------------------------------------------------- SECTION 4. CHILDREN'S INSURANCE RIDER COVERAGE AMOUNT ($2,000 MINIMUM TO $10,000 MAXIMUM COVERAGE FOR CHILDREN 18 AND UNDER) $__,____ NAME RELATIONSHIP DATE OF BIRTH HEIGHT WEIGHT MM-DD-YYYY ft in lbs MM-DD-YYYY ft in lbs MM-DD-YYYY ft in lbs Are all children listed? [ ] Yes [ ] No Are children living with proposed primary insured? [ ] Yes [ ] No If not, explain why:__________________ U000286 1 SECTION 5. PRIMARY BENEFICIARY - IF PERCENTAGE SHARES ARE NOT GIVEN THEY WILL BE EQUAL, OR TO THE SURVIVOR Name Percent Relationship Social Security Number/Tax ID# - - - - - - - -------------------------------------------------------------------------------- SECTION 6. CONTINGENT BENEFICIARY - IF PERCENTAGE SHARES ARE NOT GIVEN THEY WILL BE EQUAL, OR TO THE SURVIVOR Name Percent Relationship Social Security Number/Tax ID# - - - - - - - -------------------------------------------------------------------------------- SECTION 7. PROPOSED PLAN OF INSURANCE: 1. [ ] FFB [ ] FEP [ ] FWP [ ] OTHER ______________ 2. Specified Amount: $ , ,000 ------------- 3. Primary Insured Rider $ , ,000 ------------- 4. Primary Insured Rider Plus $ , ,000 ------------- 5. Other Insured Rider $ , ,000 - --------------------------------- ------------- 6. ARE YOU APPLYING FOR MORE THAN ONE OTHER INSURED RIDER? [ ] YES [ ] NO IF YES PLEASE USE SUPPLEMENTAL APPLICATION #U000286-SUPP FWP POLICIES ONLY 7. No Lapse Guarantee Option: [ ] A) 5YR [ ] B) 10YR 8. Wealth Protector Rider $ 000 ----,---,--- 9. Joint Insured Rider $ 000 ----,---,--- 10. INDIVIDUAL INSURED RIDER(S) [ ] Proposed Primary Insured $ 000 ----,---,--- [ ] Proposed Joint Insured $ 000 ----,---,--- - ------------------------------------------------------------------------------- SECTION 8. DEATH BENEFIT OPTION [ ] A) Level Benefit [ ] B) Increasing Benefit [ ] C) Option B To Age 70 Then Grading Down (option C for FFB only) - ------------------------------------------------------------------------------- SECTION 9. ADDITIONAL BENEFITS-PRIMARY INSURED ONLY [ ] Disability Waiver Rider [ ] Disability Waiver And Income Rider ($300 per month maximum) $________ [ ] Accidental Death Benefit ($150,000 maximum) $ 000 -----,--- - ------------------------------------------------------------------------------- SECTION 10. PREMIUMS PAYABLE Planned Premium $___,___,__ [ ] Checkomatic __ Draft Date (1ST thru 27TH) [ ] Direct Bill [ ] Single Premium [ ] Quarterly [ ] Annual [ ] Monthly [ ] Semi-annual [ ] Other __________ - ------------------------------------------------------------------------------- SECTION 11. SUB-ACCOUNT ALLOCATIONS - (FOR VARIABLE PLANS ONLY) MUST EQUAL 100% AND A WHOLE NUMBER.
MONEY MARKET ____% VALUE EQUITY ____% AGGRESSIVE GROWTH ____% GROWTH FUND ____% US EQUITY ____% GROWTH AND INCOME ____% EMERGING GROWTH ____% REAL ESTATE SECURITIES ____% CASE GROWTH ____% GLOBAL ACCOUNT ____% BOND FUND ____% INTERNATIONAL EQUITY ____% BALANCED FUND ____% FIXED ACCOUNT ____% THIRD AVENUE VALUE ____% TACTICAL ASSET ALLO. ____% STRATEGIC TOTAL RETURN ____% OTHER______________ ____%
- ------------------------------------------------------------------------------- 12. INVESTMENT OBJECTIVE [ ] Safety of Principal [ ] Income [ ] Long-Term Growth [ ] Trading Profits [ ] Other ________________________________ - ------------------------------------------------------------------------------- SECTION 13. OTHER INSURANCE IN FORCE FOR ALL PROPOSED INSUREDS [ ] NONE Proposed Insured Name Company Amount of insurance Year issued Replacement? Yes No Yes No Yes No Yes No IS THIS INTENDED TO BE A 1035 EXCHANGE? [ ] Yes [ ] No Anticipated Cash Value Transfer $___,___,__
1) Has any proposed insured ever had life, disability or health insurance declined, rated, modified, issued with an exclusion rider, canceled, or not renewed? If yes please explain in REMARKS. [ ] Yes [ ] No 2) Will the insurance applied for on any proposed insured replace or change any existing life or annuity policy? [ ] Yes [ ] No If yes, complete replacement forms, if appropriate. 3) Is there an application for life, accident or sickness insurance now pending or contemplated on any proposed insured in this or any other company? If yes, give details in Agent's Report, Question 3. [ ] Yes [ ] No
U000286 2 LIFE APPLICATION - PART 2 SECTION 14. PERSONAL FINANCIAL STATEMENT A) Gross Income Current Yr $___,___,___ B) Gross Income Previous Yr $___,___,___ C) Net Worth $___,___,___ For over $1 million applied coverage complete a separate financial questionnaire - ------------------------------------------------------------------------------- 15. COMPLETE FOR CORPORATION, PARTNERSHIP, PENSION OR TRUST A) Current Estimated Market Value $__,___,___ B) Assets LIQUID $__,___,___ NONLIQUID $__,___,___ C) Liabilities $__,___,___ D) Net Worth $__,___,___ - ------------------------------------------------------------------------------- SECTION 16. MEDICAL QUESTIONS - EACH QUESTION MUST BE INDIVIDUALLY ASKED AND ANSWERED. Give the details of "Yes" answers below. Identify question number; state signs, symptoms and diagnosis of each illness or injury. List the details and results of any treatment; List the name, full address and dates of each health care provider consulted. To the best of your knowledge, has any Proposed Insured within the last 10 yrs had or been told by a member of the medical profession that he or she had, or has been treated for:
1) Heart murmur, hiqh blood pressure, chest pain, heart attack, stroke, or other disorder of the heart or circulatory system? [ ] Yes [ ] No 2) Asthma, Emphysema, Chronic Bronchitis, Tuberculosis, or any other Respiratory disorder; colitis, ulcer or any other gastrointestinal disorder; jaundice, hepatitis, liver or kidney disorder? [ ] Yes [ ] No 3) Cancer, tumor, polyp, breast, prostate or any other reproductive disorder; or any thyroid or endocrine disorder? [ ] Yes [ ] No 4) Brain, mental, anxiety, depression, suicide attempt, or seizure disorder; or any paralysis? [ ] Yes [ ] No 5) Diabetes, anemia, or any disorder of the blood; sugar, protein, or blood in the urine? [ ] Yes [ ] No 6) Used amphetamines, heroin, cocaine, marijuana, or any other illegal or controlled substance except as prescribe by a physcian? [ ] Yes [ ] No 7) Sought or been advised to seek treatment, limit or discontinue use of alcohol? [ ] Yes [ ] No 8) Been on or are now on prescribed medication or diet? [ ] Yes [ ] No 9) Has any Proposed Insured been told by a member of the medical profession that he or she had a diagnosis of AIDS, ARC or the HIV infection? [ ] Yes [ ] No 10) Had or been advised to have any hospitalization, surgery, or any diagnostic test including, but not limited to, electrocardiograms, blood studies, scans, MRI's or other test? [ ] Yes [ ] No 11) An examination, treatment or consultation with a doctor or health care provider other than above? [ ] Yes [ ] No 12) Have or have had a parent, brother or sister who has/had coronary artery death or disease prior to age 60? [ ] Yes [ ] No
- ------------------------------------------------------------------------------- SECTION 17. DETAILS TO "YES" ANSWERS FOR MEDICAL QUESTIONS SECTION
Name, Address and Phone # of Question # Proposed Insured's Name Date, Diagnosis, Treatment, Results, and Duration Attending Doctor and Hospital - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- ----------------------------- - ---------- ----------------------- ------------------------------------------------- -----------------------------
- ------------------------------------------------------------------------------- SECTION 18. NAME AND ADDRESS OF PERSONAL PHYSICIAN (IF NONE, SO STATE) PRIMARY INSURED JOINT OR OTHER INSURED CHILDREN - --------------------- ------------------------------- ----------------------- - --------------------- ------------------------------- ----------------------- - --------------------- ------------------------------- ----------------------- - --------------------- ------------------------------- ----------------------- - --------------------- ------------------------------- ----------------------- DATE AND REASON LAST DATE AND REASON LAST CONSULTED DATE AND REASON LAST CONSULTED A PHYSICIAN A PHYSICIAN CONSULTED A PHYSICIAN - --------------------- ------------------------------- ----------------------- - --------------------- ------------------------------- ----------------------- - -------------------------------------------------------------------------------- U000286 3 LIFE APPLICATION SECTION 19. RESIDENCY A) Proposed primary insured is a citizen of [ ] USA [ ] Other Country________ Type of VISA_____________ B) How many years has the proposed insured resided in the USA?______ C) Does any proposed insured travel outside the USA? [ ] Yes [ ] No If yes, provide details: include destination, number of trips, duration of each trip, purpose of trip, plans for the next year. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ - ------------------------------------------------------------------------------- SECTION 20. DRIVING RECORD A) Has any Proposed Insured had their driver's license suspended, restricted, revoked, or been cited for a moving violation in the last 5 years? [ ] Yes [ ] No If yes, give reason: _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ B) Has any proposed insured in the last ten years been convicted of a misdemeanor (other than a minor traffic violation) or felony? [ ] Yes [ ] No If yes, give reason: _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ - --------------------------------------------------------------------------------
SECTION 21. SPECIAL ACTIVITIES A) Except as a passenger on a regularly scheduled flight, has any proposed insured flown within the past 3 years, or does any proposed insured have plans to fly in the future? If yes, complete Aviation Questionnaire. [ ] Yes [ ] No B) In the past 3 years has any proposed insured participated in racing (automobile, motorcycle, or boat), underwater or sky diving, hang gliding, mountain or rock climbing? If yes, complete an Avocation Questionnaire. [ ] Yes [ ] No
- -------------------------------------------------------------------------------
SECTION 22. SUITABILITY FOR VARIABLE LIFE INSURANCE POLICY - COMPLETE FOR ALL VARIABLE PLANS A) Have you, the Proposed Insured, and Purchaser, if other than the Proposed Insured, received the current Prospectus for the policy? [ ] Yes [ ] No B) DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR (EXCLUSIVE OF ANY OPTIONAL BENEFITS), THE AMOUNT OF DEATH BENEFIT AND THE ENTIRE AMOUNT OF THE POLICY CASH VALUE MAY INCREASE OR DECREASE DEPENDING UPON THE INVESTMENT EXPERIENCE? [ ] Yes [ ] No C) With this in mind, is the policy in accord with your insurance objectives and your anticipated financial needs? [ ] Yes [ ] No
- ------------------------------------------------------------------------------- SECTION 23. TO BE COMPLETED BY APPLICANT/OWNERR Telephone Transfer Authorization: (See Prospectus for telephone transfer procedures.) Your policy applied for, if issued, will automatically receive telephone transfer privileges described in the applicable prospectus unless instructions to the contrary are indicated below. These privileges allow you to give the registered representative/agent of record for this policy authority to make telephone transfers and to change the allocation of future payments among the Sub-Accounts and the Fixed Account on your behalf according to your instructions. [ ] I do NOT want telephone transfer privileges. Western Reserve Life will not be liable for complying with telephone instructions it reasonably believes to be authentic, nor for any loss, damage, costs or expense in acting on such telephone instructions, and Policyowners will bear the risk of any such loss. Western Reserve Life will employ reasonable procedures to confirm that telephone instructions are genuine. If Western Reserve Life does not employ such procedures, it may be liable for losses due to unauthorized or fraudulent instructions. Such requiring forms of personal identification prior to acting upon such telephone instruction, providing written confirmation of such transactions to policyowners and/or tape recording of telephone transfer request instructions received. - ------------------------------------------------------------------------------- SECTION 24. CERTIFICATION Under penalty of perjury, I (the owner) certify (1) that the number shown in Section l of page 1 or the number shown in Section 3 on page 1 (if the owner is other than the primary insured) is my correct Taxpayer Identification Number, and (2) that I am not subject to backup withholding because (a) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) if I ever was so notified, the IRS has notified me that I am no longer subject to backup withholding. (If the Internal Revenue Service has notified you that you are subject to backup withholding and you have not received notice from the Service that backup withholding has terminated, you should strike out the language in (2) above that you are not subject to backup withholding due to notified payee underreporting.) U000286 4 LIFE APPLICATION 25. AUTHORIZATION TO OBTAIN INFORMATION I authorize any physician, medical professional, hospital, clinic, other medical care institution, the Medical Information Bureau, Inc., insurance company, consumer reporting agency, or employer having information available as to employment, other insurance coverage, medical care, advice or treatment any physical or mental condition regarding me or my children who are to be insured, to give such information to Western Reserve Life of Ohio, its reinsurers, or any consumer reporting agency except the Medical Information Bureau acting on Western Reserve Life's behalf. I authorize Western Reserve Life to obtain an investigative consumer report on me. I understand that this information will be used by Western Reserve Life or its reinsurers, to determine eligibility for life insurance. I agree that this authorization is valid for two and one-half years from the date signed. I know that I have the right to receive a copy of this authorization upon request. I agree that a photographic copy of this authorization is as valid as the original. I have received a copy of this "Notice of Information Practices" attached to this application. I also hereby authorize Western Reserve Life to provide its affiliated companies any and all information provided herein and obtained hereafter on me. This authorization shall be valid from the date signed below until affirmatively withdrawn in writing by myself. [ ] I elect not to have personal information disclosed to non-affiliates of Western Reserve Life for marketing purposes. [ ] I elect to be interviewed if an investigative consumer report is prepared in connection with this application. - ------------------------------------------------------------------------------- SECTION 26. OTHER INSURANCE-TO BE COMPLETED BY THE REGISTERED REPRESENTATIVE 1. Will the policy applied for replace or change any existing life insurance policy or annuity? [ ] Yes [ ] No 2. If replacement of existing insurance is involved, have you complied with all state requirements, including any Disclosure and Comparison Statements? [ ] Yes [ ] No [ ] N/A If "No," explain___________________________________________________________ - ------------------------------------------------------------------------------- SECTION 27. REPRESENTATIONS I represent that the statements and answers in this application are true and complete to the best of my knowledge. I understand that I should consult my own tax and/or legal counsel as to the consequences of using this product in conjunction with my own particular tax or financial plan. It is agreed that: (a) the statements and answers given in this application, and any amendments or application supplements to it or statements made to the medical examiner, will be the basis of any insurance issued; (b) no agent or medical examiner has the authority to make or alter any contract for the Company; (c) if a premium deposit is given in exchange for the Conditional Receipt, no insurance shall take effect unless all of the conditions set out in that receipt are satisfied; (d) if a premium deposit is not given, no insurance shall take effect unless all of the following conditions are satisfied; (1) a policy issued by the Company is delivered to and accepted by the owner during the lifetime of each person to be covered by such policy, (2) the full first premium is paid, and (3) the health and insurability of each person proposed for insurance has not changed since the date of this application Signed at on M M - D D - Y Y Y Y --------------------- ------- --- --- ------- (city) (state) (date)
__________________________________________________________ ____________________________________________ Signature of proposed insured (Child over age 15 must sign) Print Agent Name Social Security # of Agent __________________________________________________________ ___________________________________________ Signature of applicant (owner) other than the Signature of Agent State License # proposed insured (If business insurance, show title of officer and name of firm) __________________________________________________________ _____________ Signature of parent or legal guardian for insured(s) 15 Agent # and under
______________________________________________ Signature of Joint Insured or OIR U000286 5 THIS PAGE IS INTENTIONALLY BLANK 6 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO P.O. BOX 5068 CLEARWATER, FLORIDA 33758 FRAUD WARNING The following states require that insurance applicants acknowledge a fraud warning statement. Please refer to the fraud warning statement for your state as indicated below. ______________________________________________________________________________ FOR APPLICANTS IN ARKANSAS ______________________________________________________________________________ Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or knowingly presents false information in an application for insurance is guilty of a crime and may be subject to fines and confinement in prison. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN COLORADO ______________________________________________________________________________ It is unlawful to knowingly provide false, incomplete, or misleading facts or information to an insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include imprisonment, fines, denial of insurance, and civil damages. Any insurance company or agent of an insurance company who knowingly provides false, incomplete, or misleading facts or information to a policyholder or claimant for the purpose of defrauding or attempting to defraud the policyholder or claimant with regard to a settlement or award payable from insurance proceeds shall be reported to the Colorado Division of Insurance within the Department of Regulatory Agencies. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN FLORIDA ______________________________________________________________________________ Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim or an application containing any false, incomplete, or misleading information is guilty of a felony in the third degree. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN KENTUCKY, OHIO, AND PENNSYLVANIA ______________________________________________________________________________ Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or a statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN NEW JERSEY ______________________________________________________________________________ Any person who includes any false or misleading information on an application for an insurance policy is subject to criminal and civil penalties. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN NEW MEXICO ______________________________________________________________________________ Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or knowingly presents false information in an application for insurance is guilty of a crime and may be subject to fines and criminal penalties. ____________________________________ ___________________ Applicant's Signature Date ______________________________________________________________________________ FOR APPLICANTS IN VIRGINIA ______________________________________________________________________________ It is a crime to knowingly provide false, incomplete or misleading information to an insurance company for the purpose of defrauding the company. Penalties include imprisonment, fines and denial of insurance benefits. ____________________________________ ___________________ Applicant's Signature Date 7 AGENT'S REPORT 1. a) How long have you known the Proposed insured? ___________________________________________________________________________ b) Relationship to Proposed Primary Insured: ___________________________________________________________________________ c) Are you financially responsible for the Proposed Primary Insured: [ ] Yes [ ] No 2. Did you give the "Notice of Information Practices" to the proposed insured? [ ] Yes [ ] No 3. Are you submitting or do you plan to submit an application on any Proposed Insured on this application to any other Company? [ ] Yes [ ] No Company Name _____________________________________________________________ Face amount $_____________________________________________________________ Total face amount to be placed with all companies $_________________________________________________________________________ 4. Medical Examination Are you arranging for the Medical Requirement? [ ] Yes Paramedical Service Used:_________________________________________ [ ] No Request Western Reserve Life order medical reqs. 5. Was money taken with the application? [ ] Yes [ ] No If "yes" was the Conditional Receipt completed and given to the applicant? [ ] Yes [ ] No 6. Did you ask all questions in the presence of the Proposed Insured(s)? [ ] Yes [ ] No 7. Are you aware of anything about the health, habits, avocation, environment or mode of living, except as may be related directly or indirectly to sexual orientation, which any affect the insureability of any person proposed for insurance? [ ] Yes [ ] No 8. If Proposed Insured is a juvenile (ages 0 through 15) (a) Did you personally see child? [ ] Yes [ ] No (b) Does child live with parents? [ ] Yes [ ] No (If "No," explain)________________________________________________________ __________________________________________________________________________ (c) Life insurance in force on parent's life? __________________________________________________________________________ (d) Life Insurance applied for or in force in brothers and sisters? __________________________________________________________________________ Remarks:______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 9. Is Proposed Insured or Owner related to any InterSecurities, Inc. officer or employee? 10. Is Proposed Insured or Owner a licensed Representative of any Broker/Dealer? [ ] Yes [ ] No If "yes" Name and Address of Broker/Dealer _______________________________________________________________ 11. Type of Sale (check two) [ ] Direct [ ] Pension or Profit Sharing [ ] Personal Needs Analysis [ [ Salary Savings (EICS) [ ] Estate Planning [ ] Gift [ ] Business Insurance [ ] Salary Allotment Purpose of Policy [ ] Personal Insurance [ ] Business Insurance [ ] Mortgage [ ] Buy-Sell [ ] Retirement [ ] Key Employee [ ] Education [ ] Executive Bonus [ ] Estate Liquidity [ ] Deferred Compensation [ ] Income to Family [ ] Split Dollar [ ] Cash Accumulation [ ] Reserve Split Dollar [ ] Wealth Replacement [ ] Other 12. Was this plan sold, presented or illustrated as a VEBA, welfare benefit concept as defined under IRC Section 419, Charitable Legacy Plan, Charitable Retirement Plan, Charitable Remainder Life Program, or other similar arrangement? [ ] Yes [ ] No If "Yes", have you completed and attached the required Disclosure, Acknowledgement and Release Form and the accompanying Attorney's Statement? [ ] Yes [ ] No 13. Did you comply with all requirements relative to obtaining informed Consent for HIV and AIDS testing? [ ] Yes [ ] No Writing Agent Name____________________________________________________________ Agent No._____________________________________________________________________ Agent's Telephone Number______________________________________________________ Agent's Social Security Number________________________________________________ Agent's Fax Number ___________________________________________________________ Percent of Agent's Split______________________________________________________ Split Agent Name _____________________________________________________________ Agent No.__________________________Percent of Agent's Split______________ Split Agent Name _____________________________________________________________ Agent No.__________________________Percent of Agent's Split______________ I submit this application assuming full responsibility for delivery of any coverage issued and for immediate transmittal to the Company of the first premium when collected. I know of no condition affecting the insurability of any person proposed for insurance not fully set forth herein. I certify that a Notice of Information Practices statement was given to the Applicant when this application was taken. (If applicable) $_________ HAS BEEN PAID BY THE APPLICANT WITH THIS APPLICATION_______________ ______________________________________________________________________________ Signature of Writing Agent 8 THIS PAGE IS INTENTIONALLY BLANK 10 NOTICE OF INFORMATION PRACTICES Western Reserve Life Assurance Co. of Ohio IMPORTANT: THIS NOTICE MUST BE GIVEN TO THE PROPOSED INSURED(S) WHENEVER AN APPLICATION IS COMPLETED. SOURCES OF INFORMATION We value your privacy. Your application is our main source of information. As a part of this application, we may, at our expense: /bullet/ ask you to have an examination, which may include special tests such as an electrocardiogram, chest x-ray, blood studies, or urinalysis; /bullet/ ask physicians, medical practitioners, clinics, hospitals, or other health care providers for information about you: /bullet/ obtain information from the Medical Information Bureau and/or a consumer reporting agency. Please refer to the lower portion of this notice for further details about this procedures; /bullet/ obtain information from other insurance companies you have applied to in the past. We use this information only for evaluating your insurance application. SAFEGUARDING YOUR PRIVACY We treat all information about you confidentially. Ordinarily, it will be provided to third parties only if you authorize us in writing to do so. In rare instances, we may be required to provide some or all of the information without your consent. We may send information to state insurance departments at their request as part of their regulatory duties, or to law enforcement facilities in response to a summons or subpoena. We may also release information in our files to our reinsurers and to other life insurance companies to whom you have applied for life and health insurance or to whom a claim for benefits may be submitted. On your written request, we will send you a summary or copy of the relevant information obtained in connection with your application. Confidential or detailed medical information will only be disclosed through the physician of your choice, with whom you may discuss it. Also, on your request, a copy of any consumer report we obtain on you will be provided to you by the responsible agency. We will not send you information we might collect in expectation of or in connection with any claim or civil or criminal proceeding such as information relating to suspected fraud or material misrepresentation. We may gather information from you which is used for statistical purposes or marketing research, which will not identify you individually. CORRECTING INFORMATION If you feel any information in our file is incorrect or incomplete, you may ask us to review it. If we agree, we will make any necessary corrections and inform anyone who received such information within the past two years. If we do not agree, you may file a statement of dispute with us. We will send that statement to anyone receiving such information in the past two years. We will also include it in any future disclosure of the disputed information. FAIR CREDIT REPORTING ACT A routine investigative consumer report may possibly be made regarding your general reputation, character, mode of living and personal characteristics. This information may be obtained through personal interviews with your friends, neighbors and associates. Should you desire additional information on the nature and scope of such a report, you may write the Underwriting Department, Western Reserve Life Assurance Co. of Ohio, PO Box 5068, Clearwater, FL 33768. You may also request information concerning the nature and scope of the investigation to be performed. A summary of your rights is set forth on the attached "Notice to Consumer". THE MEDICAL INFORMATION BUREAU PRE-NOTICE The Medical Information Bureau ("MIB") is a nonprofit organization of life insurance companies which operates as an information exchange for its members. We may make reports to the MIB regarding factors affecting your insurability. Underwriting decisions, however, are not reported to the MIB. If you apply to another Bureau member company for life or health insurance or submit a claim for benefits, the MIB will, upon request, provide that company with information in its file. Upon your written request, the MIB will arrange for disclosure to you of any information it has in your file. If you feel the information in the MIB's file is incorrect, you may contact the MIB and seek a correction in accordance with procedures outlined in the Federal Fair Credit Reporting Act. The address of the MIB's office is: MIB, Inc.; P.O. Box 105, Essex Station; Boston, MA 02112. MIB's telephone number: (617) 426-3660 If you would like to know more about how we collect, evaluate and control information about you as one of our applicants for insurance, our sales representatives will be happy to assist you or you may contact us at our office: WESTERN RESERVE LIFE ASSURANCE CO. ANY OTHER P.O. BOX 5068 QUESTIONS? CLEARWATER, FLORIDA 34618-5068 1-813-587-1800 11 NOTICE TO CONSUMER A SUMMARY OF YOUR RIGHTS UNDER THE FAIR CREDIT REPORTING ACT: The Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every consumer reporting agency. Most consumer reporting agencies are credit bureaus that gather and sell information about you-such as where you work and live, if you pay your bills on time, and whether you've been sued, arrested, or filed for bankruptcy-to creditors, employers, and other businesses. The FCRA gives you specific rights in dealing with consumer reporting agencies, and requires them to provide you with a summary of these rights as listed below. You can find the complete text of the FCRA, 15 U.S.C. 1681 et. seq., at the Federal Trade Commission's web site (http://www.ftc.gov). You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights. /bullet/ You must be told if information in your file has been used against you. Anyone who uses information from consumer reporting agencies to take action against you-such as denying an application for credit, insurance, or employment-must give you the name, address, and phone number of the consumer reporting agency that provided the report. /bullet/ You can find out what is in your file. A consumer reporting agency must give you all the information in your file, and a list of everyone who has requested it recently. However, you are not entitled to a "risk score" or "credit score" that is based on information in your file. There is no charge for the report if your application was denied because of information supplied by the consumer reporting agency, and if you request the report within 60 days of receiving the denial notice. You are also entitled to one free report a year if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise a consumer reporting agency may charge you a fee up to $8.00 for a copy of your file. /bullet/ You can dispute inaccurate information with the credit reporting agency. If you tell a credit reporting agency that your file contains inaccurate information, the credit reporting agency must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the credit reporting agency. (The source must advise national credit reporting agencies-to which it provides data-of any error.) The credit reporting agency must give you a written report of the investigation and a copy of your report if the investigation results in any change. If the credit reporting agency's investigation does not resolve the dispute, you may add a brief statement to your file. The credit reporting agency must normally include a summary of your statement in future reports. If an item is deleted or a disputed statement is filed, you may ask that anyone who has recently received your report be notified of the change. /bullet/ Inaccurate information must be corrected or deleted. A consumer reporting agency must remove or correct inaccurate information from its files, usually within 30 days after you dispute it. However, consumer reporting agencies are not required to remove data from your file that is accurate unless it is outdated or cannot be verified. If our dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address, and phone number of the information source. /bullet/ You can dispute inaccurate items with the source of the information. If you tell anyone-such as a creditor who reports to a consumer reporting agency that you dispute the item, they may not then report the information to a consumer reporting agency without including a notice of your dispute. In addition, once you've been notified the source of the error in writing, they may not continue to report it if it is in fact an error. If you have questions or believe your file contains errors, call the toll-free number of the consumer reporting agency. /bullet/ Outdated information may not be reported. In most cases, consumer reporting agencies may not report negative information that is more than seven years old; ten for bankruptcies. /bullet/ Access to your file is limited. Consumer reporting agencies may provide information about you only to those who have a need recognized by the FCRA-usually to consider an application you have submitted to a creditor, insurer, employer, landlord, or other business. /bullet/ Your consent is required for reports that are provided to employers or that contain medical information. Consumer reporting agencies may not report to your employer, or prospective employer, about you without your written consent. Consumer reporting agencies may not divulge medical information about you without your permission. /bullet/ You can stop a consumer reporting agency from including you on lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free number for you to call and tell the consumer reporting agency if you want your name and address excluded from future lists or offers. If you notify the consumer reporting agency through the toll-free number, it must keep you off the lists for two years. If you request and complete the consumer reporting agency form provided for this purpose, you can have your name and address removed indefinitely. /bullet/ You may have additional rights under state law. You may wish to contact a state or local consumer protection agency or a state attorney general to learn those rights. 12 NOTICE TO CONSUMER The FCRA gives several different federal agencies authority to enforce the FCRA. The agencies listed below can assist you with questions and concerns concerning the following types of businesses: FOR QUESTIONS OR CONCERNS REGARDING THE FOLLOWING, PLEASE CONTACT: CRAS, creditors and others not listed below, contact the Federal Trade Commission Bureau of Consumer Protection - FCRA Washington, DC 20580. 202-326-3761. National Banks, federal branches/agencies of foreign banks (word "National" or initials "N.A." appear in or after bank's name), contact the Office of the Comptroller of the Current Compliance Management, Mail Stop 6-6 Washington, DC 20219. 800-613-6743. Federal Reserve System member banks (except national banks, and federal branches/agencies of foreign banks), contact the Federal Reserve Board Division of Consumer & Community Affairs Washington, DC 20551. 202-452-3693. Savings associations and federally chartered savings banks (word "Federal" or initials "F.S.B." appear in federal institution's name), contact the Office of Thrift Supervision Consumer Programs Washington, DC 20552. 800-842-6929. Federal credit unions (words "Federal Credit Union" appear in institution's name), contact the National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314. 703-518-6360. Banks that are state-chartered, or are not Federal Reserve System members, contact the Federal Deposit Insurance Corporation Division of Compliance & Consumer Affairs, Washington, DC 20429. 800-934-FDIC. Air, surface, or rail common carriers regulated by former Civil Aeronautics Board or Interstate Commerce Commission, contact the Department of Transportation Office of Financial Management, Washington DC 20590. 202-366-1306. Activities subject to the Packers and Stockyards Act 1921, contact the Department of Agriculture, Office of Deputy Administrator-GIPSA, Washington, DC 20250. 202-720-7051. 13 -----END PRIVACY-ENHANCED MESSAGE-----