<PAGE> 1
As filed with the Securities and Exchange Commission on January 29, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. _ ( )
POST-EFFECTIVE AMENDMENT NO. _ ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Post-effective Amendment No. 27 (X)
--
(Check appropriate box or boxes)
- --------------------------------------------------------------------------------
WRL SERIES ANNUITY ACCOUNT
(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 34640
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(813) 585-6565
----------------------------------------------------
Thomas E. Pierpan, Esq.
Vice President and Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 34640
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
----------------------------------------
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
amount of the filing fee is $500.
The Registration 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.
<PAGE> 2
WRL SERIES ANNUITY ACCOUNT
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON FORM N-4
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
- ------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . Definitions of Special Terms
3. Synopsis or Highlights . . . . . . . . . . . . . . . . . . . Summary
4. Condensed Financial Information . . . . . . . . . . . . . . . Condensed Financial Information
5. General Description of Registrant, Depositor,
and Portfolio Companies . . . . . . . . . . . . . . . . . . . Western Reserve, the Series Account,
and the Trust; Voting Rights
6. Deductions . . . . . . . . . . . . . . . . . . . . . . . . . Charges and Deductions;
Distribution of the Contracts
7. General Description of
Variable Annuity Contracts . . . . . . . . . . . . . . . . . Western Reserve, the Series Account,
and the Trust; The Contract; Statement of
Additional Information
8. Annuity Period . . . . . . . . . . . . . . . . . . . . . . . The Contract - Annuity Provisions
9. Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . The Contract - Accumulation Provisions - Death
Benefits during the Accumulation Period; The
Contract - Annuity Provisions - Death Benefits
after the Maturity Date
10. Purchases and Contract Value . . . . . . . . . . . . . . . . The Contract - Accumulation Provisions -
Purchase Payments, Net Purchase Payments,
Accumulation Unit Value; Distribution of the
Contracts
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
- ------------- ------------------
<S> <C>
11. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . The Contract - Accumulation Provisions -
Partial Withdrawals and Surrenders; Other
Matters Relating to the Contract - Right to
Examine Contract
12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Tax Matters
13. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
14. Table of Contents of the
Statement of Additional
Information . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Additional Information
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
- ------------- ---------------------
15. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
16. Table of Contents . . . . . . . . . . . . . . . . . . . . . . Table of Contents
17. General Information and
History . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
18. Services . . . . . . . . . . . . . . . . . . . . . . . . . . Custodian; Independent Accountants
19. Purchase of Securities Being
Offered . . . . . . . . . . . . . . . . . . . . . . . . . . . Addition, Deletion, and Substitution of
Investments
20. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . Distribution of Contracts
21. Calculation of Performance Data . . . . . . . . . . . . . . . Calculation of Performance Related Information
22. Annuity Payments . . . . . . . . . . . . . . . . . . . . . . Not Applicable
23. Financial Statements . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
(ii)
<PAGE> 4
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 5
<TABLE>
<S> <C>
MERIDIAN/ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
INVESCO
SECTOR 201 HIGHLAND AVENUE
VARIABLE LARGO, FLORIDA 34640
ANNUITY (800) 851-9777
Flexible Payment (813) 585-6565
Variable Accumulation This Prospectus describes the Meridian/INVESCO Sector Variable Annuity (the
Deferred Annuity "Contract"), a tax deferred variable annuity contract issued by Western
Contract Reserve Life Assurance Co. of Ohio ("Western Reserve").
PROSPECTUS DATED The Contract provides for accumulation of Contract values on a variable
May 1, 1996 basis, a fixed basis, or a combination of both. The Contract also provides
for the payment of periodic annuity payments on a variable basis or a fixed
basis. If the variable basis is chosen, Contract values will be held in the
WRL Series Annuity Account (the "Series Account") and will vary according
to the investment performance of three underlying investment portfolios of
the WRL Series Fund, Inc. (the "Fund") offered through this Prospectus. If
the fixed basis is chosen, Contract values will be allocated to the Fixed
Account and earn interest at no less than the minimum guaranteed rate.
There are currently three Sub-Accounts of the Series Account (in addition
to the Fixed Account) available through this Contract during the
Accumulation Period and after the Maturity Date. Each Sub-Account invests
in one corresponding investment portfolio of the Fund and Net Purchase
Payments will be allocated to one or more of these Sub-Accounts or the
Fixed Account as directed by the Owner. These three investment portfolios
of the Fund are: the Meridian/INVESCO US Sector Portfolio, Meridian/INVESCO
Global Sector Portfolio and Meridian/INVESCO Foreign Sector Portfolio.
This Prospectus sets forth information about the Contract that a
prospective investor should know before investing. Additional information
about the Series Account has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated May 1, 1996,
which is incorporated herein by reference. The Statement of Additional
Information is available upon written or oral request and without charge
from Western Reserve, P.O. Box 9051, Clearwater, FL 34618-9051; telephone
number (800) 851-9777. The table of contents for the Statement of
Additional Information appears on page of this Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED
BY, A BANK OR DEPOSITORY INSTITUTION AND THE CONTRACT IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR
THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL
STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
</TABLE>
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS..........................................................................
SUMMARY...............................................................................................
CONDENSED FINANCIAL INFORMATION.......................................................................
CALCULATION OF YIELDS AND TOTAL RETURNS...............................................................
OTHER PERFORMANCE DATA................................................................................
PUBLISHED RATINGS.....................................................................................
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND.....................................................
- Western Reserve Life Assurance Co. of Ohio.....................................................
- WRL Series Annuity Account.....................................................................
- WRL Series Fund, Inc...........................................................................
CHARGES AND DEDUCTIONS................................................................................
- Withdrawal Charge..............................................................................
- Transfer Charge................................................................................
- Mortality and Expense Risk Charge..............................................................
- Annual Contract Charge.........................................................................
- Administrative Charge..........................................................................
- Premium Taxes..................................................................................
- Deductions for Other Taxes.....................................................................
- Expenses of the Fund...........................................................................
THE CONTRACT..........................................................................................
ACCUMULATION PROVISIONS..........................................................................
- Purchase Payments..............................................................................
- Net Purchase Payments..........................................................................
- Accumulation Unit Value........................................................................
- Experience Factor..............................................................................
- Computing Sub-Account Value....................................................................
- Transfers to and from, and among Allocation Options............................................
- Partial Withdrawals and Surrenders.............................................................
- Contract Loans For 401(a), 401(k), and 403(b) Contracts........................................
- Death Benefits during the Accumulation Period..................................................
ANNUITY PROVISIONS...............................................................................
- Maturity Date and Selection of Annuity Options.................................................
- Fixed Account Annuity Options..................................................................
- Series Account Annuity Options.................................................................
- Death Benefits after the Maturity Date.........................................................
- Improved Annuity Rates.........................................................................
- Proof of Age, Sex, and Survival................................................................
OTHER MATTERS RELATING TO THE CONTRACT................................................................
- Changes in Purchase Payments...................................................................
- Right To Examine Contract......................................................................
- Contract Payments..............................................................................
- Ownership......................................................................................
- Annuitant......................................................................................
- Beneficiary....................................................................................
- Modification or Waiver.........................................................................
FEDERAL TAX MATTERS...................................................................................
- Introduction...................................................................................
- Company Tax Status.............................................................................
- Taxation of Annuities..........................................................................
- Qualified Plans................................................................................
- Additional Considerations......................................................................
THE FIXED ACCOUNT.....................................................................................
- Minimum Guaranteed and Current Interest Rates..................................................
- Fixed Account Value............................................................................
- Allocations, Transfers and Partial Withdrawals.................................................
DISTRIBUTION OF THE CONTRACTS.........................................................................
VOTING RIGHTS.........................................................................................
LEGAL PROCEEDINGS.....................................................................................
STATEMENT OF ADDITIONAL INFORMATION...................................................................
</TABLE>
<PAGE> 7
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<S> <C>
ACCUMULATION PERIOD The period between the Contract Date and the Maturity Date while the Contract is
In Force.
ACCUMULATION UNIT VALUE An accounting unit of measure used to calculate Sub-Account values during the
Accumulation Period.
ADMINISTRATIVE OFFICE Western Reserve's administrative office for variable insurance products, the
address of which is P.O. Box 9051, Clearwater, Florida 34618-9051.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive
annuity payments. The Annuitant may be changed as provided in the Contract's death
benefit provisions and annuity provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the
Annuity Value on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain
Sub-Accounts after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the Contract
remains In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and any Withdrawal Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT BENEFICIARY The person named in the application, or subsequently designated, to become the new
Beneficiary upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the
date that the properly completed application is received at Western Reserve's
Administrative Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any
Anniversary thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that
provides for accumulation of Net Purchase Payments, and options for annuity
payments on a fixed basis. For Contracts issued in the State of Washington, the
Fixed Account is used solely for Contract loans, and is not available for
allocation of Net Purchase Payments or transfers of Annuity Value from the
Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Account.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise
all rights under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to
commence.
NET PURCHASE PAYMENT The Purchase Payment less any applicable premium taxes.
NON-QUALIFIED CONTRACTS Contracts issued other than in connection with retirement plans. Non-Qualified
Contracts do not qualify for special Federal income tax treatment under the Code.
OWNER The person(s) entitled to exercise all rights under the Contract. The Annuitant is
the Owner unless the application states otherwise, or unless a change of ownership
is made at a later time.
PORTFOLIO A separate investment portfolio of the Fund.
</TABLE>
1
<PAGE> 8
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
PURCHASE PAYMENTS Amounts paid by an Owner or on the Owner's behalf to Western Reserve as
consideration for the benefits provided by the Contract.
QUALIFIED CONTRACTS Contracts issued in connection with retirement plans that qualify for special
Federal income tax treatment under the Code.
SERIES ACCOUNT (OR
SEPARATE ACCOUNT) WRL Series Annuity Account, a separate investment account composed of several Sub-
Accounts established to receive and invest Net Purchase Payments not allocated to
the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a
Contract, which value is equal to the total of the values allocable to a Contract
in each of the Sub-Accounts during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a
specified Portfolio and supports the Contracts. Sub-Accounts corresponding to each
applicable Portfolio hold assets under the Contract during the Accumulation
Period. Other Sub-Accounts corresponding to each applicable Portfolio will hold
assets after the Maturity Date if a Series Account annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The period commencing at the end of one Valuation Date and continuing to the end
of the next succeeding Valuation Date.
</TABLE>
2
<PAGE> 9
SUMMARY
This summary provides you with an overview of the tax deferred variable annuity
contract offered by Western Reserve and funded by the Series Account and the
Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be purchased
by submitting a completed application to Western Reserve for its approval. The
Contract provides for accumulation of Annuity Values on a variable basis, a
fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. (See
"THE CONTRACT-- Accumulation Provisions" on page and "--Annuity Provisions" on
page .) (For information about tax status, see "FEDERAL TAX MATTERS" on pages
- .)
RIGHT TO EXAMINE CONTRACT
If an Owner is not satisfied with the Contract, it may be cancelled by returning
it within ten days after receipt together with a written request for
cancellation. In such event, Western Reserve will pay the Owner an amount equal
to the sum of: (i) the Purchase Payments received; plus (or minus) (ii) the
accumulated gains (or losses), if any, in the Series Account for the Contract as
of the date Western Reserve receives the returned Contract. (In certain states,
Western Reserve will refund the Purchase Payments.) (See "OTHER MATTERS RELATING
TO THE CONTRACT--Right to Examine Contract" on page .)
THE FUND
The underlying variable investments for the Contracts are shares of three of the
Portfolios of the Fund, namely: the Meridian/INVESCO US Sector Portfolio,
Meridian/INVESCO Global Sector Portfolio and Meridian/INVESCO Foreign Sector
Portfolio. Western Reserve reserves the right to offer additional investment
portfolios or other mutual funds with differing investment objectives. (See
"WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on
page .)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects. The
initial Purchase Payment generally must accompany the application, and for Non-
Qualified Contracts must be at least $5,000; however, a minimum initial Purchase
Payment of $1,000 is allowed provided the application reflects anticipated
additional annualized periodic Purchase Payments of at least $1,200. For
Individual Retirement Annuities ("IRAs"), the minimum initial Purchase Payment
is $1,000. For Qualified Contracts other than IRAs, the minimum initial Purchase
Payment is $50. For all Contracts, subsequent Purchase Payments must be at least
$50, unless Western Reserve consents to a smaller amount. The maximum amount of
Purchase Payments that may be made in any Contract Year is $1,000,000, unless
Western Reserve consents to a larger amount. Western Reserve reserves the right
to reject any Purchase Payment for any reason permitted by law. (See
"ACCUMULATION PROVISIONS--Purchase Payments" on page .)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $5,000. (See "THE
CONTRACT--Partial Withdrawals and Surrenders" on page .) For Qualified
Contracts issued under Code Section 403(b), certain restrictions will apply.
Moreover, a partial withdrawal or Surrender may have Federal income tax
consequences. (See "FEDERAL TAX MATTERS--Qualified Plans" on pages - .)
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may, however, be assessed
against Annuity Value when partially withdrawn or surrendered.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or Surrender of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of the amount of
each Purchase Payment partially withdrawn or surrendered within seven years of
its payment. Purchase Payments are considered withdrawn or surrendered on a
first-in, first-out basis and Contract value in excess of aggregate Purchase
Payments is considered withdrawn or surrendered before any Purchase Payment. The
charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
---------------------- --------------------
<S> <C>
8% 0-1
7% 2
6% 3
5% 4
4% 5
3% 6
2% 7
0% Over 7
</TABLE>
For the first withdrawal or series of Systematic Partial Withdrawals during each
Contract Year, the Withdrawal Charge is waived for the first 10% of the Annuity
Value that is subject to the Withdrawal Charge. No Withdrawal Charge will be
assessed if Annuity Values are applied to any annuity option under the Contract.
(See "CHARGES AND DEDUCTIONS--Withdrawal Charge" on pages - .) Additionally,
a 10% penalty tax under Code Section 72(q) is currently imposed on partial
withdrawals or Surrenders from Non-Qualified Contracts if such partial
withdrawals or Surrenders are made prior to age 59 1/2 and other exceptions do
not apply. (See "FEDERAL TAX MATTERS" on page .)
3
<PAGE> 10
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western Reserve
imposes a 1.25% per annum charge against all Annuity Value held in the Series
Account. (See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on
page .)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $35 is deducted annually on the Anniversary. (See
"CHARGES AND DEDUCTIONS-- Annual Contract Charge", page .)
ADMINISTRATIVE CHARGE
Western Reserve imposes a daily Administrative Charge equal to an annual rate of
0.15% against all Annuity Value held in the Series Account. (See "CHARGES AND
DEDUCTIONS--Administrative Charge" on page .)
PREMIUM TAXES
No deduction is made for premium taxes unless Western Reserve incurs a premium
tax under state law. Certain states impose premium taxes ranging up to 3.5% of
Purchase Payments. (See "CHARGES AND DEDUCTIONS--Premium Taxes" on page .)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page and
the Prospectus for the Portfolios.)
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract during
the Accumulation Period, as well as the fees and expenses of the Fund.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............ None
Maximum Withdrawal Charge
(as a % of each Purchase Payment
surrendered or partially withdrawn
received within the previous 7 years).... 8%
Transfer Charge
On first 12 transfers each year.......... None
On each transfer thereafter.............. None*
ANNUAL CONTRACT CHARGE....................... $35.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a % of
average Series Account Value)
Mortality and Expense Risk Charge.......... 1.25%
Other Account Fees and Expenses (See
"Administrative Charge," page 18)........ 0.15%
Total Separate Account Annual Expenses..... 1.40%
</TABLE>
- ------------------------------
* Western Reserve reserves the right to impose a $10 charge for each transfer
after the first twelve transfers during any Contract Year.
- --------------------------------------------------------------------------------
Fund Annual Expenses** (as a % of Fund average net assets)
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
US SECTOR GLOBAL SECTOR FOREIGN SECTOR
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
<S> <C> <C> <C>
Management Fees................................. 1.10% 1.10% 1.10%
Other Expenses (after reimbursement)............ 0.20% 0.20% 0.20%
Total Fund Annual Expenses...................... 1.30% 1.30% 1.30%
</TABLE>
- ------------------------------
** Because these Portfolios commenced operations on May 1, 1996, the percentages
set forth as "Other Expenses" and "Total Fund Annual Expenses" are estimates.
The purpose of the preceding Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects charges and expenses of the Separate Account as well as the
Portfolios of the Fund for the fiscal year ended December 31, 1995, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the 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 and the Prospectus for the Portfolios
which accompanies this Prospectus.
EXAMPLES
1. If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Meridian/INVESCO US Sector Sub-Account.................... $ $ $ $
Meridian/INVESCO Global Sector Sub-Account................
Meridian/INVESCO Foreign Sector Sub-Account...............
</TABLE>
4
<PAGE> 11
2. If you annuitize or do not surrender at the end of the applicable time
period (note that annuitization is not available prior to a Contract's fifth
anniversary):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Meridian/INVESCO US Sector Sub-Account.................... $ $ $ $
Meridian/INVESCO Global Sector Sub-Account................
Meridian/INVESCO Foreign Sector Sub-Account...............
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $35 ANNUAL CONTRACT CHARGE BASED ON AN
AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $ , WHICH CONVERTS THAT
CHARGE TO AN ANNUAL RATE OF % OF THE SERIES ACCOUNT VALUE.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
DEATH BENEFIT
If the Annuitant is also the Owner or if the Owner is not a natural person, and
the Annuitant dies at any time before the Maturity Date, a death benefit will be
provided, unless certain elections have been made that would keep the Contract
in force. After the Maturity Date, death benefits will be paid in accordance
with the annuity option then in effect. (See "ACCUMULATION PROVISIONS--Death
Benefits during the Accumulation Period" on page and "ANNUITY
PROVISIONS--Death Benefits after the Maturity Date" on page .)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution of the
Annuity Proceeds after the Maturity Date. The Maturity Date may not be earlier
than the end of the fifth Contract Year and cannot be deferred beyond the
Annuitant reaching Attained Age 90. Subject to these limitations, the default
Maturity Date may be changed by the Owner, at any time prior to that date, by
delivering a written request to Western Reserve. (See "ANNUITY
PROVISIONS--Maturity Date and Selection of Annuity Options" on page .)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the Annuity
Value from a Sub-Account to the Fixed Account, from the Fixed Account to a
Sub-Account (subject to certain restrictions), or among the Sub-Accounts. (For
Contracts issued in the State of Washington, the Fixed Account is not available
for transfers of Annuity Value from the Sub-Accounts.) (See "THE
CONTRACT -- ACCUMULATION PROVISIONS -- Transfers to and from, and among
Allocation Options" on page .) Western Reserve reserves the right to impose a
charge of $10 for each transfer following the first twelve transfers made during
any Contract Year. However, Western Reserve does not currently impose a charge
for transfers, regardless of the number made. Western Reserve may at any time
revoke or modify the transfer privilege. (See "ACCUMULATION
PROVISIONS--Transfers to and from, and among Allocation Options" on page and
"THE FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page .)
FIXED ACCOUNT
Fixed Account Values will be held in the general account of Western Reserve and
earn interest at no less than the minimum guaranteed rate. The Fixed Account is
discussed in the section entitled "THE FIXED ACCOUNT" beginning on page .
CONDENSED FINANCIAL INFORMATION
Because the Meridian/INVESCO US Sector, Meridian/INVESCO Global Sector and
Meridian/INVESCO Foreign Sector Sub-Accounts did not commence operations until
May 1, 1996, there is no condensed financial information for these Sub-Accounts
for the year ended December 31, 1995.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Western Reserve may disclose in advertisements and sales
literature yields and total returns for the Sub-Accounts representing the
Accumulation Period under a Contract. In addition, Western Reserve may, on the
same basis, advertise the effective yield of a Sub-Account under a Contract.
THESE YIELDS AND TOTAL RETURNS ARE BASED ON THE SUB-ACCOUNTS' HISTORICAL
PERFORMANCE ONLY AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. For more
detailed information about the performance data calculations described below,
see the Statement of Additional Information.
5
<PAGE> 12
YIELD
The yield of a Sub-Account refers to the income produced by a hypothetical
Series Account Value in the Sub-Account under a Contract over a specified thirty
day period expressed as a percentage rate of return for that period. The yield
is calculated by assuming that the income produced by the investment during that
thirty day period is produced each thirty day period over a twelve month period
and is shown as a percentage of the Series Account Value.
TOTAL RETURN
The total return of a Sub-Account for a Contract refers to return quotations
assuming a hypothetical Series Account Value in the Sub-Account has been held
for various periods of time including, but not limited to, a period measured
from the date the Sub-Account commenced operations. When a Sub-Account has been
in operation for one, five, and ten years, respectively, the total return for
these periods will be provided. The total return quotations for a hypothetical
Series Account Value will represent the average annual compounded rates of
return that would equate an initial Series Account Value of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods for which total return quotations are provided. FOR PURPOSES OF
THE TOTAL RETURN QUOTATIONS, THE CALCULATIONS TAKE INTO ACCOUNT ALL FEES AND
CHARGES THAT ARE CHARGED TO ALL CONTRACTS DURING THE ACCUMULATION PERIOD. Such
fees and charges include the $35 Annual Contract Charge, calculated on the basis
of an average Series Account Value per Contract of $ , which converts that
charge to an annual rate of % of the Series Account Value. The calculations
also assume a complete surrender as of the end of the period and deduction of
the Withdrawal Charge. THE CALCULATIONS DO NOT INCLUDE A DEDUCTION FOR ANY
PREMIUM TAXES THAT MAY BE APPLICABLE TO A PARTICULAR CONTRACT.
Because the Meridian/INVESCO US Sector, Meridian/ INVESCO Global Sector and
Meridian/INVESCO Foreign Sector Sub-Accounts had not yet commenced operations as
of December 31, 1995, no performance information is provided for these
Sub-Accounts.
OTHER PERFORMANCE DATA
Western Reserve may from time to time disclose in advertisements and sales
literature average annual total return in non-standard formats and cumulative
total return for the Contracts.
Western Reserve may from time to time also disclose in advertisements and sales
literature yields and non-standard total returns for the Sub-Accounts (some of
which do not include Contract and Series Account fees and charges) including
such disclosure for periods prior to the date the Series Account commenced
operations.
For periods prior to the date each Sub-Account commenced operations, performance
information will be calculated based on the performance of the Fund's
corresponding Portfolios and the assumption that the Sub-Accounts were in
existence for the same periods as those indicated for the corresponding Fund's
Portfolios, with a level of fees and charges approximately equal to those
currently assessed against the applicable Sub-Accounts or against Owners'
Contract Values under the Contracts.
NON-STANDARD PERFORMANCE DATA WILL ONLY BE DISCLOSED IF THE STANDARD PERFORMANCE
DATA FOR THE REQUIRED PERIODS IS ALSO DISCLOSED.
Because the Meridian/INVESCO US Sector, Meridian/INVESCO Global Sector,
Meridian/INVESCO Foreign Sector Sub-Accounts did not commence operations until
May 1, 1996, no performance information is provided for these Sub-Accounts.
Western Reserve may compare the performance of each Sub-Account in advertising
and sales literature to the performance of other variable annuity issuers in
general or to the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts whose performance is reported by
Lipper Analytical Services, Inc. ("Lipper"), Variable Annuity Research & Data
Service ("VARDS") 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, VARDS and
Morningstar are independent services which monitor and rank the performances of
variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analysis prepared by Lipper, VARDS and Morningstar each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees or certain expense
deductions at the separate account level into consideration. In addition, VARDS
prepares risk adjusted rankings, which consider the effects of market risk on
total return performance. This type of ranking provides data as to which funds
provide the highest total return within various categories of funds defined by
the degree of risk inherent in their investment objectives.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance or other widely used
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.
6
<PAGE> 13
In addition, Western Reserve may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate indices
measuring the performance of a defined group of securities widely recognized by
investors as representing a particular segment of the securities markets. For
example, Sub-Account performance may be compared with Donoghue Money Market
Institutional Averages (money market rates), Lehman Brothers Corporate Bond
Index (corporate bond interest rates) or Lehman Brothers Government Bond Index
(long-term U.S. Government obligation interest rates).
PUBLISHED RATINGS
Western Reserve may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps Credit Rating
Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings reflect their current
opinion on the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Standard & Poor's and Duff & Phelps provide ratings which measure the
claims-paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations (i.e.,
debt/commercial paper).
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on October 1,
1957. Western Reserve is engaged in the business of writing life insurance
policies and annuity contracts. Western Reserve is admitted to do business in 49
states and the District of Columbia. The Administrative Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
9051, Clearwater, FL 34618-9051. Western Reserve is wholly-owned by First AUSA
Life Insurance Company ("First AUSA"), a stock life insurance company which is
wholly-owned by AEGON USA, Inc. ("AEGON"). AEGON is a financial services holding
company whose primary emphasis is on life and health insurance and annuity and
investment products. AEGON is a wholly-owned indirect subsidiary of AEGON nv, a
Netherlands corporation, which is a publicly traded international insurance
group.
WRL SERIES ANNUITY ACCOUNT
The Series Account was established by Western Reserve as a separate account and
a unit investment trust on April 12, 1988. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The Series
Account will receive and invest Net Purchase Payments paid under the Contracts.
In addition, the Series Account may be used for other variable annuity contracts
issued by Western Reserve.
Although the assets of the Series Account belong to Western Reserve, Ohio
insurance law provides that the assets in the Series Account attributable to
variable annuity contracts are not chargeable with liabilities arising out of
any other business of Western Reserve. However, the assets of the Series Account
are available to cover the liabilities of the general asset account of Western
Reserve to the extent that the Series Account's assets exceed the liabilities
arising under variable annuity contracts supported by it.
The Series Account is currently divided into twenty-two Sub-Accounts, three of
which are offered under this Contract. Each Sub-Account invests exclusively in
shares of a single Portfolio of the Fund. Income and both realized and
unrealized gains or losses from the assets of each Sub-Account are credited to
or charged against that Sub-Account without regard to income, gains or losses
from any other Sub-Account or arising out of any other business of Western
Reserve. Western Reserve may add, delete or substitute investments held by the
Sub-Accounts, and Western Reserve reserves the right to add or remove Sub-
Accounts. Western Reserve further reserves the right to change the investment
objective of any Sub-Account, subject to applicable law as described in the
Statement of Additional Information.
WRL SERIES FUND, INC.
The Series Account currently invests only in shares of the Fund, a series mutual
fund that is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act") as an
open-end diversified management investment company.
The Fund currently has twenty-two Portfolios, three of which are offered under
this Contract: the Meridian/INVESCO US Sector Portfolio, Meridian/INVESCO Global
Sector Portfolio and Meridian/INVESCO Foreign Sector Portfolio. The assets of
each Portfolio are held separate from the assets of the other Portfolios, and
each Portfolio has different investment objectives and policies. Thus, each
Portfolio operates as a separate investment vehicle, and the income or losses of
one Portfolio are unrelated to that of any other Portfolio.
The investment objectives and policies of each Portfolio are summarized below.
There is no assurance that any Portfolio
7
<PAGE> 14
will achieve its stated objective. More detailed information, including a
description of risks, can be found in the Prospectus for the Portfolios, which
should be read carefully.
Meridian/INVESCO US Sector Portfolio: This Portfolio seeks growth of capital by
investing, under normal circumstances, at least 65% of its total assets in the
equity securities of United States issuers.
Meridian/INVESCO Global Sector Portfolio: This Portfolio seeks growth of
capital by following an asset allocation strategy that shifts among a wide range
of asset categories and within them, market sectors.
Meridian/INVESCO Foreign Sector Portfolio: This Portfolio seeks growth of
capital by investing, under normal circumstances, at least 65% of its total
assets in the equity securities of foreign issuers.
Western Reserve serves as investment adviser to the Fund and manages its assets
in accordance with policies, programs and guidelines established by the Board of
Directors of the Fund.
Meridian Investment Management Corporation ("Meridian") and INVESCO Global Asset
Management Limited ("INVESCO") serve as Co-Sub-Advisers to the Portfolios of the
Fund.
Meridian, located at 12835 East Arapahoe Road, Tower II, 7th Floor, Englewood,
Colorado 80112, is a wholly-owned subsidiary of Meridian Management & Research
Corporation ("MM&R"). Michael Hart and Craig Callahan each own 50% of MM&R.
INVESCO, located at Rosebank, 12 Bermudiana Road, Hamilton, Bermuda HMII, is an
indirect wholly-owned subsidiary of INVESCO PLC, a global firm that managed
approximately $ billion in assets as of December 31, 1995.
In performing services under its Sub-Advisory Agreement with Western Reserve,
INVESCO is authorized to use INVESCO-affiliated companies and their employees,
provided that INVESCO supervises and remains fully responsible for all such
services. Pursuant to this authority, INVESCO has entered into agreements with
INVESCO Asset Management Limited, 11 Devonshire Square, London, EC2M 4YR
England, for assistance in managing the Portfolios' investments in foreign
securities, and with INVESCO Trust Company, 7800 East Union Avenue, Denver,
Colorado 80237, for assistance in managing the Portfolios' investments in U.S.
securities. These agreements were approved by the Board of Directors of the
Fund, including a majority of the Directors who were not "interested persons" of
the Fund (as defined in the 1940 Act) on March 18, 1996.
Shares of other Portfolios of the Fund are sold through different variable
annuity contracts offered through the Series Account. In addition to the Series
Account, shares of certain Portfolios of the Fund are sold to the WRL Series
Life Account, a separate account established by Western Reserve for its variable
life insurance policies, the PFL Endeavor Variable Annuity Account, a separate
account of PFL Life Insurance Company, the AUSA Endeavor Variable Annuity
Account, a separate account of AUSA Life Insurance Company Inc., and to the AUSA
Series Life Account, a separate account of AUSA Life Insurance Company, Inc.,
all affiliates of Western Reserve. In addition, Shares of the Meridian/INVESCO
Global Sector Portfolio are offered to other variable annuity contracts offered
through the Series Account. Shares of the Fund may in the future be sold to
other separate accounts, including separate accounts established for variable
life insurance policies or variable annuity contracts issued by Western Reserve
or its affiliates. It is conceivable that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
Western Reserve nor the Fund currently foresees any such disadvantages, either
to variable life insurance policyowners or to variable annuity contract owners,
the Fund's Board of Directors intends to monitor events in order to identify any
material conflicts between the interests of such variable life insurance
policyowners and variable annuity contract owners and to determine what action,
if any, it should take. Such action could include the sale of Fund shares by one
or more of the separate accounts, which could have adverse consequences.
Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in Federal income tax laws, or (3) differences in
voting instructions between those given by variable life insurance policyowners
and those given by variable annuity contract owners. If the Board of Directors
were to conclude that separate funds should be established for variable life and
variable annuity separate accounts, Western Reserve will bear the attendant
expenses, but variable life insurance policyowners and variable annuity contract
owners would no longer have the economies of scale resulting from a larger
combined fund.
CHARGES AND DEDUCTIONS
Certain charges will be deducted in connection with the Contracts to compensate
Western Reserve for (1) administering the Contracts; (2) assuming certain risks
in connection with the Contracts; and (3) incurring expenses in distributing the
Contracts. The nature and amount of these charges are described more fully
below.
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may be assessed against
Annuity Values when partially withdrawn or surrendered. No Withdrawal Charge
will be assessed if Annuity Values are applied to an annuity option provided for
under the Contract.
For the first partial withdrawal or Systematic Partial Withdrawal (see, THE
CONTRACT--ACCUMULATION PROVI-
8
<PAGE> 15
SIONS--Partial Withdrawals and Surrenders, page ) during each Contract Year,
any applicable Withdrawal Charge is waived for the first 10% of the Annuity
Value withdrawn. Thereafter, the full amount of any subsequent partial
withdrawal or Systematic Partial Withdrawal during the remainder of that
Contract Year will be subject to the Withdrawal Charge. However, no waiver of a
Withdrawal Charge will be made in connection with a Surrender. In determining
which amounts withdrawn are subject to the Withdrawal Charge, partial
withdrawals and Surrenders will be deemed made first from Purchase Payments on a
first-in, first-out basis, and then from any Contract earnings.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or surrender determines whether the Withdrawal Charge will be
deducted. The charge is a percentage of each respective Purchase Payment
partially withdrawn or surrendered within seven years of its payment. The charge
is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
---------------------- --------------------
<S> <C>
8%................. 0-1
7%................. 2
6%................. 3
5%................. 4
4%................. 5
3%................. 6
2%................. 7
0%................. Over 7
</TABLE>
For Contracts issued with an appropriate endorsement, if the Owner or a joint
Owner is confined to a nursing care facility (as defined in the endorsement) for
thirty (30) consecutive days or longer, Western Reserve will also waive the
Withdrawal Charge on partial withdrawals or Surrenders as follows. Such
confinement must begin after the Contract Date. Western Reserve must receive
satisfactory written evidence of such confinement within two (2) months after
the confinement ends. Western Reserve will waive the Withdrawal Charge under the
endorsement only for Surrenders and partial withdrawals made during such
confinement or within two (2) months after the confinement ends. The endorsement
is not available in all States.
The Withdrawal Charge is deducted from the Annuity Value by cancelling the
number of Accumulation Units equal to the charge. The amount of the Withdrawal
Charge will be determined as of the date the partial withdrawal or Surrender
payment is processed. In the event of a partial withdrawal, the Owner will
receive the full amount requested, and an amount equal to the Withdrawal Charge
will also be withdrawn in order for the Owner to receive the full amount
requested. For example, if the Owner requests a distribution in the amount of
$100 during the second Contract Year (such distribution is deemed to be made
from the initial Purchase Payment) and the Withdrawal Charge is to be imposed on
the full amount, the Owner would receive $100, the total Annuity Value partially
withdrawn would be $107.53, and the Withdrawal Charge would be $7.53 (which is
7% of $107.53). Any partial withdrawal or Surrender may be subject to tax, and
the Owner should, therefore, consult with his or her tax adviser before
requesting any partial withdrawal or Surrender. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages and "--Qualified Plans" on pages
.)
The Withdrawal Charge is imposed to enable Western Reserve to recover certain
sales expenses it advances, including the cost of printing prospectuses and
sales literature and any advertising costs. The proceeds of this charge may not
be sufficient to cover these expenses. To the extent they are not, Western
Reserve will cover the shortfall from its general account assets, which may
include profits from the Mortality and Expense Risk Charge, described below.
The Withdrawal Charge may be reduced when sales of Contracts are made to a group
of directors, officers and employees of the same employer (including directors,
officers and employees of Western Reserve and its affiliates) as outlined in the
following paragraph. The amount of reduction will depend on factors such as the
size of the group, total Purchase Payments, and other relevant factors that
might tend to reduce expenses incurred in connection with such sales.
The Withdrawal Charge may be eliminated for the sale of the Contract to: (a)
current and retired directors, officers, full-time employees and agents of
Western Reserve and its affiliates; (b) current and retired directors, officers,
full-time employees and registered representatives of InterSecurities, Inc., an
affiliate of Western Reserve, and any broker-dealer which has a sales agreement
with InterSecurities, Inc.; (c) any Trust, pension, profit-sharing or other
employee benefit plan of any of the foregoing persons or entities; (d) current
and retired directors, officers and full-time employees of WRL Series Fund, Inc.
and any IDEX mutual fund, and any investment adviser or investment sub-adviser
thereto; and (e) any member of a family of any of the foregoing (e.g., spouse,
child, sibling, parent or parent-in-law). Western Reserve reserves the right to
modify or terminate this arrangement at any time.
TRANSFER CHARGE
Western Reserve reserves the right to impose a charge of $10 for each transfer
following the first twelve transfers made during any Contract Year. Western
Reserve does not currently impose a charge for transfers, regardless of the
number made. Western Reserve may, at any time, revoke or modify this transfer
privilege.
MORTALITY AND EXPENSE RISK CHARGE
Western Reserve will deduct a daily Mortality and Expense Risk Charge from the
Series Account at an annual rate of 1.25% of the average daily net assets of the
Series Account. Western Reserve assumes two mortality risks:
9
<PAGE> 16
(1) that the annuity rates under the Contracts cannot be changed to the
detriment of Owners even if Annuitants live longer than projected; and (2)
Western Reserve may be obligated to pay a death benefit claim in excess of a
Contract's Cash Value. (See "ANNUITY PROVISIONS-- Improved Annuity Rates" on
page and "ACCUMULATION PROVISIONS--Death Benefits during the Accumulation
Period" on page .) Western Reserve also assumes an expense risk through its
guarantee not to increase the charges for issuing and administering the
Contracts and the Series Account, regardless of its actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual costs,
the loss will be borne by Western Reserve; conversely, if the amount deducted
proves more than sufficient, the excess will be a profit to Western Reserve.
This charge is deducted from the Series Account both during the Accumulation
Period and after the Maturity Date. The Mortality and Expense Risk Charge will
not be assessed against either the Fixed Account Value or monies that have been
applied to purchase a Fixed Account annuity option.
ANNUAL CONTRACT CHARGE
On each Anniversary through the Maturity Date, Western Reserve will deduct an
Annual Contract Charge of $35 as partial compensation for the cost of providing
administrative services under the Contracts. The Annual Contract Charge is
deducted from each Sub-Account and the Fixed Account in proportion to the value
each bears to the Annuity Value. If the Annuity Value is surrendered other than
on an Anniversary, a full $35 fee will be deducted.
Western Reserve does not expect to earn a profit on the Annual Contract Charge.
Therefore, Western Reserve may reduce the amount of the Annual Contract Charge
when sales of Contracts are made to a group of employees of the same employer,
employer group or similar group, under an arrangement which results in a savings
in administrative service expenses. Even if administrative expenses of the
Account increase, Western Reserve guarantees that it will not increase the
amount of the Annual Contract Charge.
ADMINISTRATIVE CHARGE
Western Reserve deducts a daily Administrative Charge from values remaining in
the Series Account at an annual rate of 0.15% of the average daily net assets of
the Series Account for the cost of providing administrative services under the
Contracts and the Account. This charge is deducted from the Series Account both
during the Accumulation Period and after the Maturity Date.
Western Reserve does not expect to earn a profit on the Administrative Charge.
Even if administrative expenses of the Contract and the Account increase,
Western Reserve guarantees that it will not increase the amount of the
Administrative Charge.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax, ranging
up to 3.5% of Purchase Payments. If applicable, and if Western Reserve has
incurred or reasonably expects to incur expenses in respect of premium taxes,
the tax will be deducted, either from the Purchase Payment when received, from
amounts partially withdrawn or surrendered, from death benefit proceeds, or from
the amount applied to effect an annuity at the time annuity payments commence.
Western Reserve will deduct any applicable premium taxes when it incurs them,
but reserves the right to defer deduction to a later date if such deferral is
not detrimental to Owners.
Premium tax rates are subject to change by the respective state legislatures,
administrative interpretations, or judicial acts. The amount of any such tax
will depend on, among other things, the Owner's state of residence, the status
of Western Reserve in that state, and the insurance tax laws of such state.
DEDUCTIONS FOR OTHER TAXES
Currently no charge is made to the Series Account for Federal income taxes
attributable to the Series Account. Western Reserve may, however, make such a
charge in the future subject to obtaining any necessary regulatory approvals.
Charges for any other applicable taxes including any tax or other economic
burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Account may also be made. (See
"FEDERAL TAX MATTERS--Company Tax Status" on page .)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of the
Series Account will reflect the investment advisory fee and other expenses
incurred by the Fund, as described in the Portfolios' Prospectus.
THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase Payments
after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany the
application, and for Non-Qualified Contracts must be at least $5,000; however, a
minimum initial Purchase Payment of $1,000 is allowed provided the application
reflects anticipated additional annualized periodic Purchase Payments of at
least $1,200. For IRAs the minimum initial Purchase Payment is $1,000 and for
Qualified Contracts other than IRAs the minimum initial Purchase Payment is $50.
For all Contracts, subsequent Purchase Payments are not required but may be made
at any time and in any amount provided that each payment is for a minimum of
$50, unless Western Reserve consents to a smaller amount
10
<PAGE> 17
and further provided that total Purchase Payments in any Contract Year do not
exceed $1,000,000, unless Western Reserve consents to a larger amount.
As an accommodation to Owners, Western Reserve will accept transmittal of both
initial and subsequent Purchase Payments of at least $1,000 by wire transfer.
For initial Purchase Payments, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission of an application ("FAXED
Application"). Initial Purchase Payments accepted via wire transfer with FAXED
Application will be invested at the value next determined following receipt.
Initial Purchase Payments made by wire transfer not accompanied by simultaneous
FAXED Application, or accompanied by an incomplete FAXED Application, will be
retained for a period up to five business days while Western Reserve attempts to
obtain the FAXED Application or complete the essential information required to
establish the Contract and allocate the initial Purchase Payment at the
Accumulation Unit Value which will be determined after receipt of the FAXED
Application or information necessary to complete the application. If Western
Reserve cannot obtain the FAXED Application or essential information within five
business days, Western Reserve will return the initial Purchase Payment to the
applicant, unless the applicant consents to allow Western Reserve to retain the
initial Purchase Payment until the required FAXED Application or essential
information is received. When the FAXED Application contains all information
necessary to issue the Contract and allocate the Net Purchase Payment, but the
FAXED Application has not been signed by the Owner, Western Reserve will issue
the Contract and allocate the Net Purchase Payment as indicated in the FAXED
Application. At the same time, Western Reserve will also electronically prepare
a new application form, containing the same information received on the FAXED
Application, for delivery with the Contract to the Owner. Upon delivery, the
Owner will sign the electronically prepared application, which will be retained
by Western Reserve.
In the event the original application with original signature is later received
and the allocation instructions in that application are, for any reason,
inconsistent with those previously designated on the FAXED Application, the
initial Purchase Payment will be reallocated in accordance with the allocation
instructions in the application with original signature at the Accumulation Unit
Value next determined after receipt of such application.
Owners wishing to make payments via bank wire should instruct their banks to
wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention: Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any reason
permitted by law.
NET PURCHASE PAYMENTS
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "Premium Taxes," page .) Initial and subsequent Net Purchase
Payments are allocated according to the Owner's direction among the Sub-Accounts
of the Series Account, to the Fixed Account, or to a combination of both. (For
Contracts issued in the State of Washington, the Fixed Account is not available
for allocation of Net Purchase Payments.) The Owner, or the registered
representative/agent of record for the Contract upon instructions from the
Owner, may change the allocation of subsequent Purchase Payments at any time
upon written notice to Western Reserve, or by telephone by calling Western
Reserve's toll-free number, 1-800-851-9777. Western Reserve will employ the same
procedures to confirm that such telephone instructions are genuine as it employs
regarding transfers among Sub-Accounts and the Fixed Account by telephone.
Western Reserve reserves the right to limit such change to once each Contract
Year. Upon allocation to the Series Account, Net Purchase Payments are converted
into units of the appropriate Sub-Account based upon the Accumulation Unit Value
in that Sub-Account on or following the Valuation Date on which the Purchase
Payment is received at Western Reserve's Administrative Office. (See
"Accumulation Unit Value" below.) If the Contract application and other
information necessary for processing the request to apply the Purchase Payment
(collectively, "application") are complete upon receipt, Western Reserve will
accept the application and apply the initial Net Purchase Payment within two
business days of receipt. If it is incomplete, Western Reserve will attempt to
have it properly completed within five business days of receipt, and if unable
to do so, Western Reserve will inform the prospective purchaser of the reasons
that the application is incomplete and request that the prospective purchaser
consent to Western Reserve retaining the Purchase Payment until the application
is properly completed. If such consent is not obtained, Western Reserve will
immediately return the entire Purchase Payment. Once the application is
complete, Western Reserve will accept it and apply the initial Net Purchase
Payment within two business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the close of a Valuation Period is determined by multiplying
the Accumulation Unit Value for that Sub-Account at the close of the immediately
preceding Valuation Period by the experience factor for that Sub-Account for the
current Valuation Period. The Accumulation Unit Value may increase, de-
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<PAGE> 18
crease, or remain the same from Valuation Period to Valuation Period.
EXPERIENCE FACTOR
During the Accumulation Period, the experience factor measures investment
experience for a Valuation Period. Each Sub-Account has its own distinct
experience factor. In calculating a Sub-Account's experience factor for a
Valuation Period, the net asset value for each share of the corresponding
Portfolio of the Fund at the end of the current Valuation Period is increased by
the amount per portfolio share of any dividend or capital gain distribution
received by the Portfolio during the current Valuation Period and decreased by a
per portfolio share charge for any applicable taxes. The total is then divided
by the net asset value per portfolio share at the end of the preceding Valuation
Period. A charge equal to 1.25% on an annual basis of the net assets for each
day in the Valuation Period is then subtracted to compensate Western Reserve for
certain mortality and expense risks and a charge equal to 0.15% on an annual
basis of the net assets for each day in the Valuation Period is also subtracted
to compensate Western Reserve for certain administrative expenses. (See "CHARGES
AND DEDUCTIONS--Mortality and Expense Risk Charge" on page and
"--Administrative Charge" on page .)
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the number
of Units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated to
the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account or
the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any transfer charge.
Portfolio Share Net Asset Value. The net asset value per share of shares of the
Fund is determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m. Eastern
time), on each day the Exchange is open.
TRANSFERS TO AND FROM, AND AMONG ALLOCATION OPTIONS
Before the Maturity Date, the Owner may, at any time, transfer amounts among
Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts issued in
the State of Washington, the Fixed Account is not available to receive Annuity
Value transferred from the Sub-Accounts.) Transfers may also be made from the
Fixed Account to the Sub-Accounts, subject to certain restrictions. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page .) The
amount of Contract 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 Administrative Office. As
explained in the previous paragraph, the net asset value for each share of the
corresponding Portfolio of any Sub-Account is determined, once daily, as of the
close of the regular business session of the Exchange (usually 4:00 p.m.,
Eastern time), which coincides with the end of each Valuation Period. Therefore,
any transfer request received after 4:00 p.m., Eastern time, on any day the
Exchange is open for business will be processed utilizing the net asset value
for each share of the applicable Portfolio determined as of 4:00 p.m., Eastern
time, on the next day the Exchange is open for business. Cash Value available
for transfer from the Fixed Account will be determined in the same manner.
Owners may make transfer requests in writing, or by telephone. Written requests
must be in a form acceptable to Western Reserve. The registered
representative/agent of record for the Contract may, upon instructions from the
Owner, make telephone transfers upon request without the necessity for the Owner
to have previously authorized telephone transfers in writing. If, for any
reason, an Owner does not want the ability to make transfers by telephone, the
Owner should provide written notice to Western Reserve. All telephone transfers
should be made by calling Western Reserve at our toll-free number
1-800-851-9777.
Western Reserve will not be liable for complying with telephone instructions it
reasonably believes to be authentic, nor for any loss, damage, costs or expense
in acting on such telephone instructions, and Owners will bear the risk of any
such loss. Western Reserve will employ reasonable procedures to confirm that
telephone instructions are genuine. If Western Reserve does not employ such
procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring forms of
personal identification prior to acting upon such telephone instructions,
providing written confirmation of such transactions to Owners and/or tape
recording of telephone transfer request instructions received from Owners.
Western Reserve may, at any time, revoke or modify the transfer privilege.
Western Reserve ordinarily will effect transfers and determine all values in
connection with transfers at the end of the Valuation Period during which the
transfer request is received at Western Reserve's Administrative Office.
Although Western Reserve does not currently impose a charge for transfers,
Western Reserve reserves the right to impose a $10 charge for each transfer
after the first twelve transfers during any Contract Year.
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<PAGE> 19
(See "CHARGES AND DEDUCTIONS--Transfer Charge" on page .)
The Owner may direct Western Reserve to automatically transfer specified amounts
from the Fixed Account on a monthly basis to a Sub-Account. This service is
intended to allow the Owner to utilize "Dollar Cost Averaging," a long-term
investment method which provides for regular, level investments over time.
Western Reserve makes no guarantees that Dollar Cost Averaging will result in a
profit or protect against loss. To qualify for Dollar Cost Averaging, a minimum
of $12,000 must be in the Fixed Account and at least $1,000, in the aggregate,
must be transferred each month. To further qualify for Dollar Cost Averaging
from the Fixed Account, no more than one-twelfth ( 1/12) of the amount in the
Fixed Account at the commencement of Dollar Cost Averaging can be transferred
each month. Other types of transfers from the Fixed Account may also be subject
to certain other restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers
and Partial Withdrawals" on page .) A written election of this service, on a
form provided by Western Reserve, must be completed by the Owner in order to
begin transfers. Once elected, transfers from the Fixed Account will be
processed monthly until the entire value is completely depleted or the Owner
instructs Western Reserve in writing to cancel the monthly transfers. Western
Reserve reserves the right to discontinue offering automatic transfers upon 30
days written notice to Owners.
PARTIAL WITHDRAWALS AND SURRENDERS
1. Partial Withdrawals. Prior to the earlier of the Maturity Date or the death
of the Annuitant (when no Contingent Annuitant has been named), the Owner may
partially withdraw a portion of the Series Account Value upon written request,
complete with all necessary information, to Western Reserve's Administrative
Office. Although partial withdrawals are currently permitted at any time prior
to the Maturity Date, Western Reserve reserves the right to refuse to permit any
partial withdrawals prior to the first Anniversary. No more than one partial
withdrawal during any Contract Year is permitted without the consent of Western
Reserve. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $5,000. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page .) All
partial withdrawals are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the request for
partial withdrawal by Western Reserve at its Administrative Office. Western
Reserve will cancel units equal to the amount requested from each Sub-Account,
and an amount equal to the Withdrawal Charge and any premium tax will also be
withdrawn in order for the Owner to receive the full amount requested. (See
"CHARGES AND DEDUCTIONS--Withdrawal Charge" on pages - and "Premium Taxes" on
page .) The Sub-Accounts for a partial withdrawal may be specified and the
amount requested to be withdrawn from each specified Sub-Account may not exceed
the value of that Sub-Account. If not specified, partial withdrawals will be
based on the Owner's current allocation election.
The Owner may elect in writing on a form provided by Western Reserve to
partially withdraw from the Series Account up to 10% of the Cash Value annually
(10% of the initial Purchase Payment if elected at time of application for a
Contract), in equal monthly payments ("Systematic Partial Withdrawals") of at
least $200 per month. If Systematic Partial Withdrawals are elected at the time
of application for a Contract, a minimum initial Purchase Payment of at least
$25,000 must accompany the application. A subsequent election is subject to the
Contract then having a minimum of $25,000 of Cash Value. Western Reserve will
pay the Systematic Partial Withdrawal amount requested and cancel units equal to
the amount withdrawn from the Sub-Accounts in the same manner as the current Net
Purchase Payment allocation instructions, except no Systematic Partial
Withdrawals are permitted from the Fixed Account. The amount to be partially
withdrawn from each Sub-Account may not exceed the Cash Value of the
Sub-Account. Western Reserve will not process a Systematic Partial Withdrawal if
the Cash Value for the entire Contract would be reduced below $5,000. Systematic
Partial Withdrawals may be discontinued by the Owner at any time by notifying
Western Reserve in writing. Western Reserve reserves the right to discontinue
offering Systematic Partial Withdrawals upon 30 days' written notice to Owners.
Western Reserve also reserves the right to assess a processing fee for this
service. Generally, under a Non-Qualified Contract, Systematic Partial
Withdrawals, like other distributions prior to the Maturity Date, are first
treated as taxable income to the extent that the Contract Value immediately
before a withdrawal exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable. Further under a Non-Qualified
Contract, a 10% penalty tax will generally be imposed on the taxable portion of
a partial withdrawal and a Systematic Partial Withdrawal made prior to the
Owner's age 59 1/2, unless certain exceptions apply. The Owner should,
therefore, consult with his or her tax adviser before requesting any partial
withdrawal or Systematic Partial Withdrawals. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages - .)
2. Surrenders. The Owner may completely surrender the Contract at any time
prior to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct the $35 Annual Contract Charge, any
applicable premium taxes, and any applicable Withdrawal Charge from the
Surrender proceeds.
3. Partial Withdrawals and Surrenders. The amount of any partial withdrawal or
Surrender will be paid promptly, and in
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<PAGE> 20
any event within seven days of receipt of the written request, complete with all
necessary information at Western Reserve's Administrative Office, except that
Western Reserve reserves the right to defer the right of partial withdrawal or
Surrender under certain circumstances. (See "OTHER MATTERS RELATING TO THE
CONTRACT--Contract Payments" on page .) When Western Reserve incurs
extraordinary charges, such as overnight mail expenses, for expediting delivery
of a partial withdrawal or Surrender payment to a Contract Owner, Western
Reserve will deduct such charges from the payment. The current charge for
overnight delivery is $20. For the protection of Owners, all requests for
partial withdrawals or Surrenders of more than $50,000, or where the partial
withdrawal or Surrender proceeds are to be sent to an address other than the
address of record, will require a signature guarantee. All required guarantees
of signatures must be made by a national or state bank, a member firm of a
national stock exchange or any other institution which is an eligible guarantor
institution as defined by rules and regulations of the SEC. If the Owner is a
corporation, partnership, trust or fiduciary, evidence of the authority of the
person seeking redemption is required before the request for withdrawal is
accepted, including withdrawals under $50,000. For additional information,
Owners may call Western Reserve at (800) 851-9777. Partial withdrawals,
Systematic Partial Withdrawals, and Surrenders may be subject to tax including a
10% penalty tax. (See "FEDERAL TAX MATTERS--Taxation of Annuities" on pages
23-24.) For certain Qualified Contracts, a partial withdrawal may require the
consent of the Owner's spouse under the Code and the regulations promulgated
thereunder by the Treasury Department (the "Treasury Regulations"). (See
"FEDERAL TAX MATTERS--Qualified Plans" on pages 24-25.) For Qualified Contracts
issued under Code Section 403(b) and Contracts issued under the Texas Optional
Retirement Program, certain restrictions will apply. (See "FEDERAL TAX
MATTERS--Qualified Plans" on pages 24-25.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the Accumulation
Period, (1) Owners of Contracts used in connection with a Tax Sheltered Annuity
Plan ("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not
subject to the Employee Retirement Income Security Act of 1974, and (2) Owners
of Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a Section
401(k) plan, where a plan trustee is the Owner, may elect a Contract loan
endorsement under which the Owner can receive Contract loans. The availability
of Contract loans will also be governed by the provisions of the TSA Plans or
401 Plans involved. An Owner of a Contract used in connection with a TSA Plan or
401 Plan may be subject to income tax or tax penalties if loans from the plan
are not repaid in accordance with applicable provisions of the Code. In
addition, Internal Revenue Service authorities suggest that a Contract loan may,
at least in certain circumstances, result in adverse tax consequences for the
TSA Plan or 401 Plan. Accordingly, a competent tax advisor should be consulted
before a Contract loan is requested.
If the Contract loan endorsement is available, the Owner can borrow against the
Contract an amount which may not exceed the lesser of (1) 50% of the Cash Value
or (2) $50,000 reduced by the highest outstanding loan balance during the 1-year
period ending on the day before the loan date (determined below). However, if
the Cash Value is less than $20,000, the Owner may borrow against the Contract
the lesser of (1) 80% of the Cash Value or (2) $10,000. In all events, the
minimum amount that can be borrowed is $1,000. The Owner has the sole
responsibility for requesting loans and making loan repayments that comply with
applicable tax requirements.
When a loan is made, an amount equal to the loan will be withdrawn from the
Sub-Accounts specified by the Owner and transferred to the loan reserve. The
loan reserve is part of the Fixed Account used as collateral for any Contract
loan. If no Sub-Accounts are specified, the loan will be made from each
Sub-Account in accordance with the Owner's current purchase payment allocation.
Amounts transferred to the loan reserve do not participate in the investment
experience of the Allocation Options from which they were withdrawn.
All loan requests are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the loan request by
Western Reserve at its Administrative Office. The loan date is the date Western
Reserve processes the loan request. Under its current procedures, Western
Reserve does not charge a fee to cover loan processing and expenses associated
with establishment and administration of the loan reserve. However, Western
Reserve reserves the right to charge such a fee or change it from time to time.
The Contract will be the sole security for the loan. Western Reserve reserves
the right to limit the number of loans an Owner may make during a Contract Year.
On each Contract Anniversary, Western Reserve will compare the amount of the
outstanding loan to the amount in the loan reserve. Western Reserve will also
make this comparison whenever the Owner repays all or part of the loan. At each
such time, if the amount of the outstanding loan (plus any unpaid interest)
exceeds the amount in the loan reserve, Western Reserve will withdraw the
difference from the Contract's Sub-Accounts and transfer it to the loan reserve,
in the same fashion as when a loan is made. If the amount in the loan reserve
exceeds the amount of the outstanding loan, Western Reserve will withdraw the
difference from the loan reserve and transfer it to the Sub-Accounts in
accordance with the Owner's current payment allocation. However, Western Reserve
reserves the right to
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require the transfer to the Fixed Account if the amount was transferred from the
Fixed Account to establish the loan.
If the Contract loan at any time exceeds the Cash Value of the Contract, Western
Reserve will mail a notice to the last known address of the Owner and any
assignee of record. If the excess amount is not paid within 31 days after
mailing of the notice, the Contract will terminate without value.
Loan Interest. Interest on any loan will be at the Contract loan annual rate of
6% in arrears unless, under a 401 Plan, a higher rate is requested by the Owner
in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed effective
annual interest rate of 4% per year. Western Reserve may declare from time to
time higher current interest rates. Different current interest rates may be
applied to the Fixed Account attributable to the loan reserve than to the rest
of the Fixed Account.
Repayment of Loans. Principal and interest must be repaid in substantially
level quarterly payments over a 5-year period or, if the loan is used to acquire
the Owner's principal residence, a 10, 15, or 20-year period, but such an
extended period cannot go beyond the year the Owner attains age 70 1/2. In the
absence of instructions from the plan administrator, if a quarterly installment
under a 401 Plan is not received within a 31-day grace period, a partial
withdrawal will be made from the Contract equal to the quarterly amount of
principal and interest due, and any applicable charges under the Contract,
including a Withdrawal Charge. This distribution may be subject to income tax
and a penalty tax, and may cause the Contract to fail to qualify under Section
403(b) of the Code. (See "Federal Tax Matters -- Qualified Plans," page .)
While the Contract is in force and during the Accumulation Period, any loan may
be repaid in full. If not repaid, loans will automatically reduce the amount of
any death benefit proceeds, the amount payable upon a partial withdrawal or
Surrender of the Contract and the amount applied on the Maturity Date to provide
annuity payments.
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. General
In general, if the Annuitant dies during the Accumulation Period and the Owner
is a natural person other than the Annuitant, the Owner will automatically
become the new Annuitant, the Contract will continue in force, and no death
benefit will be payable to the Beneficiary. If the Annuitant dies during the
Accumulation Period and the Owner is either the same individual as the Annuitant
or other than a natural person, Western Reserve will pay the death benefit
proceeds to the Beneficiary in a lump sum upon receipt of due proof of death,
unless a written Alternative Election, as described below, is made.
2. Amount of Death Benefit Proceeds
If the Annuitant dies during the Accumulation Period and prior to the eighth
Contract Year, and the Owner is either the same person as the Annuitant or other
than a natural person the death benefit proceeds, if payable, will be the
greater of: (i) the Cash Value as of the date Western Reserve receives due proof
of death and a written election as to the method of payment, as described above;
or (ii) the excess of (a) the amount of Purchase Payments paid less (b) any
amounts partially withdrawn from the Contract to pay for partial withdrawals,
increased by 5% on each Contract Anniversary prior to the Owner's age 80
(Annuitant's age 80 if the Owner is not a natural person), up to an amount not
to exceed 200% of the Purchase Payments less partial withdrawals.
If the Annuitant dies during the Accumulation Period and after the seventh
Contract Year, the death benefit proceeds, if payable, will be the greatest of:
(i) the Cash Value as of the date Western Reserve receives due proof of death
and a written election as to the method of payment, as described above; or (ii)
the excess of (a) the amount of Purchase Payments paid less (b) any amounts
partially withdrawn from the Contract to pay for partial withdrawals, increased
by 5% on each Contact Anniversary prior to the Owner's age 80 (Annuitant's age
80 if the Owner is not a natural person), up to an amount not to exceed 200% of
the Purchase Payments less partial withdrawals; or (iii) the Cash Value as of
the seventh Contract Anniversary, less any amounts partially withdrawn from the
Contract after the seventh Contract Year to pay for partial withdrawals. In
certain states, the calculation of death benefit proceeds under item (iii) may
vary. The Contract should be consulted for details.
The Insurance Department of Pennsylvania has disapproved for Contracts issued in
Pennsylvania that portion of item (ii) of the death benefit provision described
in the two preceding paragraphs, which increases the death benefit payable by 5%
on each Contract Anniversary, as contrary to Pennsylvania Insurance Company
Laws. Therefore, for Contracts issued in Pennsylvania, when the amount of death
benefit payable under the Contract is the excess of (a) the amount of Purchase
Payments paid less (b) any amount partially withdrawn from the Contract to pay
for partial withdrawals, such amount of death benefit will not be increased by
5% on each Contract Anniversary.
3. Alternative Elections
If the Beneficiary is entitled to receive the death benefit proceeds and is the
spouse of the deceased Annuitant, then the Beneficiary may elect to become the
new Owner and Annuitant and keep the Contract in force in lieu of receiving the
death benefit proceeds. If the Beneficiary is not the spouse of the deceased
Annuitant and is entitled to receive the death benefit proceeds, the Beneficiary
may elect, in lieu of a lump sum payment, one of the following options that
provide for complete distribution of the death benefit proceeds and termination
of the Contract: (i) within five years of the date of such Annuitant's death;
(ii) over the lifetime of the Beneficiary; or (iii) over a period that does not
exceed the life expectancy of such Beneficiary, as
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<PAGE> 22
defined by the Code and the Treasury Regulations. Options (ii) and (iii) may be
elected only if the Beneficiary is a natural person and payments start within
one year of the date of the Annuitant's death. (For a more detailed explanation
of these requirements, see "FEDERAL TAX MATTERS--Additional Considerations" on
page .) Multiple Beneficiaries may choose individually among any of the three
options.
For (i) and (iii) above, the Annuity Value as of the date Western Reserve
receives due proof of death and a written election as to the method of payment,
if any, will be adjusted to equal the death benefit proceeds, as described
below, and the Contract will remain in force as a deferred annuity until the end
of the elected distribution period. Under option (i) above, Western Reserve
will:
- Allow the Beneficiary, at the time of electing (i), to make a partial
withdrawal. Further partial withdrawals during the duration of the
five-year period are not permitted;
- Allow the Beneficiary, at the time of electing (i), to make "one-time"
transfer of Contract values among Sub-Accounts and to the Fixed Account,
and transfers from the Fixed Account to the Sub-Accounts;
- Not deduct the Annual Contract Charge during the duration of the
five-year period;
- Not apply the Withdrawal Charge in the event of a partial withdrawal upon
election of (i), or upon a total distribution of all Contract values
during or at the end of the five-year period;
- Not allow annuitization during or at the end of the five-year period.
Distribution of all Contract values will be made in a lump sum;
- In the event of the death of the Beneficiary prior to the end of the
five-year period, pay remaining Contract value, according to its value at
the time of payment, to the Beneficiary's estate, unless a Contingent
Beneficiary has been named by the Owner, in which event payment will be
made to the Contingent Beneficiary. The Beneficiary is NOT entitled to
name his or her own beneficiary of the Contract's value.
For option (ii), the Maturity Date will be changed to the date Western Reserve
receives due proof of death and a written election as to the method of payment,
if any, and the death benefit proceeds will be used to purchase annuity payments
under the annuity provisions of the Contract. (See "ANNUITY PROVISIONS" page
.)
4. Death of an Owner Who is not an Annuitant
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Successor Owner is named and alive, the Owner's estate will become the
new Owner. The Cash Value must be distributed within five years of the former
Owner's death; or
(b) If the Successor Owner is alive and is the Owner's spouse, the Contract will
continue with the spouse as the new Owner; or
(c) If the Successor Owner is alive and is not the Owner's spouse, the Successor
Owner will become the new Owner. The Cash Value must be distributed either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person, with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year of the
former Owner's death.
5. Qualified Contracts
If a Qualified Contract is issued to a retirement plan, similar provisions will
apply upon the death of the plan participant. However, the required distribution
rules are more complex in the case of a Qualified Contract held by a plan. Plan
participants should consult a qualified pension or tax advisor concerning the
operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-Qualified Contracts and Qualified
Contracts, the Anniversary nearest the Annuitant's Attained Age 90. However, the
Owner may change the Maturity Date at any time prior to the Maturity Date by
written request. Any new Maturity Date must be at least five years after the
Contract Date, and the Attained Age of the Annuitant as of the new Maturity Date
cannot be greater than 90. After the Maturity Date, no additional purchase
payments, partial withdrawals, transfers, full Surrenders, or change of
Annuitants or annuity options may be made under the Contract. The Qualified
Contract is designed for use with several types of qualified plans. A tax
advisor should be consulted about the use of a Qualified Contract with qualified
plans, including the specified minimum distribution rules applicable to such
plans.
Annuity Payments will be paid under Option D (described on page ), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change the
annuity option by written request at any time prior to the Maturity Date. Thirty
days prior to the Maturity Date, Western Reserve will mail to the Owner a notice
and a form upon which the Owner can select Allocation Options for the annuity
proceeds as of the Maturity Date, which cannot be changed thereafter and will
remain in effect until the Contract terminates. If a Series Account annuity
option is chosen, the Owner must include in the written notice the
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<PAGE> 23
Sub-Account allocation of the Annuity Proceeds as of the Maturity Date. If
Western Reserve does not receive that form or other written notice acceptable to
Western Reserve prior to the Maturity Date, the Contract's existing Allocation
Options will remain in effect until the Contract terminates. The Owner may also,
prior to the Maturity Date, select or change the frequency of annuity payments,
which may be monthly, quarterly, semi-annually or annually, provided that the
annuity option and payment frequency provides for payments of at least $20 per
period. If none of these is possible, a lump sum payment will be made.
The Owner may select one of the Fixed Account annuity options or Series Account
annuity options described below or any alternate form of settlement acceptable
to Western Reserve. Treasury Regulations may preclude the availability of
certain annuity options in connection with certain Qualified Contracts.
Fixed Account annuity options provide equal periodic (monthly, quarterly,
semi-annual or annual) payments of a specific amount that Western Reserve
guarantees will not change. The amount of the periodic annuity payment will be
based on the Annuity Proceeds on the Maturity Date, the annuity option selected
(i.e., the form and duration of payments), the age of the Annuitant or
Beneficiary (or ages of Co-Annuitants), the sex of the Annuitant (except for
certain Qualified Contracts), and the applicable annuity rate shown in the
Contract (or a more favorable current rate available under the Contracts on the
Maturity Date). The annuity rates shown in the Contract are based on the Society
of Actuaries 1983 Table A with projection and an assumed investment rate of 3%.
Western Reserve may in its sole discretion increase the amount of a payment or
payments once payments begin.
Series Account annuity options (i.e., variable annuity options) are similar to
fixed annuity options except that the amount of each periodic payment after the
first will vary to reflect the net investment experience of the Sub-Accounts
selected by the Owner. The amount of the first annuity payment is determined in
the manner described in the Statement of Additional Information for a Series
Account annuity option. Under a Series Account annuity option, the Owner applies
the Annuity Proceeds to one or more of the eleven Sub-Accounts designated to
support annuity payments by purchasing units issued in connection with one or
more of these Sub-Accounts. The number of units purchased is equal to the amount
of the first annuity payment allocated to a particular Sub-Account divided by
the Annuity Unit Value for that Sub-Account on the Maturity Date. The number of
units of a particular Sub-Account supporting payments to an Annuitant never
changes, but the second and subsequent payments will vary with the Annuity Unit
Value because each payment will equal the number of units in each selected
Sub-Account multiplied by the Annuity Unit Value of that Sub-Account on the date
the payment is processed. Annuity Proceeds allocated to Series Account annuity
options are subject to a daily Mortality and Expense Risk Charge of 1.25% per
annum and a daily Administrative Charge of 0.15% per annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity payments,
is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Fund Portfolio would be calculated (see The
Contract--Accumulation Provisions), and then is adjusted to reflect a 5% assumed
investment return. The adjustment results in the Annuity Unit Value increasing
to the extent that the net investment factor increases at greater than an annual
rate of 6.4%. It results in the Annuity Unit Value decreasing to the extent that
the net investment factor decreases or increases at less than an annual rate of
6.4%. Consequently, if, for a monthly periodic payment, the net investment
experience of a Sub-Account for a given month exceeds an annual rate of 6.4%,
the monthly payment from that Sub-Account will be greater than the previous
payment. Likewise, if the net investment experience for that month is less than
an annual rate of 6.4%, the payment will be less than the previous payment.
FIXED ACCOUNT ANNUITY OPTIONS
The following options are available for payment of fixed account monthly annuity
payments.
Option A--Fixed Installments. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
Option B--Life Income. The Annuity Proceeds will be paid in equal installments:
(1) during the lifetime of the Annuitant only ("Life Annuity"); (2) during a 10
year fixed period certain and for the remaining lifetime of the Annuitant
("Certain Period"); or (3) until the sum of installments paid equals the Annuity
Proceeds applied and for the remaining life of the Annuitant ("Installment
Refund").
Option C--Joint and Survivor Life Income. The Annuity Proceeds will be paid
during the joint lifetimes of the Annuitant and a designated Co-Annuitant and
will continue upon the death of the first payee for the remaining lifetime of
the survivor.
SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds will
be used to purchase annuity units of the Sub-Accounts selected by the Owner. The
following Series Account annuity options are available:
Option D--Variable Life Income. The Annuity Proceeds will be paid in
installments determined in accordance with the table set forth in the Contract.
Such installments are payable (1) during the payee's lifetime only ("Variable
Life Annuity"); or (2) during a 10 year fixed period certain and for the payee's
remaining lifetime ("Variable Certain Period").
Option E--Variable Joint and Survivor Life Income. The Annuity Proceeds will be
paid in installments during the
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joint lifetime of two payees and continuing upon the death of the first payee
for the remaining lifetime of the survivor.
DEATH BENEFITS AFTER THE MATURITY DATE
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If a
payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as rapidly
as under the method of distribution being used as of the date of the payee's
death. (For additional information about death benefit payments under the
Contract, see "ACCUMULATION PROVISIONS-- Death Benefits during the Accumulation
Period" on page .)
IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the Maturity
Date, it is offering annuity contracts of the same type and class as the
Contract with more favorable rates than those contained in the Contract's income
tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or Co-
Annuitant is alive and legally qualified to receive such payment. If required by
law to ignore differences in sex of any payee, annuity payments will be
determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase Payment
pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and obtain
a refund equal to the sum of: (1) the Purchase Payments received; plus (or
minus) (2) the accumulated gains (or losses), if any, in the Series Account for
the Contract as of the date Western Reserve receives the returned Contract.
Certain states require a Free-Look Period longer than ten days, either for all
Contract Owners or for certain classes of Contract Owners. The Owner bears the
investment risk during the Free-Look Period. Certain states require Western
Reserve to refund the Purchase Payment, which may be greater or less than the
amount computed above. In these states, Western Reserve bears the investment
risk during the Free-Look Period and will allocate the initial Net Purchase
Payment to the Money Market Sub-Account until the Free-Look Period expires, at
which time the entire value in the Money Market Sub-Account will be allocated to
the Sub-Accounts indicated by the Contract Owner in the application. The
specific terms applicable to a particular Contract will be set forth in the
"Right to Examine Contract" provision of that Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner elects
otherwise. Western Reserve reserves the right to suspend or postpone the right
of partial withdrawal and Surrender or postpone the date of payment for any
period: (1) the New York Stock Exchange is closed, other than customary weekend
and holiday closing, or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC by order permits postponement for the
protection of Owners; or (3) an emergency exists, as determined by the SEC, as a
result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule Page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of the
Owner prior to the death of the Annuitant. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period--2. Death of an Owner
Who is Not an Annuitant, on page .)
With regard to Non-Qualified Contracts, ownership of the Contract may be changed
or the Contract collaterally assigned at any time during the lifetime of the
Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages .) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and shall not be responsible for the validity or effect of
any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior designation
of Successor Owner, but it does not change the Beneficiary or Annuitant.
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With regard to Qualified Contracts, ownership of the Contract generally may be
assigned, but only to the extent permitted by the Code and the terms of the
underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. Prior to
the Maturity Date, if the Owner is a natural person and upon agreement with
Western Reserve, the Owner may elect a different Annuitant. As of the Maturity
Date, and upon agreement with Western Reserve, the Owner may elect a different
Annuitant or, if either annuity Option C or Option E has been selected, add a
joint annuitant. On the Maturity Date, the Annuitant(s) will become the payee(s)
and receive the annuity payments.
BENEFICIARY
The Beneficiary is the person or persons named in the application or as
subsequently changed. The Beneficiary may be changed during the lifetime of the
Annuitant, subject to the rights of any irrevocable Beneficiary. Any change must
be made in writing and received at Western Reserve's Administrative Office and,
if accepted, will be effective as of the date on which signed by the Owner.
Western Reserve assumes no liability for any payments made or actions taken
before the change is received and shall not be responsible for the validity or
effect of the change. Prior to the Maturity Date, if no Beneficiary survives the
Annuitant, the Owner, if living, or the Owner's estate will be the Beneficiary.
The interest of any Beneficiary is subject to that of any assignee. In the case
of certain Qualified Contracts, the Treasury Regulations prescribe certain
limitations on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the contrary,
no Beneficiary may assign any payments under the Contract before such payments
are due. To the extent permitted by law, no payments under the Contract will be
subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. Only statements
in the application can be used to void the Contract or defend a claim. The
statements are considered representations and not warranties. No Contract
provision can be waived or changed except by endorsement. Only the President or
Secretary of Western Reserve can agree to change or waive any provision of the
Contract.
The Contract may not be modified by Western Reserve without the consent of the
Owner, except as may be required to make it conform to any law or regulation or
ruling issued by a governmental agency or to improve the rights and/or benefits
under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans, irregardless of whether the plans qualify
for special Federal income tax treatment. The ultimate effect of Federal income
taxes on the amounts held under a Contract, on annuity payments, and on the
economic benefits to the Owner, Annuitant or Beneficiary depends on Western
Reserve's tax status, on the type of retirement plan for which the Contract is
purchased, and upon the tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Western Reserve's understanding of the Federal income tax laws as
they are currently interpreted. Western Reserve makes no representations
regarding the likelihood of continuation of the Federal income tax laws, the
Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Portfolios.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Because the Series Account is not an entity separate from Western
Reserve and its operations form a part of Western Reserve, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Series Account
are reinvested and taken into account in determining the Annuity Value. Western
Reserve believes that under existing Federal income tax law, the Series
Account's investment income, including realized net capital gains, will not be
taxed to Western Reserve. Based upon this belief, it is anticipated that no
charges will be made against the Series Account for Federal income tax. If any
such charge is made, a Contract's Annuity Value will reflect a deduction for the
charge. Western Reserve reserves the right to make a deduction from the assets
of the Series Account should any tax or other economic burden resulting from the
application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. In General. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is
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not a natural person must include in income any increase in the excess of the
Contract's Annuity Value over investment in the Contract during the taxable
year. However, there are some exceptions to this exception and you may wish to
discuss these with your tax counsel. The taxable portion of a distribution (in
the form of an annuity or lump sum payment) is generally taxed as ordinary
income. For this purpose, the assignment, pledge, or agreement to assign or
pledge any portion of the Annuity Value generally will be treated as a
distribution.
2. Partial Withdrawals and Surrenders. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract (other than a Qualified Contract used in
a retirement plan that qualifies for special Federal income tax treatment under
section 457 of the Code as to which there are special rules), a ratable portion
of the amount received is taxable, generally based on the ratio of the
investment in the Contract to the total Annuity Value. The "investment in the
contract" generally equals the portion, if any, of any Purchase Payments paid by
or on behalf of an individual under a Contract which is not excluded from the
individual's gross income. For Contracts issued in connection with qualified
plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial Withdrawal,
or Surrender under a Non-Qualified Contract before the Maturity Date, amounts
received are first treated as taxable income to the extent that the Annuity
Value immediately before the partial withdrawal, Systematic Partial Withdrawal,
or Surrender exceeds the "investment in the contract" at that time. Any
additional amount partially withdrawn, applied to a Systematic Partial
Withdrawal, or Surrender is not taxable.
3. Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
Annuity Payment that represents the amount by which the Annuity Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity Payments is
taxable. For variable annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
Fixed Annuity Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable until the
recovery of the "investment in the contract", and thereafter the full amount or
each Annuity Payment is taxable. If death occurs before full recovery of the
"investment in the contract", the unrecovered amount may be deducted on the
Annuitant's final tax return.
4. Penalty Tax on Certain Distributions. In the case of a distribution pursuant
to a Non-Qualified Contract, a penalty tax may be imposed equal to 10% of the
amount treated as taxable income. The penalty tax is not imposed in certain
circumstances, including, generally, distributions: (1) made on or after the
date on which the Owner attains age 59 1/2, (2) made as a result of death of the
Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full Surrender
of the Contract, as described above, or (2) if distributed under an annuity
option, they are taxed in the same manner as Annuity Payments, as described
above.
6. Multiple Contracts. All non-qualified, deferred annuity contracts entered
into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one Contract or other annuity
contracts.
7. Transfers, Assignments or Exchanges of Contracts. A transfer of ownership or
assignment of a Contract, the designation of an Annuitant or other Beneficiary
who is not also the Owner, or a change of Annuitant, may result in certain
income or gift tax consequences to the Owner that are beyond the scope of this
discussion. An Owner contemplating any such transfer, assignment or change
should contact a competent tax adviser in respect to the potential tax effects
of such a transaction.
8. Possible Changes in Taxation. In the past years, legislation has been
proposed that would have adversely modified the Federal taxation of certain
annuities. For example, one such proposal would have changed the tax treatment
of non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
Prospectus Congress is not considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as the IRS regulations, revenue
rulings, judi-
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cial decisions, etc.). Moreover, it is also possible that any change could be
effective prior to the date of the change.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions (including special rules
for certain lump sum distributions). Adverse tax consequences may result from
contributions in excess of specified limits, distributions prior to age 59 1/2
(subject to certain exceptions), distributions that do not conform to specified
minimum distribution rules, aggregate distributions in excess of a specified
annual amount, and in certain other circumstances. Therefore, Western Reserve
makes no attempt to provide more than general information about use of the
Contract with the various types of qualified plans. Owners and participants
under qualified plans as well as Annuitants and Beneficiaries are cautioned that
the rights of any person to any benefits under qualified plans may be subject to
the terms and conditions of the plan themselves, regardless of the terms and
conditions of the Contract issued in connection therewith. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into our Contract administration procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Purchasers of Contracts for use with any qualified plan should seek competent
legal and tax advice regarding the suitability of the Contract therefor.
1. (a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be subject
to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions, and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59 1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
(b) Restrictions Under the Texas Optional Retirement Programs. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program (ORP) to withdraw their interest in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
2. Individual Retirement Annuities. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA". Individual Retirement
Annuities are subject to limitation on the amount which may be contributed and
deducted and the time when distributions may commence. In addition,
distributions from certain other types of qualified plans may be placed into an
Individual Retirement Annuity on a tax-deferred basis. The Service has not
reviewed the Contract for qualification as an IRA, and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
3. Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and permit self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to provide benefits under the plans. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax or other legal consequences to
the plan, to the participant or to both may result if this Contract is assigned
or transferred to any individual as a means to provide benefit payments.
4. Deferred Compensation Plans. Section 457 of the Code, although not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. All such investments, however, are
owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
section 457 plan obligations. In general, all amounts received under a section
457 plan are taxable and are subject to federal income tax withholding as wages.
5. Distributions from Qualified Plans. Under the tax qualification rules for
Section 401(a), 403(b), 408 and 457 plans, distributions generally must commence
no later than April 1 of the calendar year following the calendar year in which
the Owner (or plan participant) reaches age 70 1/2, and must be made in a
specified form and manner. Special
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rules and other restrictions may apply depending on the type of plan and the
particular circumstances. Each Owner is responsible for requesting distributions
under the Contract that satisfy applicable tax rules, and should consult a
qualified tax adviser.
The above description of Federal income tax consequences pertaining to the
different types of qualified plans that may be funded by the Contracts is only a
brief summary and is not intended as tax advice. The rules governing the
provisions of qualified plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for qualified plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of a
Contract in connection with a qualified plan should first consult a qualified
and competent tax advisor with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. Diversification. Section 817(h) of the Code requires that the investments of
the Series Account must be "adequately diversified" in accordance with Treasury
Regulations in order for the Contracts to qualify as annuity contracts under
Section 72 of the Code. The Series Account, through the Fund, intends to comply
with the diversification requirements prescribed by the Treasury in Reg. Sec.
1.817.5, which affect how the Fund's assets may be invested. Western Reserve
believes the Series Account will, thus, meet the diversification requirements of
Section 817(h). If the Series Account does not meet those diversification
requirements, Owners would be taxed currently on any investment income under the
Contract.
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for Federal income tax purposes, of the assets of the separate
account used to support their contracts. In those circumstances, income and
gains from the separate account assets would be includable in the variable
annuity contract owner's gross income. The Treasury Department has stated in
published rulings that a variable annuity contract owner will be considered the
owner of separate account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement further
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." As of the
date of this Prospectus, no such guidance has been issued.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners were not owners of separate account assets. For example,
the owner of a Contract has the choice of more sub-accounts in which to allocate
net purchase payments and Contract values, and may be able to transfer among
sub-accounts more frequently than in such rulings. These differences could
result in an Owner being treated as the owner of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Contract as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Series Account.
2. Distribution-at-Death Rules. The Code also requires Non-Qualified Contracts
to contain specific provisions for distribution of the Contract proceeds upon
the death of the Owner. In order to be treated as an annuity contract for
Federal income tax purposes, the Code requires that such Contract provide that
(a) if any Owner dies on or after the Maturity Date and before the entire
interest in the Contract has been distributed, the remaining portion must be
distributed at least as rapidly as under the method in effect on the Owner's
death; and (b) if any Owner dies before the Maturity Date, the entire interest
in the Contract must generally be distributed within 5 years after the Owner's
date of death. These requirements will be considered satisfied if the entire
interest of the Contract is used to purchase an immediate annuity under which
payments will begin within one year of the Owner's death and will be made for
the life of the Beneficiary or for a period not extending beyond the life
expectancy of the Beneficiary. The Owner's Beneficiary is the person to whom
ownership of the Contract passes because of death and must be a natural person.
(In the Contract, the successor owner is the Owner's Beneficiary.) If the
Beneficiary is the Owner's surviving spouse, the Contract may be continued with
the surviving spouse as the new Owner. Non-Qualified Contracts will be reviewed
and modified, if necessary, to attempt to assure that they comply with the Code
requirements when clarified by regulation or otherwise. Other rules may apply to
Qualified Contracts.
3. Withholding. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring withholding.
Effective January 1, 1993, certain distributions from Section 401(a),
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403(a) and 403(b) plans are subject to mandatory withholding.
4. Section 1035 Exchanges. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another. If
the surrendered Contract was issued prior to August 14, 1982, the tax rules that
formerly provided that the Surrender was taxable only to the extent the amount
received exceeds the Owner's investment in the Contract will continue to apply
to amounts allocable to investment in the Contract before August 14, 1982. In
contrast, Contracts issued on or after January 19, 1985 in a Code Section 1035
exchange are treated as new Contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to Code Section
1035 transactions. Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisors.
5. Diversification and Qualified Plans. Code Section 817(h) applies to variable
annuity contracts other than pension plan contracts. The regulations reiterate
that the diversification requirements do not apply to pension plan contracts.
All of the qualified retirement plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (i.e., the Fund) will be structured to
comply with the diversification standards because it serves as the investment
vehicle for Non-Qualified Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The Insurance
Department of the State of Washington has disapproved, for Contracts issued in
Washington, the ability both to allocate Net Purchase Payments to the Fixed
Account and to transfer Annuity Value from Sub-Accounts or the Series Account to
the Fixed Account. Because of exemptive and exclusionary provisions, interests
in the Fixed Account have not been registered under the Securities Act of 1933
and neither the Fixed Account nor the general account has been registered as an
investment company under the 1940 Act. Accordingly, neither the Fixed Account,
the general account or any interests therein are generally subject to the
provisions of these acts, and Western Reserve has been advised that the staff of
the SEC has not reviewed the disclosure in this Prospectus relating to the Fixed
Account. Disclosure regarding the Fixed Account may, however, be subject to
certain generally applicable provisions of the Federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 4%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Because
Western Reserve, at its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the Fixed
Account Value will be credited with different current interest rates.
Western Reserve further guarantees that when a higher or lower current interest
rate is declared on an allocation to the Fixed Account Value, that new interest
rate will be guaranteed on such allocation for at least a one year period
measured from the date of each Purchase Payment or transfer (the "Guarantee
Period"). At the end of the Guarantee Period, Western Reserve reserves the right
to declare a new current interest rate on such allocation and accrued interest
thereon (which may be a different current interest rate than the current
interest rate on new allocations to the Fixed Account Value on that date). The
rate declared on such allocation and accrued interest thereon at the end of each
Guarantee Period will be guaranteed again for another Guarantee Period. At the
end of any Guarantee Period, any interest credited on the Fixed Account Value in
excess of the minimum guaranteed rate of 4% per year will be determined in the
sole discretion of Western Reserve. The Owner assumes the risk that interest
credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting interest
from time to time, provided that such changes will not have the effect of
reducing the guaranteed rate of interest below 4% per annum.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
23
<PAGE> 30
4. Any amounts withdrawn from the Fixed Account to pay for partial withdrawals;
minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
transfer charges, if any.
For Contracts issued in the State of Washington, the Fixed Account Value at the
end of any Valuation Period is equal to:
1. Any amounts transferred from a Sub-Account to the Fixed Account to establish
a loan reserve; plus
2. Total interest credited to the Loan Reserve.
ALLOCATIONS, TRANSFERS AND PARTIAL WITHDRAWALS
Net Purchase Payments and transfers to the Fixed Account will be allocated to
the Fixed Account on the first Valuation Date on or following the date Western
Reserve receives the payment or transfer request at its Administrative Office,
except that any allocation of the initial Net Purchase Payment will take place
on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each Contract
Year. The amount that may be transferred is the greater of (a) 25% of the amount
in the Fixed Account, or (b) the amount transferred in the prior Contract Year
from the Fixed Account, unless Western Reserve consents otherwise. No transfer
charge will apply to transfers from the Fixed Account to a Sub-Account. Amounts
may be withdrawn from the Fixed Account for partial withdrawals and Surrenders
only upon written request and (other than for Surrenders) only with Western
Reserve's consent. Western Reserve further reserves the right to defer payment
of transfers, partial withdrawals, or Surrenders from the Fixed Account for up
to six months. In addition, Contract provisions relating to transfers, partial
withdrawals or Surrenders from the Series Account will also apply to the Fixed
Account. Dollar Cost Averaging may be done from the Fixed Account. (See "THE
CONTRACT--ACCUMULATION PROVISIONS--Transfers to and from, and among Allocation
Options" on page .)
For Contracts issued in the State of Washington, the Fixed Account is not
available either for allocation of Net Purchase Payments or for transfer of
Annuity Value from the Sub-Accounts.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by individuals who, in addition to being licensed as
life insurance agents for Western Reserve, are also registered representatives
of InterSecurities, Inc. which has the same address as Western Reserve, an
affiliate of Western Reserve and the principal underwriter of the Contracts, or
of broker-dealers who have entered into written sales agreements with the
principal underwriter. InterSecurities, Inc. is registered with the SEC under
the Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. No amounts have been retained by InterSecurities,
Inc. for acting as principal underwriter for the Contracts. Broker-dealers will
generally receive sales commissions of up to 6% of Purchase Payments. In
addition, certain production, persistency and managerial bonuses may be paid.
Subject to applicable Federal and state laws and regulations, Western Reserve
may also pay compensation to banks and other financial institutions for their
services in connection with the sale and servicing of the Contracts. The level
of such compensation will not exceed that paid to broker-dealers for their sale
of the Contracts. The offering of Contracts will be made on a continuing basis.
VOTING RIGHTS
To the extent required by law, Western Reserve will vote the Fund shares held in
the Series Account at shareholder meetings of the Fund in accordance with
instructions received from persons having voting interests in the corresponding
Sub-Accounts of the Series Account. Except as required by the 1940 Act, the Fund
does not hold regular or special shareholder meetings. If the 1940 Act or any
regulation thereunder should be amended or if the present interpretation thereof
should change, and as a result Western Reserve determines that it is permitted
to vote the Fund shares in its own right, it may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated
separately for each Sub-Account, and will be determined during the Accumulation
Period by dividing the portion of the Annuity Value in that Sub-Account by $100.
Fractional shares will be counted. After the Maturity Date, the number of votes
that an Annuitant has the right to instruct will be calculated based on the
liability for future variable annuity payments. This liability will be
calculated on the basis of the mortality assumptions used in determining the
number of units purchased by the Annuitant. Because this liability generally
declines as any Annuitant ages, the number of votes attributable to that
Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the right
to instruct will be determined as of the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions are
received and Fund shares that are not attributable to Owners in proportion to
the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain on any item to
be voted upon will reduce the votes eligible to be cast by Western Reserve.
24
<PAGE> 31
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Series Account is a party
or to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account. InterSecurities, Inc., the
Series Account's principal underwriter, is not presently a party to any legal
proceedings that are likely to have a material adverse effect upon its ability
to perform its contract with the Series Account.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 34618-9051; telephone number (800) 851-9777.
WRL00102-05/96
25
<PAGE> 32
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE> 33
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
Flexible Payment Variable
Deferred Annuity Contract
issued by
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 34640
Telephone: (800) 851-9777
(813) 585-6565
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Meridian/INVESCO Sector Variable Annuity
Prospectus, dated May 1, 1996, which is available without charge by contacting
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") at P.O. Box 9051,
Clearwater, Florida 34618-9051 or at the telephone numbers above.
May 1, 1996
WRL00103-05/96
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Custodian.............................................................................. 3
Independent Accountants................................................................ 3
Legal Matters.......................................................................... 3
Calculation of Performance Related Information......................................... 3
Addition, Deletion, and Substitution of Investments.................................... 5
Calculation of Variable Annuity Payments............................................... 6
Financial Statements................................................................... 7
</TABLE>
2
<PAGE> 35
CUSTODIAN
The assets of WRL Series Annuity Account (the "Series Account") are held by
Western Reserve. The assets of the Series Account are kept physically segregated
and held apart from the general account and any other separate accounts of
Western Reserve. Western Reserve maintains records of all purchases and
redemptions of shares of the WRL Series Fund, Inc. (the "Fund"). Additional
protection for the assets of the Series Account is provided by a blanket
fidelity bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") and its
affiliates, including Western Reserve in the amount of $11 million (subject to a
$1 million deductible), covering all of the employees of AEGON U.S. and its
affiliates, to include Western Reserve. A Stockbrokers Blanket Bond, issued to
AEGON U.S., providing fidelity coverage, covers the activities of registered
representatives of InterSecurities, Inc. to a limit of $11,000,000, subject to a
$100,000 deductible.
INDEPENDENT ACCOUNTANTS
The accounting firm of Price Waterhouse LLP, independent accountants,
provided audit services to the Series Account for the year ended December 31,
1995. The principal business address of Price Waterhouse LLP is 1055 Broadway,
Kansas City, Missouri 64105. The accounting firm of Ernst & Young LLP,
independent auditors, provided audit services to Western Reserve for the year
ended December 31, 1995. The principal business address of Ernst & Young LLP is
801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764.
LEGAL MATTERS
Sutherland, Asbill & Brennan, Washington, D.C., has provided advice on
certain legal matters concerning Federal securities laws in connection with the
Contracts. All matters of Ohio law pertaining to the Contracts, including the
validity of the Contracts and Western Reserve's right to issue the Contracts
under Ohio insurance law, have been passed upon by Thomas E. Pierpan, Esq., Vice
President and Counsel of Western Reserve.
CALCULATION OF PERFORMANCE RELATED INFORMATION
A. Total Return and Yield Quotations for the Meridian/INVESCO Global
Sector, Meridian/INVESCO US Sector, and Meridian/INVESCO Foreign Sector
Sub-Accounts
The total return quotations set forth in the Prospectus for the
Sub-Accounts holding assets for the Contracts during the Accumulation Period are
average annual total return quotations for the one, five, and ten-year periods
(or, while the Series Account or a Sub-Account has been in existence for a
period of less than one, five or ten years, for such lesser period) ended on the
date of the most recent balance sheet of the Series Account, and for the period
from the date the Sub-Accounts commenced operations until the aforesaid date.
The quotations are computed by determining the average annual compounded rates
of return over the relevant periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P(1 + T)n = ERV
<TABLE>
<C> <C> <S>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the particular period at the end of the
particular period
</TABLE>
3
<PAGE> 36
For purposes of the total return quotations for the Sub-Accounts, the
calculations take into account all fees that are charged to all Owner accounts
during the Accumulation Period. Such fees include the $35 Annual Contract
charge, calculated on the basis of an average Series Account Value per Contract
of $ , which converts that charge to an annual rate of % of the Series
Account Value. The calculations also assume a complete redemption as of the end
of the particular period. The calculations do not reflect any deductions for
premium taxes, the Withdrawal Charge, or any Transfer Charges that may be
applicable to a particular Contract.
The yield quotations for the Sub-Accounts representing the accumulation
period set forth in the Prospectus is based on the thirty-day period ended on
the date of the most recent balance sheet of the Series Account and are computed
by dividing the net investment income per unit earned during the period by the
maximum offering price per unit on the last date of the period, according to the
following formula:
a-b
YIELD = 2[(cd + 1)6 - 1]
<TABLE>
<S> <C> <C> <C>
Where: a = net investment income earned during the period by the corresponding
Portfolio of the Fund attributable to shares owned by the Sub-Account
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of units outstanding during the period
d = the maximum offering price per unit on the last day of the period
</TABLE>
For purposes of the yield quotations for the Sub-Accounts, the calculations
take into effect all fees that are charged to all Owner accounts during the
Accumulation Period. Such fees include the $35 Annual Contract Charge,
calculated on the basis of an average Series Account Value per Contract of
$ , which converts that charge to an annual rate of % of the Series
Account Value. The calculations do not take into account any premium taxes, the
Withdrawal Charge or any transfer charges.
Premium taxes currently range from 0% to 3.5% of Purchase Payments
depending upon the jurisdiction in which the Contract is delivered. A Withdrawal
Charge may be assessed at the time of redemption in an amount ranging up to 8%
of the requested redemption amount, with the specific percentage applicable to a
particular redemption depending on the length of time Purchase Payments were
held under the Contract, and whether redemptions had been previously made during
that Contract Year. (See "Charges and Deductions - Withdrawal Charge" on page
of the Prospectus.)
B. Other Performance Data
Western Reserve may from time to time disclose average annual total return
in non-standard formats and cumulative total return for Contracts funded by
these Sub-Accounts.
Western Reserve may from time to time also disclose in advertisements and
sales literature yield, standard total returns, and non-standard total returns
for the Fund's Portfolios, which do not include Contract and Series Account fees
and charges, including such disclosure for the Sub-Accounts for periods prior to
the date the Sub-Accounts commenced operations. For periods prior to the date
each Sub-Account commenced operations, performance information will be
calculated based on the performance of the Fund's corresponding Portfolios that
commenced operations prior to each Sub-Account, and the assumption that each
Sub-Account was in existence for the same periods as those indicated for each
respective Portfolio, with a level of fees and charges equal to those currently
assessed against each Sub-Account and the Contract. The Prospectus contains a
table which shows average annual total returns for periods prior to the date
each Sub-Account commenced operations. The Prospectus also contains a similar
table for the same periods which shows average annual total returns which do not
reflect any charge on amounts partially withdrawn or surrendered. The total
returns in the second table are calculated in exactly the same manner as those
in the preceding table, except that the ending redeemable value of the
hypothetical account for the
4
<PAGE> 37
periods is replaced with an ending value for the periods that does not take into
account any charge on amounts partially withdrawn or surrendered. Non-standard
performance data will only be disclosed if the standard performance data for the
required periods is also disclosed.
C. Advertising and Sales Literature
From time to time Western Reserve may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel Prize
winning economist Harry Markowitz. The basic assumptions of Modern Portfolio
Theory are the selection of individual investments has little impact on
portfolio performance, market timing strategies seldom work, markets are
efficient, and portfolio selection should be made among asset classes. Modern
Portfolio Theory allows an investor to determine an efficient portfolio
selection that will provide a higher return with the same risk or the same
return with lower risk.
When presenting the asset allocation process Western Reserve may outline
the process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. Western Reserve may classify investors into four categories based on their
risk tolerance and will quote various industry experts on which types of
investments are best suited to each of the four risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services and any other expert which has been deemed by the
Company to be appropriate. Western Reserve may also provide a historical
overview of the performance of a variety of investment market indices, the
performance of these indices over time, and the performance of different asset
classes, such as stocks, bonds, cash equivalents, etc. Western Reserve may also
discuss investment volatility including the range of returns for different asset
classes and over different time horizons, and the correlation between the
returns of different asset classes. Western Reserve may also discuss the basis
of portfolio optimization including the required inputs and the construction of
efficient portfolios using sophisticated computer-based techniques. Finally,
Western Reserve may describe various investment strategies and methods of
implementation, the periodic rebalancing of diversified portfolios, the use of
dollar cost averaging techniques, a comparison of the tax impact of purchase
payments made on a "before tax" basis through a tax-qualified plan with those
made on an "after tax" basis outside of a tax-qualified plan, and a comparison
of tax-deferred versus non tax-deferred accumulation of purchase payments.
ADDITION, DELETION, AND SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right, subject to compliance with applicable
law, to make additions to, deletions from or substitutions for the shares that
are held by the Series Account or that the Series Account may purchase. Western
Reserve reserves the right to eliminate the shares of any of the Portfolios of
the Fund and to substitute shares of another Portfolio of the Fund or of another
open-end registered investment company, if the shares of a Portfolio are no
longer available for investment, or if in Western Reserve's judgment further
investment in any Portfolio should become inappropriate in view of the purposes
of the Series Account. Western Reserve will not, however, substitute any shares
attributable to an Owner's interest in a Sub-Account without notice to and prior
approval of the Securities and Exchange Commission, to the extent required by
the Investment Company Act of 1940, as amended (the "1940 Act") or other
applicable law.
Western Reserve also reserves the right to establish additional
Sub-Accounts, 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 Owners on a basis to be determined by Western
Reserve. Western Reserve may also eliminate one or more Sub-Accounts if, in its
sole discretion, marketing, tax or investment conditions warrant.
In the event of any such substitution or change, Western Reserve may by
appropriate endorsement make such changes in the Contracts and other annuity
contracts 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
5
<PAGE> 38
having voting rights under the Contracts, the Series Account may be operated as
a management company under the 1940 Act, or, subject to any required approval,
it may be deregistered under that Act in the event such registration is no
longer required.
Western Reserve reserves the right to change the investment objective of
any Sub-Account. Additionally, if required by law or regulation, Western Reserve
will not materially change an investment objective of the Series Account or of a
Portfolio designated for a Sub-Account unless a statement of the change is filed
with and approved by the appropriate insurance official of the state of Western
Reserve's domicile or deemed approved in accordance with such law or regulation.
CALCULATION OF VARIABLE ANNUITY PAYMENTS
Under a Series Account annuity option, the Owner applies his or her Annuity
Proceeds (or a portion thereof) on the Maturity Date to one or more of the three
Sub-Accounts designated to support annuity payments by purchasing units issued
in connection with each Sub-Account selected by the Owner. The Annuity Unit
Value of any Sub-Account will increase or decrease in accordance with the
investment experience of that Sub-Account. The Annuity Unit Value of any
Sub-Account at the end of a Valuation Period is equal to the product of (a) the
Annuity Unit Value for that Sub-Account at the end of the immediately preceding
Valuation Period, multiplied by (b) the net investment factor for that
Sub-Account for the Valuation Period, multiplied by (c) the "assumed investment
return adjustment factor" for the Valuation Period.
The "assumed investment return adjustment factor" for a Valuation Period is
the product of discount factors of .99986634 per day, and is designed to
recognize the 5% effective annual assumed investment return.
The net investment factor used to calculate the Annuity Unit Value in each
Sub-Account for the Valuation Period is equal to (a) the net result of (1) the
net asset value of a Fund share held in that Sub-Account determined as of the
end of the current Valuation Period; plus (2) the per share amount of any
dividend or capital gain distributions made by the Fund for shares held in that
Sub-Account if the ex-dividend date occurs during the Valuation Period; plus or
minus (3) a per share charge or credit for any taxes reserved for, which Western
Reserve determines to have resulted from the investment operations of the
Sub-Account; divided by (b) the net asset value of a Fund share held in the
Sub-Account determined as of the end of the immediately preceding Valuation
Period; minus (c) a factor representing the mortality and expense risk charge
and administrative charge. This factor is equal, on an annual basis, to 1.40% of
the daily net asset value of a Fund share held in the Series Account for the
Sub-Account.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first
variable payment is determined by multiplying the Annuity Proceeds times the
appropriate rate for the variable option selected. The rates are based on the
Society of Actuaries 1983 Individual Mortality Table A with projection and a 5%
effective annual assumed investment return and assuming a Maturity Date in the
year 2000. Gender based mortality tables will be used unless prohibited by law.
The amount of the first payment depends upon the adjusted age of the
Annuitant. The adjusted age is the Annuitant's actual age nearest birthday at
the Maturity Date, adjusted as follows:
<TABLE>
<CAPTION>
Maturity Date Adjusted Age
- ------------- -------------------
<S> <C>
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
</TABLE>
After the year 2040 as determined by Western Reserve.
6
<PAGE> 39
DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS. The amount of variable
annuity payments after the first will increase or decrease according to the
Annuity Unit Value which reflects the investment experience of the selected
Sub-Account(s). Each variable annuity payment after the first will be equal to
the number of units attributable to the Contract in each selected Sub-Account
multiplied by the Annuity Unit Value of that Sub-Account on the date the payment
is processed. The number of such units is determined by dividing the first
payment allocated to that Sub-Account by the Annuity Unit Value of that
Sub-Account on the date the first annuity payment is processed.
FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Statement of Additional Information should be considered only as bearing on the
ability of Western Reserve to meet its obligations under the Contracts. 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,
1995, 1994 and 1993 have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
INDEX TO FINANCIAL STATEMENTS
WRL SERIES ANNUITY ACCOUNT:
Report of Independent Accountants dated
Statement of assets, liabilities and equity accounts at December 31, 1995
Statement of operations for the year ended December 31, 1995 and statement
of changes in equity accounts for the years ended December 31, 1995 and
1994
Notes to financial statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Report of Independent Auditors dated
Statutory-Basis balance sheet at December 31, 1995 and 1994
Statutory-Basis statement of operations for the years ended December 31,
1995, 1994 and 1993
Statutory-Basis statement of capital and surplus for the years ended
December 31, 1995, 1994 and 1993
Statutory-Basis statement of cash flows for the years ended December 31,
1995, 1994 and 1993
Notes to Statutory-Basis financial statements
Statutory-Basis financial statement schedules
7
<PAGE> 40
WRL Series Annuity Account
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements for the WRL Series Annuity
Account and for Western Reserve Life Assurance Co. of
Ohio ("Western Reserve") will be included in a future
Amendment.
(b) Exhibits
(1) Copy of resolution of the Board of Directors
of Western Reserve establishing the Series
Account. 1/
(2) Not Applicable.
(3) Distribution of Contracts
(a) Form of Master Service and
Distribution Compliance Agreement.
5/
(b) Form of Broker/Dealer Supervisory
and Service Agreement. 2/
(c) Form of Broker/Dealer Supervisory
and Service Agreement. 8/
(4) (a) Specimen Flexible Payment Variable
Accumulation Deferred Annuity
Contract. 11/
(5) Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract. 11/
(6) (a) Copy of Second Amended Articles of
Incorporation of Western Reserve. 3/
(b) Copy of Amended Code of Regulations
of Western Reserve. 5/
(7) Not Applicable.
(8) Not Applicable.
(9) Opinion and Consent of William H. Geiger,
Esq. as to Legality of Securities Being
Registered. 8/
(10) (a) Written Consent of Sutherland,
Asbill & Brennan. 11/
(b) Written Consent of Ernst & Young
LLP. 11/
(c) Written Consent of Price Waterhouse
LLP. 11/
(11) Not Applicable.
C-1
<PAGE> 41
(12) Not Applicable.
(13) Schedules for Computation of Performance
Quotations 9/
(14) Power of Attorney. 10/
- -------------------------------------
1/ This exhibit was previously filed on Form N-4 dated October 11,
1988 (File No. 33-24856) and is incorporated herein by
reference.
2/ This exhibit was previously filed on Pre-Effective Amendment
No. 1 to the Form S-6 Registration Statement dated December 19,
1989 (File No. 33-31140) and is incorporated herein by
reference.
3/ This exhibit was previously filed on Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement dated May 1, 1989
(File No. 33-24856) and is incorporated herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment
No. 2 to the Form N-4 Registration Statement dated May 1, 1990
(File No. 33-24856) and is incorporated herein by reference.
5/ This exhibit was previously filed on Post-Effective Amendment
No. 3 to the Form N-4 Registration Statement dated March 1,
1991 (File No. 33-24856) and is incorporated herein by
reference.
6/ This exhibit was previously filed on Post-Effective Amendment
No. 4 to the Form N-4 Registration Statement dated May 1, 1991
(File No. 33-24856) and is incorporated herein by reference.
7/ This exhibit was previously filed on the Form N-4 Registration
Statement dated July 10, 1992 (File No. 33-49556) and is
incorporated herein by reference.
8/ This exhibit was previously filed on Pre-Effective Amendment
No. 1 to the Form N-4 Registration Statement dated October 2,
1992 (File No. 33-49556) and is incorporated herein by
reference.
9/ This exhibit was previously filed on Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement dated April 28,
1993 (File No. 33-49558) and is incorporated herein by
reference.
10/ This exhibit was previously filed on Post-Effective Amendment
No. 4 to Form N-4 Registration Statement dated April 25, 1995
(File No. 33-49556) and is incorporated herein by reference.
11/ To be filed by amendment.
C-2
<PAGE> 42
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Principal Position and Offices
Name Business Address with Depositor
---- ---------------- --------------------
<S> <C> <C>
John R. Kenney (1) Chairman of the Board,
President and Chief
Executive Officer
Lyman H. Treadway 30195 Chagrin Blvd. Director
Suite 210N
Cleveland, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
Alan M. Yaeger (1) Executive Vice President,
Chief Financial Officer
and Actuary
G. John Hurley (1) Executive Vice President
and Chief Operating Officer
Richard B. Franz, II (1) Senior Vice President
and Treasurer
William H. Geiger (1) Senior Vice President,
Secretary and
General Counsel
Allan J. Hamilton (1) Vice President and
Controller
</TABLE>
- ------------------------
(1) 201 Highland Avenue, Largo, Florida 34640
C-3
<PAGE> 43
ITEM 26. Persons Controlled By Or Under Common Control With The Depositor Or
Registrant.
VERENGING AEGON Netherlands Membership Association
AEGON n.v. Netherlands Corporation (55.19%)
AEGON Netherland n.v. Netherlands Corporation (100%)
AEGON Nevark Holding B.V. Netherlands Corporation (100%)
Groninger Financieringen B.V. Netherlands Corporation (100%)
AEGON International B.V. Netherlands Corporation (100%)
Voting Trust - (Trustees - K.J. Storm, William H. Foster, H.B. Van Wijk)
AEGON U.S. Holding Corporation (DE) (100%)
Short Hills Management Company (NJ) (100%)
CORPA Reinsurance Company (NY) (100%)
AEGON Management Company (IN) (100%)
RCC North America Inc. (DE) (100%)
AEGON USA, Inc. - Holding Co. (IA) (100%
First AUSA Life Insurance Company - Insurance Holding Co. (MD) (100%)
AUSA Life Insurance Company, Inc. - Insurance (NY) (100%)
Life Investors Insurance Company of America - Insurance (IA) (100%)
International Life Investors Insurance Company - Insurance (NY)
(100%)
Bankers United Life Assurance Company - Insurance (IA) (100%)
PFL Life Insurance Company - Insurance (IA) (100%)
Southwest Equity Life Insurance Company - Insurance (AZ) (100% Voting
Common)
Iowa Fidelity Life Insurance Company - Insurance (AZ) (100% Voting Common)
Western Reserve Life Assurance Company of Ohio - Insurance (OH) (100%)
WRL Series Fund, Inc. - Mutual fund (MD)
Monumental Life Insurance Company - Insurance (MD) (100%)
Monumental General Casualty Company - Insurance (MD) (100%)
United Financial Services, Inc. - General Agency (MD) (100%)
Bankers Financial Life Insurance Company - Insurance (AZ)
The Whitestone Corporation - Insurance agency (MD) (100%)
Cadet Holding Corp. - Holding company (IA) (100%)
AUSA Holding Company - Holding company (MD) (100%)
Monumental General Insurance Group, Inc. - Holding company (MD) (100%)
Monumental General Administrators, Inc. - Provides management
services to
unaffiliated third party administrator (MD) (100%)
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services (MD) (100%)
Monumental General Mass Marketing, Inc. - Marketing arm for sale
of mass marketed insurance coverages (MD) (100%)
AUSA Financial Markets, Inc. - Marketing (IA) (100%)
Universal Benefits Corporation - Third party administrator (IA) (100%)
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - Trust company (IA) (100%)
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies (DE) (100%)
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<PAGE> 44
Zahorik Company, Inc. - Broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
Intersecurities, Inc. - Broker-dealer (DE) (100%)
ISI Insurance Agency Inc. & its Subsidiaries - Insurance agency (CA)
(100%)
Associated Mariner Financial Group, Inc. - Holding company management
services (MI) (100%)
Mariner Financial Services, Inc. - Broker/Dealer (MI) (100%)
Mariner/ISI Planning Corporation - Financial planning (MI) (100%)
Associated Mariner Agency, Inc. and its Subsidiaries- Insurance
agency (MI) (100%)
Mariner Mortgage Corporation - Mortgage origination (MI) (100%)
Idex Investor Services, Inc. - Shareholder services (FL) (100%)
Idex Management, Inc. - Investment advisor (DE) (50%)
Idex Fund - Mutual fund (MA)
Idex II Series Fund - Mutual fund (MA)
Idex Fund 3 - Mutual fund (MA)
Transunion Casualty Company - Insurance (IA) (100%)
AUSA Institutional Marketing Group, Inc. - Insurance agency (MN) (100%)
Colorado Annuity Agency, Inc. - Insurance agency (MN) (100%)
Diversified Investment Advisors, Inc. - Registered investment advisor (DE)
(100%)
Diversified Investors Securities Corporation - Broker-dealer (DE)
(100%)
AEGON USA Securities, Inc. - Broker-dealer (IA) (100%)
AEGON USA Managed Portfolios, Inc. - Mutual fund (MD)
American Forum for Fiscal Fitness, Inc. - Marketing (IA) (100%)
Supplemental Insurance Division, Inc. - Insurance (TN) (100%)
Creditor Resources, Inc. - Credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance
agency (Canada)
AEGON USA Investment Management, Inc. - Investment advisor (IA) (100%)
AEGON USA Realty Advisors, Inc. - Provides real estate administrative
and real estate investment services (IA) (100%)
Melson & Associates, Inc. - Real estate financial management
consulting (TX) (100%)
Landauer Realty Advisors, Inc. - Real estate counseling (IA) (100%)
Landauer Associates, Inc. - Real estate counseling (DE) (100%)
AEGON USA Realty Management, Inc. - Real estate management (IA) (100%)
Realty Information Systems, Inc. - Information systems for real
estate investment management (IA) (100%)
USP Real Estate Investment Trust - Real estate investment trust (IA)
Cedar Income Fund Ltd. - Real estate investment trust (IA)
Forty-Six Hundred Limited Partnership - Limited partnership (IA)
JLW Financial Management Systems, Inc. - Provides management expertise and
administrative services for credit unions (IN) (60%)
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<PAGE> 45
Item 27. Number of Contractowners.
Because the offering has not yet commenced, there are no
Contractowners.
Item 28. 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:
(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;
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<PAGE> 46
(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 deliberate intent to
cause injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
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<PAGE> 47
(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
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<PAGE> 48
of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic
or foreign, nonprofit or for profit, partnership, joint venture, trust, or
other enterprise, against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendre or its equivalent, shall not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation (including a subsidiary of this
corporation), domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that the court of common pleas, or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in sections (1) and (2) of this article, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under sections (1) and (2) of this
article, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in sections (1) and (2) of this article. Such determination shall be made (a)
by a majority vote of a quorum consisting of directors of the indemnifying
corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has performed
services for the corporation, or any person to be indemnified within the past
five years, or (c) by the shareholders, or (d) by the court of common pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under section (4)(a) or by
independent legal counsel under section (4)(b) of this article shall be
promptly communicated to the person who threatened or brought the action or
suit by or in the right of the corporation under section (2) of this article,
and within ten days after receipt of such notification, such person shall have
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<PAGE> 49
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 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.
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<PAGE> 50
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.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve 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 Western
Reserve of expenses incurred or paid by a director, officer or controlling
person of Western Reserve 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, Western Reserve 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 of
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.
Item 29. Principal Underwriter
(a) InterSecurities, Inc. ("ISI"), formerly known as Idex
Distributors, Inc. and before that, as Pioneer Western
Distributors, Inc., currently distributes securities of WRL
Series Life Account and the mutual funds managed by Idex
Management, Inc., an affiliate of ISI.
(b) Directors and Officers of ISI
<TABLE>
<CAPTION>
Principal Position and Offices
Name Business Address with Underwriter
---- ---------------- --------------------
<S> <C> <C>
John R. Kenney (1) Chairman of the Board
J. Will Paull 17199 Laurel Park Dr. N. Director
Livonia, MI 48152
- -------------------------
</TABLE>
(1) 201 Highland Avenue, Largo, Florida 34640
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<PAGE> 51
<TABLE>
<S> <C> <C>
G. John Hurley (1) Director, President
and Chief Executive
Officer
Donald L. Cudney (1) Senior Vice President
Thomas R. Moriarty (1) Senior Vice President
William H. Geiger (1) Secretary and Director
Richard B. Franz, II (1) Treasurer
</TABLE>
- --------------------------
(1) 201 Highland Avenue, Largo, Florida 34640
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules
promulgated thereunder are maintained by the Registrant
through Western Reserve, 201 Highland Avenue, Largo, Florida
34640.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
(a) Registrant hereby undertakes to file a Post-Effective
amendment to this registration statement as frequently
as is necessary to ensure that the audited financial
statements in the registration statement are never more
than sixteen (16) months old for so long as payments
under the variable annuity contracts may be accepted;
(b) Registrant hereby undertakes to include either (1) as
part of any application to purchase a Contract offered
by the Prospectus, a space that an applicant can check
to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can
remove to send for a Statement of Additional
Information; and
(c) Registrant hereby undertakes to deliver any Statement
of Additional Information and any financial statement
required to be made available under this Form promptly
upon written or oral request.
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<PAGE> 52
Item 33. Section 403(b)(11) Representation
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of
1986, Registrant is relying on the no-action letter issued by the
Office of Insurance Products and Legal Compliance, Division of
Investment Management, to the American Council of Life Insurance
dated November 28, 1988 (Ref. No. IP-6-88), and that the
provisions of paragraphs (1) - (4) thereof have been complied
with.
Texas ORP Representation
The Registrant intends to offer Contracts to participants in the
Texas Optional Retirement Program. In connection with that
offering, the Registrant is relying on Rule 6c-7 under the
Investment Company Act of 1940, as amended, and is complying
with, or shall comply with, paragraphs (a) - (d) of that Rule.
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<PAGE> 53
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Largo, State of Florida, on this
25th day of January, 1996.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ John R. Kenney
------------------------------------
John R. Kenney, Chairman of the Board,
President and Chief Executive Officer
of Western Reserve Life Assurance Co. of
Ohio
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(Depositor)
By: /s/ John R. Kenney
------------------------------------
John R. Kenney, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John R. Kenney Chairman of the Board, January 25, 1996
- --------------------- President and Chief
John R. Kenney Executive Officer
(Principal Executive
Officer)
/s/ Richard B. Franz II Senior Vice President January 25, 1996
- ----------------------- and Treasurer
Richard B. Franz II
/s/ Alan M. Yaeger Executive Vice President, January 25, 1996
- --------------------- Actuary & Chief Financial Officer
Alan M. Yaeger
/s/ Allan J. Hamilton Vice President and January 25, 1996
- ---------------------- Controller
Allan J. Hamilton
</TABLE>
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<PAGE> 54
<TABLE>
<S> <C> <C>
/s/ Patrick S. Baird Director January 25, 1996
- ----------------------
Patrick S. Baird */
-
/s/ Lyman H. Treadway Director January 25, 1996
- ----------------------
Lyman H. Treadway */
-
/s/ Jack E. Zimmerman Director January 25, 1996
- ----------------------
Jack E. Zimmerman */
-
*/ /s/ Thomas E. Pierpan
- -------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
</TABLE>
C-15
