As filed with the Securities and Exchange Commission on April 11, 1997
Registration No.
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. 51 [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 33770
(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 Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan, L.L.P.
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 Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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
FORM N-4 ITEM PROSPECTUS CAPTION
- ------------- ------------------
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
(i)
<PAGE>
FORM N-4 ITEM PROSPECTUS CAPTION
- ------------- ------------------
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
(ii)
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FREEDOM
WEALTH 201 HIGHLAND AVENUE FREEDOM
CREATOR(SM) LARGO, FLORIDA 33770
(800) 851-9777
(813) 585-6565
This Prospectus describes the WRL Freedom Wealth
Creator(SM) Variable Annuity (the "Contract"), a tax
deferred variable annuity contract issued by Western
Reserve Life Assurance Co. of Ohio ("Western Reserve").
Flexible Payment
Variable Accumulation The Contract provides for accumulation of Contract values
Deferred Annuity on a variable basis, a fixed basis, or a combination of
Contract both. The Contract also provides for the payment of
periodic annuity payments on a variable basis or a fixed
basis. If the variable basis is chosen, Contract values
will be held in the WRL Series Annuity Account (the
"Series Account") and will vary according to the
investment performance of the underlying investment
portfolios of the WRL Series Fund, Inc. (the "Fund"). If
the fixed basis is chosen, Contract values will be
allocated to the Fixed Account and earn interest at no
less than the minimum guaranteed rate.
There are currently fifteen Sub-Accounts of the Series
Account (in addition to the Fixed Account) available
through this Contract during the Accumulation Period and
after the Maturity Date. Each Sub-Account invests in one
investment portfolio of the Fund and Net Purchase
Payments will be allocated to one or more of these
Sub-Accounts or the Fixed Account as directed by the
Owner. These fifteen investment portfolios of the Fund
are: the Aggressive Growth Portfolio, Emerging Growth
Portfolio, Growth Portfolio, Global Portfolio, Balanced
Portfolio, Strategic Total Return Portfolio, Bond
Portfolio, Growth & Income Portfolio, Money Market
Portfolio, Tactical Asset Allocation Portfolio, Value
Equity Portfolio, C.A.S.E. Growth Portfolio, Global
Sector Portfolio, International Equity Portfolio and U.S.
Equity Portfolio.
This Prospectus sets forth information about the Contract
that a prospective investor should know before investing.
Additional information about the Series Account has been
filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1997,
which is incorporated herein by reference. The Statement
of Additional Information is available upon written or
oral request and without charge from Western Reserve,
PROSPECTUS DATED P.O. Box 9051, Clearwater, FL 34618-9051; telephone
, 1997 number (800) 851-9777. The table of contents for the
Statement of Additional Information appears on page 28
of this Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, A BANK OR DEPOSITORY
INSTITUTION AND THE CONTRACT IS NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY AND INVOLVES
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE. NO DEALER, SALESPERSON OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT
PROSPECTUS FOR THE WRL SERIES FUND, INC. CERTAIN
PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS OF SPECIAL TERMS ........................................... 1
SUMMARY ................................................................ 3
CALCULATION OF YIELDS AND TOTAL RETURNS ............................... 6
OTHER PERFORMANCE DATA ................................................. 7
PUBLISHED RATINGS ....................................................... 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ...................... 9
/bullet/ Western Reserve Life Assurance Co. of Ohio ................. 9
/bullet/ WRL Series Annuity Account ................................... 9
/bullet/ WRL Series Fund, Inc ......................................... 10
CHARGES AND DEDUCTIONS ................................................. 11
/bullet/ Withdrawal Charge ............................................ 11
/bullet/ Change in Purchase Payment Allocation Fee .................... 12
/bullet/ Transfer Charge ............................................. 12
/bullet/ Mortality and Expense Risk Charge ............................ 12
/bullet/ Annual Contract Charge ...................................... 12
/bullet/ Premium Taxes ............................................... 12
/bullet/ Deductions for Other Taxes ................................... 12
/bullet/ Expenses of the Fund ......................................... 12
THE CONTRACT .......................................................... 13
ACCUMULATION PROVISIONS ................................................. 13
/bullet/ Purchase Payments ............................................ 13
/bullet/ Net Purchase Payments ....................................... 13
/bullet/ Accumulation Unit Value ...................................... 14
/bullet/ Computing Sub-Account Value ................................ 14
/bullet/ Transfers to and from, and among Allocation Options ......... 14
/bullet/ Dollar Cost Averaging ....................................... 15
/bullet/ Asset Rebalancing Program ................................... 15
/bullet/ Partial Withdrawals and Surrenders ........................... 16
/bullet/ Contract Loans For 401(a), 401(k), and 403(b) Contracts ...... 17
/bullet/ Death Benefits during the Accumulation Period ............... 18
ANNUITY PROVISIONS .................................................... 19
/bullet/ Maturity Date and Selection of Annuity Options ............... 19
/bullet/ Fixed Account Annuity Options ................................ 20
/bullet/ Series Account Annuity Options .............................. 20
/bullet/ Death Benefits after the Maturity Date ....................... 20
/bullet/ Improved Annuity Rates ...................................... 21
/bullet/ Proof of Age, Sex, and Survival .............................. 21
OTHER MATTERS RELATING TO THE CONTRACT .................................. 21
/bullet/ Changes in Purchase Payments ................................. 21
/bullet/ Right To Examine Contract .................................... 21
/bullet/ Contract Payments............................................. 21
/bullet/ Ownership ................................................... 21
/bullet/ Annuitant ................................................... 21
/bullet/ Beneficiary .................................................. 21
/bullet/ Modification or Waiver ....................................... 22
FEDERAL TAX MATTERS .................................................... 22
/bullet/ Introduction ................................................ 22
/bullet/ Company Tax Status .......................................... 22
/bullet/ Taxation of Annuities ....................................... 22
/bullet/ Qualified Plans ............................................. 23
/bullet/ Additional Considerations .................................... 24
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FIXED ACCOUNT .......................................... 25
/bullet/ Minimum Guaranteed and Current Interest Rates ... 26
/bullet/ Fixed Account Value ............................ 26
/bullet/ Allocations, Transfers and Partial Withdrawals... 26
DISTRIBUTION OF THE CONTRACTS .............................. 26
VOTING RIGHTS ............................................. 27
LEGAL PROCEEDINGS .......................................... 27
STATEMENT OF ADDITIONAL INFORMATION ........................ 27
</TABLE>
(iii)
<PAGE>
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<S> <C>
ACCUMULATION PERIOD The period between the Contract Date and the Maturity Date while the Contract is
In Force.
ACCUMULATION UNIT An accounting unit of measure used to calculate Sub-Account values during the
VALUE Accumulation Period.
ADMINISTRATIVE OFFICE Western Reserve's administrative office for variable annuity products, the address
of which is P.O. Box 5068, Clearwater, Florida 34618-5068. Telephone number:
1-800-851-9777; Fax number:1-800-572-0159.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive an
nuity payments. The Annuitant may be changed as provided in the Contract's
death benefit provisions and annuity provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the
Annuity Value on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain
Sub-Accounts after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the
Contract remains In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and any Withdrawal
Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT The person named in the application, or subsequently designated, to become the
BENEFICIARY new Beneficiary upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the
date that the properly completed application is received at Western Reserve's
Administrative Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any
Anniversary thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that
provides for accumulation of Net Purchase Payments, and options for annuity
payments on a fixed basis. For Contracts issued in the State of Washington, the
Fixed Account is used solely for Contract loans, and is not available for allocation
of Net Purchase Payments or transfers of Annuity Value from the Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Ac
count.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise
all rights under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to
commence.
NET PURCHASE PAYMENT The Purchase Payment less any applicable premium taxes.
NON-QUALIFIED Contracts issued other than in connection with retirement plans. Non-Qualified
CONTRACTS Contracts do not qualify for special Federal income tax treatment under the Code.
OWNER The person(s) entitled to exercise all rights under the Contract. The Annuitant is
the Owner unless the application states otherwise, or unless a change of owner
ship is made at a later time.
PORTFOLIO A separate investment portfolio of the Fund.
</TABLE>
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
PURCHASE PAYMENTS Amounts paid by an Owner or on the Owner's behalf to Western Reserve as
consideration for the benefits provided by the Contract.
QUALIFIED CONTRACTS Contracts issued in connection with retirement plans that qualify for special Federal
income tax treatment under the Code.
SERIES ACCOUNT (OR WRL Series Annuity Account, a separate investment account composed of several
SEPARATE ACCOUNT) Sub-Accounts established to receive and invest Net Purchase Payments not allocated
to the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a
Contract, which value is equal to the total of the values allocable to a Contract in
each of the Sub-Accounts during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a speci
fied Portfolio and supports the Contracts. Sub-Accounts corresponding to each ap
plicable Portfolio hold assets under the Contract during the Accumulation Period.
Other Sub-Accounts corresponding to each applicable Portfolio will hold assets after
the Maturity Date if a Series Account annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The period commencing at the end of one Valuation Date and continuing to the end of
the next succeeding Valuation Date.
</TABLE>
2
<PAGE>
SUMMARY
This summary provides you with an overview of the tax deferred variable annuity
contract offered by Western Reserve and funded by the Series Account and the
Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be purchased
by submitting a completed application to Western Reserve for its approval. The
Contract provides for accumulation of Annuity Values on a variable basis, a
fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. (See
"THE CONTRACT-Accumulation Provisions" on page 13 and "-Annuity
Provisions" on page 19.) (For information about tax status, see "FEDERAL
TAX MATTERS" on pages 22-25.)
RIGHT TO EXAMINE CONTRACT
If an Owner is not satisfied with the Contract, it may be cancelled by returning
it within ten days after receipt together with a written request for
cancellation. In such event, Western Reserve will pay the Owner an amount equal
to the sum of: (i) the Purchase Payments received; plus (or minus) (ii) the
accumulated gains (or losses), if any, in the Series Account for the Contract as
of the date Western Reserve receives the returned Contract. (In certain states,
Western Reserve will refund the Purchase Payments.) (See "OTHER MATTERS
RELATING TO THE CONTRACT-Right to Examine Contract" on page 21.)
THE FUND
The underlying variable investments for the Contracts are shares of several of
the Portfolios of the Fund, namely: the Aggressive Growth Portfolio, Emerging
Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio,
Money Market Portfolio, Tactical Asset Allocation Portfolio, Value Equity
Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio, International
Equity Portfolio and U.S. Equity Portfolio. Western Reserve reserves the right
to offer additional investment portfolios or other mutual funds with differing
investment objectives. (See "WESTERN RESERVE, THE SERIES ACCOUNT, AND THE
FUND-WRL Series Fund, Inc." on page 10.)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects. The
initial Purchase Payment generally must accompany the application, and for
Non-Qualified Contracts must be at least $5,000; however, a minimum initial
Purchase Payment of $1,000 is allowed provided the application reflects
anticipated additional monthly periodic Purchase Payments of at least $100, via
electronic funds transfer from the Owner's bank account. For Individual
Retirement Annuities ("IRAs"), the minimum initial Purchase Payment is
$1,000. For Qualified Contracts other than IRAs, the minimum initial Purchase
Payment is $50. For all Contracts, subsequent Purchase Payments must be at least
$50, unless Western Reserve consents to a smaller amount. The maximum amount of
Purchase Payments that may be made in any Contract Year is $1,000,000, unless
Western Reserve consents to a larger amount. Western Reserve reserves the right
to reject any Purchase Payment for any reason permitted by law. (See
"ACCUMULATION PROVISIONS-Purchase Payments" on page 13.)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $5,000. (See "THE
CONTRACT-Partial Withdrawals and Surrenders" on page 16.) For Qualified
Contracts issued under Code Section 403(b), certain restrictions will apply.
Moreover, a partial withdrawal or Surrender may have Federal income tax
consequences. (See "FEDERAL TAX MATTERS-Qualified Plans" on pages 23-24.)
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may, however, be assessed
against Annuity Value when partially withdrawn or surrendered.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or Surrender of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of the amount of
each Purchase Payment partially withdrawn or surrendered within seven years of
its payment. In determining which amounts withdrawn are subject to the
Withdrawal Charge, partial withdrawals and Surrenders will be deemed made first
from Purchase Payments on a first-in, first-out basis and then from any Contract
earnings. The charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF MONTHS
FROM DATE OF RECEIPT OF
CHARGE EACH PURCHASE PAYMENT
- ------ -----------------------
<S> <C>
8% 12 or less
7% 13 through 24
6% 25 through 36
5% 37 through 48
4% 49 through 60
3% 61 through 72
2% 73 through 84
0% 85 or more
</TABLE>
For the first withdrawal or series of Systematic Partial Withdrawals during each
Contract Year, the Withdrawal Charge is waived for the first 10% of the Annuity
Value that is subject to the Withdrawal Charge. No Withdrawal Charge will be
assessed if Annuity Values are applied to any annuity option under the Contract.
(See "CHARGES AND DEDUCTIONS-Withdrawal Charge" on page 11.) 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 591/2 and other exceptions do
not apply. (See "FEDERAL TAX MATTERS" on page 22.)
3
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western Reserve
imposes a 1.40% per annum charge against all Annuity Value hld in the Series
Account. This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. (See "CHARGES AND
DEDUCTIONS-Mortality and Expense Risk Charge" on page 12.)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $35 is deducted annually on the Anniversary. (See
"CHARGES AND DEDUCTIONS-Annual Contract Charge", page 12.)
PREMIUM TAXES
No deduction is made for premium taxes unless Western Reserve incurs a premium
tax under state law. Certain states impose premium taxes ranging up to 3.5% of
Purchase Payments. (See "CHARGES AND DEDUCTIONS-Premium Taxes" on page
12.)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND-WRL Series Fund, Inc." on page 10
and the Prospectus for the Fund.) TOTAL FUND ANNUAL EXPENSES FOR THE GLOBAL
SECTOR PORTFOLIO EXCEED 2.00%.
OTHER CONTRACTS
Western Reserve offers other variable annuity contracts which also invest in the
same Portfolios of the Fund. These contracts may have different charges that
could affect Sub-Account performance, and may offer different benefits more
suitable to your needs. To obtain more information about these contracts,
contact your agent, or call (800) 851-9777.
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract during
the Accumulation Period, as well as the fees and expenses of the Fund.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases .................. None
Maximum Withdrawal Charge
(as a % of each Purchase Payment sur
rendered or partially withdrawn within 7 years). 8%
Transfer Charge
On one transfer per Contract Month, or
the first 12 transfers each year ............... None
On each transfer thereafter ..................... $25.00
Change in Purchase Payment Allocation Fee ......
One change in allocation per Contract quarter . None
Each change thereafter ........................ $25.00
ANNUAL CONTRACT CHARGE* ........................... $35.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average Series Account value)
Mortality and Expense Risk Charge ............... 1.40%
Total Separate Account Annual Expenses ......... 1.40%
</TABLE>
- --------------------------------------------------------------------
FUND ANNUAL EXPENSES** (as a % of Fund average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------
<S> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.18% 0.14% 0.08%
Total Fund Annual Expenses ............ 0.98% 0.94% 0.88%
<CAPTION>
U.S. INTERNATIONAL
GLOBAL BALANCED EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO*** PORTFOLIO***
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80% 1.00%
Other Expenses (after reimbursement) ... 0.19% 0.17% 0.25% 0.30%
Total Fund Annual Expenses ............ 0.99% 0.97% 1.05% 1.30%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO- STRATEGIC
INTERMEDIATE TOTAL GROWTH &
BOND GOVERNMENT RETURN INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Management Fees ............ 0.50% 0.60% 0.80% 0.75%
Other Expenses
(after reimbursement) ...... 0.14% 0.16% 0.11% 0.25%
Total Fund Annual Expenses ... 0.64% 0.76% 0.91% 1.00%
<CAPTION>
TACTICAL
MONEY ASSET VALUE C.A.S.E. GLOBAL
MARKET ALLOCATION EQUITY GROWTH SECTOR
PORTFOLIO PORTFOLIO PORTFOLIO*** PORTFOLIO PORTFOLIO***
------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Management Fees ............ 0.40% 0.80% 0.80% 0.80% 1.10%
Other Expenses
(after reimbursement) ...... 0.12% 0.10% 0.20% 0.20% 1.27%
Total Fund Annual Expenses ... 0.52% 0.90% 1.00% 1.00% 2.37%
</TABLE>
- ----------------
* Deduction of the Annual Contract Charge is currently waived when the sum
of all Net Purchase Payments received, minus all partial withdrawals,
exceeds $50,000 as of the Contract Anniversary for which the charge is
payable.
** Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and
pursuant to the Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under
the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths
of one percent) on an annualized basis of the average daily net assets.
This fee is measured and accrued daily and paid monthly. ISI has
determined that it will not seek payment by the Fund of distribution
expenses with respect to any Portfolio during the fiscal year ending
December 31, 1997. Prior to ISI's seeking reimbursement, Policyowners will
be notified in advance.
*** Because the Value Equity and Global Sector Portfolios commenced operations
on May 1, 1996, the percentages set forth as "Other Expenses" and "Total
Fund Annual Expenses" are annualized. Because the International Equity and
U.S. Equity Portfolios commenced operations on January 2, 1997, the
percentages set forth as "Other Expenses" and "Total Fund Annual Expenses"
are estimates.
4
<PAGE>
The purpose of the preceding Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects charges and expenses of the Separate Account as well as the
Portfolios of the Fund for the fiscal year ended December 31, 1996, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the Value
Equity and Global Sector Portfolios are annualized and the "Other
Expenses" and "Total Fund Annual Expenses" for the International Equity
and U.S. Equity Portfolios are estimates. Expenses of the Fund may be higher or
lower in the future. Certain states and other governmental entities may impose a
premium tax, which the Table does not include. For more information on the
charges described in this Table, see "CHARGES AND DEDUCTIONS" on page 11
and the Fund Prospectus which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30, 1998,
to pay Fund expenses on behalf of the Portfolios to the extent normal operating
expenses of a Portfolio exceed a stated percentage of the Portfolio's average
daily net assets, except that no such undertaking applies to the Global Sector
Portfolio. In 1996, Western Reserve, the Fund's Investment Adviser prior to
January 1, 1997, reimbursed the Value Equity Portfolio in the amount of $13,672
and the C.A.S.E. Growth Portfolio in the amount of $73,269. Without such
reimbursement, the total annual Fund expenses during 1996 for the Value Equity
Portfolio and the C.A.S.E. Growth Portfolio would have been 1.03% and 1.64%,
respectively. See the Fund's prospectus for a description of the expense
limitation applicable to each Portfolio.
EXAMPLES
1. If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $ $ $ $
Emerging Growth Sub-Account ...............
Growth Sub-Account ........................
Global Sub-Account ........................
Balanced Sub-Account ........................
Strategic Total Return Sub-Account .........
Bond Sub-Account ...........................
Growth & Income Sub-Account ...............
Money Market Sub-Account ..................
Tactical Asset Allocation Sub-Account ......
Value Equity Sub-Account ..................
C.A.S.E. Growth Sub-Account ...............
Global Sector Sub-Account ..................
International Equity Sub-Account ............
U.S. Equity Sub-Account .....................
</TABLE>
2. If you annuitize or do not surrender at the end of the applicable time period
(note that annuitization is not available prior to a Contract's fifth
anniversary):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $ $ $ $
Emerging Growth Sub-Account ...............
Growth Sub-Account ........................
Global Sub-Account ........................
Balanced Sub-Account ........................
Strategic Total Return Sub-Account .........
Bond Sub-Account ...........................
Growth & Income Sub-Account ...............
Money Market Sub-Account ..................
Tactical Asset Allocation Sub-Account ......
Value Equity Sub-Account ..................
C.A.S.E. Growth Sub-Account ...............
Global Sector Sub-Account ..................
International Sub-Account ..................
U.S. Equity 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
ESTIMATED 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.
5
<PAGE>
DEATH BENEFIT
If the Annuitant is also the Owner, or if the Owner is not a natural person, and
the Annuitant dies at any time before the Maturity Date, a death benefit will be
provided, unless certain elections have been made that would keep the Contract
In Force. After the Maturity Date, death benefits will be paid in accordance
with the annuity option then in effect. (See "ACCUMULATION PROVISIONS-Death
Benefits during the Accumulation Period" on page 18 and "ANNUITY
PROVISIONS-Death Benefits after the Maturity Date" on page 20.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution of the
Annuity Proceeds after the Maturity Date. The Maturity Date may not be earlier
than the end of the fifth Contract Year and cannot be deferred beyond the
Annuitant reaching Attained Age 90. Subject to these limitations, the default
Maturity Date may be changed by the Owner, at any time prior to that date, by
delivering a written request to Western Reserve. (See "ANNUITY
PROVISIONS-Maturity Date and Selection of Annuity Options" on page 19.)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the Annuity
Value from a Sub-Account to the Fixed Account, from the Fixed Account to a
Sub-Account (subject to certain restrictions), or among the Sub-Accounts. (For
Contracts issued in the State of Washington, the Fixed Account is not available
for transfers of Annuity Value from the Sub-Accounts.) (See "THE CONTRACT-
ACCUMULATION PROVISIONS-Transfers to and from, and among Allocation Options,"
on page 14.) One transfer per Contract Month, or twelve transfers per Contract
Year, are permitted without charge. Each additional transfer will be subject to
a transfer charge of $25. Currently, Western Reserve only charges the transfer
charge after twelve transfers per Contract Year. This charge will not be
increased. Certain restrictions apply to transfers from the Fixed Account. (See
"ACCUMULATION PROVISIONS-
Transfers to and from, and among Allocation Options" on page 14 and "THE
FIXED ACCOUNT-Allocations, Transfers and Partial Withdrawals" on page 26.)
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
25.
CONDENSED FINANCIAL INFORMATION
Because the Contracts described in this Prospectus have not yet been offered as
of the date of this Prospectus, there is no condensed financial information.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Western Reserve may disclose in advertisements and sales
literature yields and total returns for the Sub-Accounts representing the
Accumulation Period under a Contract. In addition, Western Reserve may, on the
same basis, advertise the effective yield of the Money Market Sub-Account under
a Contract. THESE YIELDS AND TOTAL RETURNS ARE BASED ON THE SUB-ACCOUNTS'
HISTORICAL PERFORMANCE ONLY AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
For more detailed information about the performance data calculations described
below, see the Statement of Additional Information.
YIELD
The yield of the Money Market Sub-Account refers to the annualized income
produced by a hypothetical Series Account Value in the Money Market Sub-Account
under a Contract over a specified seven day period. The yield calculation
assumes that the same amount of income produced for that seven day period is
also produced for each seven day period over a fifty-two week period and is
shown as a percentage of the Series Account Value. The effective yield is
calculated similarly but, when annualized, the income earned by the Series
Account Value in the Money Market Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment of income. Based on the method
of calculation described in the Statement of Additional Information, for the
seven-day period ended December 31, 1996, the current yield and effective yield
for the Money Market Sub-Account were as follows:
Current Yield = 3.66%
Effective Yield = 3.73%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Account"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Account over a specified thirty day period expressed as a
percentage rate of return for that period. The yield is calculated by assuming
that the income produced by the investment during that thirty day period is
produced each thirty day period over a twelve month period and is shown as a
percentage of the Series Account Value. Based on the method of calculation
described in the Statement of Additional Information, for the thirty day period
ended December 31, 1996, the yield for the Bond Sub-Account was 4.12%.
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
6
<PAGE>
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.
Based on the method of calculation described above and in more detail in the
Statement of Additional Information, the average annual total returns for
periods beginning with commencement of each Sub-Account to December 31, 1996
were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-----------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- ----------- -------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Growth ............ % % % % % 2/24/89
Bond ............... % % % % % 2/24/89
Money Market ...... % % % % % 2/24/89
Global ............ % % % % % 12/3/92
Emerging Growth ... % % N/A % % 3/1/93
Strategic Total
Return ............ % % N/A % % 3/1/93
Aggressive Growth % N/A N/A % % 3/1/94
Balanced ......... % N/A N/A % % 3/1/94
Growth & Income ... % N/A N/A % % 3/1/94
Tactical Asset
Allocation ...... % N/A N/A % % 1/3/95
C.A.S.E. Growth ... % N/A N/A % % 5/1/96
Value Equity ...... N/A N/A N/A % % 5/1/96
Global Sector ...... N/A N/A N/A % % 5/1/96
</TABLE>
Because the International Equity and U.S. Equity Sub-
Accounts had not yet commenced operations as of December 31, 1996, no
performance information is provided for these Sub-Accounts.
OTHER PERFORMANCE DATA
Western Reserve may 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.
For example, Western Reserve may present hypothetical illustrations representing
past performance of one or more Sub-Accounts for a hypothetical Contract. Such a
hypothetical Contract illustration would present average total return
performance information for the hypothetical Contract, assuming allocation of
initial and subsequent net premiums to one or more Sub-Accounts, which reflects
the performance of those Sub-Accounts for the duration of the allocations under
the hypothetical Contract.
NON-STANDARD PERFORMANCE DATA WILL ONLY BE DISCLOSED IF THE STANDARD PERFORMANCE
DATA FOR THE REQUIRED PERIODS IS ALSO DISCLOSED.
Based on the method of calculation described above and in more detail in the
Statement of Additional Information, the average annual total returns of the
Emerging Growth, Growth, Global, Strategic Total Return, Bond Money Market,
Aggressive Growth, Balanced, Growth & Income, Tactical Asset Allocation,
C.A.S.E. Growth, Value Equity and Global Sector Sub-Accounts for the periods
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-----------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- ----------- ------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Growth*** % % % % % 10/2/86*
Bond*** % % % % % 10/2/86*
Money Market*** % % % % % 10/2/86*
Global % % % % % 12/3/92**
Emerging Growth % % N/A % % 3/1/93**
Strategic Total
Return % % N/A % % 3/1/93**
Aggressive Growth % N/A N/A % % 3/1/94**
Balanced % N/A N/A % % 3/1/94**
Growth & Income % N/A N/A % % 3/1/94**
Tactical Asset
Allocation % N/A N/A % % 1/3/95**
C.A.S.E. Growth % N/A N/A % % 5/1/95**
Value Equity N/A N/A N/A % % 5/1/96**
Global Sector N/A N/A N/A % % 5/1/96**
</TABLE>
- ----------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
*** The calculation of total return performance for the Growth, Bond and Money
Market Sub-Accounts prior to December 3, 1992 reflects deductions for the
mortality and expense risk charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
Sub-Accounts had actually been in existence since the inception of the
Portfolio.
The average annual total returns set forth below are calculated in exactly the
same way as the average annual total returns set forth immediately above, except
that the AVERAGE ANNUAL TOTAL RETURNS ILLUSTRATED BELOW DO NOT TAKE INTO ACCOUNT
ANY CHARGE ON AMOUNTS SURRENDERED OR WITHDRAWN.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-----------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- ----------- ------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Growth % % % % % 10/2/86*
Bond % % % % % 10/2/86*
Money Market % % % % % 10/2/86*
Global % % % % % 12/3/92**
Emerging Growth % % N/A % % 3/1/93**
Strategic Total
Return % % N/A % % 3/1/93**
Aggressive Growth % N/A N/A % % 3/1/94**
Balanced % N/A N/A % % 3/1/94**
Growth & Income % N/A N/A % % 3/1/94**
Tactical Asset
Allocation % N/A N/A % % 1/3/95**
C.A.S.E. Growth % N/A N/A % % 5/1/95**
Value Equity N/A N/A N/A % % 5/1/96**
Global Sector N/A N/A N/A % % 5/1/96**
</TABLE>
- ----------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
7
<PAGE>
Because the International Equity and U.S. Equity Sub-Accounts had not commenced
operations as of December 31, 1996, no performance information is provided for
these Sub-Accounts.
The Sub-Advisers to several Portfolios of the Fund also manage other investment
portfolios (the "Other Portfolios"). Each of the Other Portfolios has
substantially the same investment objective and policies and uses the same
investment strategies as a Portfolio of the Fund managed by the Sub-Adviser.
Certain hypothetical performance of the Other Portfolios is illustrated below.
THE OTHER PORTFOLIOS ARE NOT AVAILABLE FOR INVESTMENT UNDER THE CONTRACT.
The following table illustrates the HYPOTHETICAL average annual total returns of
the Other Portfolios, assuming that the Contract would have permitted
investments in the Other Portfolios from the time each Other Portfolio began
operations, and assuming that a hypothetical sub-account had been created that
invested in the Other Portfolios. These figures also assume that the Contract
would have been available from the beginning of the periods shown, and would
have had the current level of Contract and Separate Account charges during all
time periods shown. Because the Contract does not permit investment in the Other
Portfolios, the performance information below is HYPOTHETICAL, not actual,
performance. It represents that performance of the Other Portfolios adjusted for
the charges and deductions applicable to the Contract.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------------
SINCE
INCEPTION
HYPOTHETICAL ONE THREE FIVE TEN (DATE OF
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION)
- ----------- ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Janus Worldwide 16.50% 13.61% 15.27% N/A 8.74%
(similar to the (5/15/91)
Global Portfolio)
Scottish Equitable -0.14% 0.74% 10.83% N/A 10.83%
(similar to (1/1/92)
International Equity
Portfolio)
GE Investments 5.10% 6.26% 9.90% 8.70% N/A
International
(similar to
International
Equity Portfolio)
NWQ Institutional 13.55% 14.55% 12.51% 13.71% N/A
Equity 90+
(similar to Value
Equity Portfolio)
Alger Capital 4.09% 22.53% N/A N/A 25.86%
Appreciation (11/1/93)
(similar to
Aggressive
Growth Portfolio)
GE Investment 13.49% 15.10% 13.00% 14.16% N/A
U.S. Equity
(similar to U.S.
Equity Portfolio)
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------------
SINCE
INCEPTION
HYPOTHETICAL ONE THREE FIVE TEN (DATE OF
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION)
- ----------- ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Van Kampen American 8.14% 13.30% 14.40% 15.51% N/A
Capital Emerging
Growth
(similar to
Emerging Growth
Portfolio)
Dean Tactical 7.91% 9.96% 8.44% 11.89% N/A
Asset Allocation
(similar to
Tactical Asset
Allocation Portfolio)
</TABLE>
The following table illustrates the HYPOTHETICAL average annual total returns of
the Other Portfolios in exactly the same way as set forth above, except that it
does NOT take into account any charge on amounts surrendered or partially
withdrawn.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------------
SINCE
INCEPTION
HYPOTHETICAL ONE THREE FIVE TEN (DATE OF
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION)
- ----------- ------ ------ ------ ----- ----------
<S> <C> <C> <C> <C> <C>
Janus Worldwide 24.63% 15.23% 15.81% N/A 9.31%
(similar to the (5/15/91)
Global Portfolio)
Scottish Equitable 7.97% 2.77% 11.45% N/A 11.45%
(similar to (1/1/92)
International Equity
Portfolio)
GE Investments 13.21% 8.11% 10.53% 8.79% N/A
International
(similar to
International
Equity Portfolio)
NWQ Institutional 21.67% 16.15% 13.09% 13.78% N/A
Equity 90-
(similar to Value
Equity Portfolio)
Alger Capital 12.21% 23.94% N/A N/A 27.10%
Appreciation (11/1/93)
(similar to
Aggressive
Growth Portfolio)
GE Investment 21.61% 16.68% 13.58% 14.24% N/A
U.S. Equity
(similar to U.S.
Equity Portfolio)
Van Kampen American 16.26% 14.94% 14.95% 15.59% N/A
Capital Emerging
Growth
(similar to
Emerging Growth
Portfolio)
Dean Tactical 16.03% 11.68% 9.10% 11.97% N/A
Asset Allocation
(similar to
Tactical Asset
Allocation Portfolio)
</TABLE>
For more information regarding the performance of the Other Portfolios, see the
Fund Prospectus.
8
<PAGE>
Western Reserve may compare the performance of each Sub-Account in advertising
and sales literature to the performance of other variable annuity issuers in
general or to the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts. For this purpose, Western
Reserve may use as sources of performance comparison such organizations as
Lipper Analytical Services, Inc. ("Lipper"), Variable Annuity Research &
Data Service ("VARDS"), CDA Investment Technologies, Inc. ("CDA")
and Morningstar, Inc. ("Morningstar"), or other services, companies,
individuals or industry or financial publications of general interest, such as
FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S
PERSONAL FINANCE and FORTUNE. Lipper, VARDS, CDA and Morningstar are independent
services which monitor and rank the performances of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS and CDA rankings compare only variable
annuity issuers. The performance analysis prepared by Lipper, VARDS, CDA and
Morningstar each rank such issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales charges, redemption fees or
certain expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Western Reserve may also compare, as appropriate, the performance of each
Sub-Account in advertising and sales literature to widely used measures of
market performance, such as the Standard and Poor's Index of 500 Common Stocks,
Dow Jones Industrials Average, Value Line (Arithmetic) Index, CDA/Wiesenberger
Long Term Growth Average - VA, Wilshire 5000, Financial Times (FT) World Index
Ex-USA, Morgan Stanley Capital International World Index, FT World Index, Lehman
Brothers Government/Corporate Bond Index, Dow Jones Utilities Average,
Donoghue's Taxable Money Fund Average and others. Unmanaged indices may assume
the reinvestment of dividends, but usually do not reflect any "deduction"
for the expense of operating or managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate indices
measuring the performance of a defined group of securities widely recognized by
investors as representing a particular segment of the securities markets. For
example, Sub-Account performance may be compared with Donoghue Money Market
Institutional Averages (money market rates), Lehman Brothers Corporate Bond
Index (corporate bond interest rates) or Lehman Brothers Government Bond Index
(long-term U.S. Government obligation interest rates).
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
9
<PAGE>
assets of the Series Account are available to cover the liabilities of the
general asset account of Western Reserve to the extent that the Series
Account's assets exceed the liabilities arising under variable annuity
contracts supported by it.
The Series Account is currently divided into twenty-one Sub-Accounts, fifteen of
which are offered under this Contract. Each Sub-Account invests exclusively in
shares of a single Portfolio of the Fund. Income and both realized and
unrealized gains or losses from the assets of each Sub-Account are credited to
or charged against that Sub-Account without regard to income, gains or losses
from any other Sub-Account or arising out of any other business of Western
Reserve. Western Reserve may add, delete or substitute investments held by the
Sub-Accounts, and Western Reserve reserves the right to add or remove
Sub-Accounts. Western Reserve further reserves the right to change the
investment objective of any Sub-Account, subject to applicable law as described
in the Statement of Additional Information.
WRL SERIES FUND, INC.
The Series Account currently invests only in shares of the Fund, a series mutual
fund that is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940
Act") as an open-end diversified management investment company.
The Fund currently has twenty-one Portfolios, fifteen of which are offered under
this Contract: the Aggressive Growth Portfolio, Emerging Growth Portfolio,
Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic Total Return
Portfolio, Bond Portfolio, Growth & Income Portfolio, Money Market Portfolio,
Tactical Asset Allocation Portfolio, Value Equity Portfolio, C.A.S.E. Growth
Portfolio, Global Sector Portfolio, International Equity Portfolio and U.S.
Equity Portfolio. The assets of each Portfolio are held separate from the assets
of the other Portfolios, and each Portfolio has different investment objectives
and policies. Thus, each Portfolio operates as a separate investment vehicle,
and the income or losses of one Portfolio are unrelated to that of any other
Portfolio.
The name and sub-adviser for each Portfolio is stated below. THERE IS NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT OBJECTIVE. More
detailed information, including a description of risks, and the investment
objective of each Portfolio can be found in the Prospectus for the Fund, which
should be read carefully before investing.
AGGRESSIVE GROWTH PORTFOLIO: Sub-Adviser - Fred Alger Management, Inc.
EMERGING GROWTH PORTFOLIO: Sub-Adviser - Van Kampen American Capital Asset
Management, Inc.
GROWTH PORTFOLIO: Sub-Adviser - Janus Capital Corporation.
GLOBAL PORTFOLIO: Sub-Adviser - Janus Capital Corporation.
BALANCED PORTFOLIO: Sub-Adviser - AEGON USA Investment Management, Inc.
STRATEGIC TOTAL RETURN PORTFOLIO: Sub Adviser - Luther King Capital Management
Corporation.
BOND PORTFOLIO: Sub-Adviser - Janus Capital Corporation.
GROWTH & INCOME PORTFOLIO: Sub-Adviser - Federated Investment Counseling.
MONEY MARKET PORTFOLIO: Sub-Adviser - J.P. Morgan Investment Management Inc.
TACTICAL ASSET ALLOCATION PORTFOLIO: Sub-Adviser - Dean Investment Associates.
VALUE EQUITY PORTFOLIO: Sub-Adviser - NWQ Investment Management Company, Inc.
C.A.S.E. GROWTH PORTFOLIO: Sub-Adviser - C.A.S.E. Management, Inc.
GLOBAL SECTOR PORTFOLIO: Sub-Adviser - Meridian Investment Management
Corporation.
INTERNATIONAL EQUITY PORTFOLIO: Co-Sub-Advisers - Scottish Equitable Investment
Management Limited and GE Investment Management Incorporated.
U.S. EQUITY PORTFOLIO: Sub-Adviser - GE Investment Management Incorporated.
WRL Investment Management, Inc. ("WRL Management"), a wholly-owned
subsidiary of Western Reserve, serves as investment adviser to the Fund and
manages its assets in accordance with policies, programs and guidelines
established by the Board of Directors of the Fund.
Shares of other portfolios of the Fund are sold through different variable
annuity contracts offered through the Series Account. In addition to the Series
Account shares of certain portfolios of the Fund are sold to the WRL Series Life
Account, a separate account established by Western Reserve for its variable life
insurance policies, the PFL Endeavor Variable Annuity Account and PFL Endeavor
Platinum Variable Annuity Account, separate accounts of PFL Life Insurance
Company, the AUSA Endeavor Variable Annuity Account, and the AUSA Series Life
Account, separate accounts of AUSA Life Insurance Company, Inc., all affiliates
of Western Reserve.
Shares of the Fund may in the future be sold to other separate accounts,
including separate accounts established for variable life insurance policies or
variable annuity contracts issued by Western Reserve or its affiliates. It is
conceivable that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the Fund simultaneously. Although neither Western Reserve nor the Fund currently
foresees any such disadvantages, either to variable life insurance policyowners
or to variable annuity contract owners, the Fund's Board of Directors intends
to monitor events in order to identify any material conflicts between the
interests of such variable life insurance policyowners and variable annuity
contract owners and to determine what action, if any, it should take. Such
action could include the sale of Fund shares by one or more of the separate
accounts, which could have adverse consequences. Material conflicts could result
from, for example,
10
<PAGE>
(1) changes in state insurance laws, (2) changes in Federal income tax laws, or
(3) differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contract owners. If
the Board of Directors were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, Western
Reserve will bear the attendant expenses, but variable life insurance
policyowners and variable annuity contract owners would no longer have the
economies of scale resulting from a larger combined fund.
CHARGES AND DEDUCTIONS
Certain charges will be deducted in connection with the Contracts to compensate
Western Reserve for (1) administering the Contracts; (2) assuming certain risks
in connection with the Contracts; and (3) incurring expenses in distributing the
Contracts. The nature and amount of these charges are described more fully
below.
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may be assessed against
Annuity Values when partially withdrawn or surrendered. No Withdrawal Charge
will be assessed if Annuity Values are applied to an annuity option provided
under the Contract.
For the first partial withdrawal or Systematic Partial
Withdrawal (see, "THE CONTRACT-ACCUMULATION PROVISIONS-Partial Withdrawals
and Surrenders", page 16) during each Contract Year, any applicable
Withdrawal Charge is currently waived on that portion of the amount withdrawn
which equals 10% of the Contract's Annuity Value on the date of the withdrawal.
For example, if the amount of the first partial withdrawal during a Contract
Year is $2,000, and the Contract's Annuity Value on the date of the withdrawal
is $25,000, then 10% of $25,000 equals $2,500, and the Withdrawal Charge is
waived on the entire $2,000 withdrawn. Thereafter, the full amount of any
subsequent partial withdrawal or Systematic Partial Withdrawal during the
remainder of that Contract Year will be subject to the Withdrawal Charge.
However, no waiver of a Withdrawal Charge will be made in connection with a
Surrender. In determining which amounts withdrawn are subject to the Withdrawal
Charge, partial withdrawals and Surrenders will be deemed made first from
Purchase Payments on a first-in, first-out basis, and then from any Contract
earnings.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or surrender determines whether the Withdrawal Charge will be
deducted. The charge is a percentage of each respective Purchase Payment
partially withdrawn or surrendered within seven years of its payment. The charge
is as follows:
<TABLE>
<CAPTION>
NUMBER OF MONTHS FROM
DATE OF RECEIPT OF EACH
WITHDRAWAL CHARGE PURCHASE PAYMENT
- ----------------- -----------------------
<S> <C>
8% ............... 12 or Less
7% ............... 13 through 24
6% ............... 25 through 36
5% ............... 37 through 48
4% ............... 49 through 60
3% ............... 61 through 72
2% ............... 73 through 84
0% ............... 85 or more
</TABLE>
For Contracts issued with an appropriate endorsement, if the Owner or a joint
Owner is confined to a nursing care facility (as defined in the endorsement) for
thirty (30) consecutive days or longer, Western Reserve will also waive the
Withdrawal Charge on partial withdrawals or Surrenders as follows. Such
confinement must begin after the Contract Date. Western Reserve must receive
satisfactory written evidence of such confinement within two (2) months after
the confinement ends. Western Reserve will waive the Withdrawal Charge under the
endorsement only for Surrenders and partial withdrawals made during such
confinement or within two (2) months after the confinement ends. The endorsement
is not available in all States.
The Withdrawal Charge is imposed to enable Western Reserve to recover sales
expenses it advances, including compensation to broker-dealers, the cost of
printing prospectuses and sales literature and any advertising costs. The
Withdrawal Charge is deducted from the Annuity Value by cancelling the number of
Accumulation Units equal to the charge. The amount of the Withdrawal Charge will
be determined as of the date the partial withdrawal or Surrender payment is
processed. In the event of a partial withdrawal, the Owner will receive the full
amount requested, and an amount equal to the Withdrawal Charge will also be
withdrawn in order for the Owner to receive the full amount requested. For
example, if the Owner requests a distribution in the amount of $100 during the
second Contract Year (such distribution is deemed to be made from the initial
Purchase Payment) and the Withdrawal Charge is to be imposed on the full amount,
the Owner would receive $100, the total Annuity Value partially withdrawn would
be $107.53, and the Withdrawal Charge would be $7.53 (which is 7% of $107.53).
Any partial withdrawal or Surrender may be subject to tax, and the Owner should,
therefore, consult with his or her tax advisor before requesting any partial
withdrawal or Surrender. (See "FEDERAL TAX MATTERS-Taxation of Annuities"
on pages 22-23 and "-Qualified Plans" on pages 23-24.)
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.
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<PAGE>
The Withdrawal Charge may be eliminated for the sale of the Contract to: (a)
current and retired directors, officers, full-time employees and agents of
Western Reserve and its affiliates; (b) current and retired directors, officers,
full-
time employees and registered representatives of ISI, an affiliate of Western
Reserve, and any broker-dealer which has a sales agreement with InterSecurities,
Inc.; (c) any Trust, pension, profit-sharing or other employee benefit plan of
any of the foregoing persons or entities; (d) current and retired directors,
officers and full-time employees of WRL Series Fund, Inc. and any IDEX mutual
fund, and any investment adviser or investment sub-adviser thereto; and (e) any
member of a family of any of the foregoing (e.g., spouse, child, sibling, parent
or parent-in-law). Western Reserve reserves the right to modify or terminate
this arrangement at any time.
TRANSFER CHARGE
Each transfer of Annuity Value among the Sub-Accounts and the Fixed Account
exceeding one transfer per Contract Month, or twelve transfers per Contract
Year, will be subject to a Transfer Charge of $25. The Transfer Charge will be
deducted from the amount transferred to compensate Western Reserve for the costs
of the transfer. All transfers made on any one day will be considered a single
transfer. The Transfer Charge will not be increased.
CHANGE IN PURCHASE PAYMENT ALLOCATION FEE
During the Accumulation Period, the Owner may allocate a percentage of the Net
Purchase Payment to one or more Sub-Accounts, to the Fixed Account, or to a
combination of both. Western Reserve reserves the right to limit any allocation
to any Sub-Account or the Fixed Account to no less than 10% of each Net Purchase
Payment. No fractional percentages are permitted. The Owner may change the
allocation of future Net Purchase Payments among the Sub-Accounts and the Fixed
Account at any time. Western Reserve will charge a fee of $25 for each change of
allocation in excess of one per Contract quarter.
MORTALITY AND EXPENSE RISK CHARGE
Western Reserve will deduct a daily Mortality and Expense Risk Charge from the
Series Account at an annual rate of 1.40% of the average daily net assets of the
Series Account. Western Reserve assumes two mortality risks: (1) that the
annuity rates under the Contracts cannot be changed to the detriment of Owners
even if Annuitants live longer than projected; and (2) Western Reserve may be
obligated to pay a death benefit claim in excess of a Contract's Cash Value.
(See "ANNUITY PROVISIONS-Improved Annuity Rates" on page 21 and
"ACCUMULATION PROVISIONS-Death Benefits during the Accumulation Period" on
page 18.) Western Reserve also assumes an expense risk through its guarantee not
to increase the charges for issuing and administering the Contracts and the
Series Account, regardless of its actual expenses.
This charge is deducted from the Series Account both during the Accumulation
Period and after the Maturity Date. The Mortality and Expense Risk Charge will
not be assessed against either the Fixed Account Value or monies that have been
applied to purchase a Fixed Account annuity option.
ANNUAL CONTRACT CHARGE
On each Anniversary through the Maturity Date, Western Reserve will deduct and
Annual Contract Charge of $35 as partial compensation for the cost of providing
administrative services under the Contracts. The Annual Contract Charge is
deducted from each Sub-Account and the Fixed Account in proportion to the value
each bears to the Annuity Value. If the Annuity Value is surrendered other than
on an Anniversary, a full $35 fee will be deducted.
Deduction of the Annual Contract Charge is currently waived when the sum of all
Net Purchase Payments received, minus all partial withdrawals, exceeds $50,000
as of the Contract Anniversary for which the Annual Contract Charge is payable.
Western Reserve reserves the right to discontinue such waiver at any time and to
assess the Annual Contract Charge as it becomes payable.
Western Reserve may reduce the amount of the Annual Contract Charge when sales
of Contracts are made to a group of employees of the same employer, employer
group or similar group, under an arrangement which results in a savings in
administrative service expenses. Even if administrative expenses of the Account
increase, Western Reserve guarantees that it will not increase the amount of the
Annual Contract Charge.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax, ranging
up to 3.5% of Purchase Payments. If applicable, and if Western Reserve has
incurred or reasonably expects to incur expenses in respect of premium taxes,
the tax will be deducted, either from the Purchase Payment when received, from
amounts partially withdrawn or surrendered, from death benefit proceeds, or from
the amount applied to effect an annuity at the time annuity payments commence.
Western Reserve will deduct any applicable premium taxes when it incurs them,
but reserves the right to defer deduction to a later date as long as such
deferral is equitable to Owners.
Premium tax rates are subject to change by the respective state legislatures,
administrative interpretations, or judicial acts. The amount of any such tax
will depend on, among other things, the Owner's state of residence, the status
of Western Reserve in that state, and the insurance tax laws of such state.
DEDUCTIONS FOR OTHER TAXES
Currently no charge is made to the Series Account for Federal income taxes
attributable to the Series Account. Western Reserve may, however, make such a
charge in the future subject to obtaining any necessary regulatory approvals.
Charges for any other applicable taxes including any tax or other economic
burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Account may also be made. (See
"FEDERAL TAX MATTERS-Company Tax Status" on page 22.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of the
Series Account will reflect the investment management fee and other expenses
incurred by the Portfolios, as described in the Fund's Prospectus.
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<PAGE>
Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the
Plan, has entered into a Distribution Agreement with ISI, principal underwriter
for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundreths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek payment
by the Fund of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI's seeking reimbursement,
Policyowners will be notified in advance.
THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase Payments
after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany the
application, and for Non-Qualified Contracts must be at least $5,000; however, a
minimum initial Purchase Payment of $1,000 is allowed provided the application
reflects anticipated additional monthly periodic Purchase Payments of at least
$100, via electronic funds transfer from the owner's bank account. For IRAs the
minimum initial Purchase Payment is $1,000 and for Qualified Contracts other
than IRAs the minimum initial Purchase Payment is $50. For all Contracts,
subsequent Purchase Payments are not required but may be made at any time and in
any amount provided that each payment is for a minimum of $50, unless Western
Reserve consents to a smaller amount and further provided that total Purchase
Payments in any Contract Year do not exceed $1,000,000, unless Western Reserve
consents to a larger amount.
As an accommodation to Owners, Western Reserve will accept transmittal of both
initial and subsequent Purchase Payments of at least $1,000 by wire transfer.
For initial Purchase Payments, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission of an application ("FAXED
Application"). Initial Purchase Payments accepted via wire transfer with
FAXED Application will be invested at the value next determined following
receipt. Initial Purchase Payments made by wire transfer not accompanied by
simultaneous FAXED Application, or accompanied by an incomplete FAXED
Application, will be retained for a period up to five business days while
Western Reserve attempts to obtain the FAXED Application or complete the
essential information required to establish the Contract and allocate the
initial Purchase Payment at the Accumulation Unit Value which will be determined
after receipt of the FAXED Application or information necessary to complete the
application. If Western Reserve cannot obtain the FAXED Application or essential
information within five business days, Western Reserve will return the initial
Purchase Payment to the applicant, unless the applicant consents to allow
Western Reserve to retain the initial Purchase Payment until the required FAXED
Application or essential information is received. When the FAXED Application
contains all information necessary to issue the Contract and allocate the Net
Purchase Payment, but the FAXED Application has not been signed by the Owner,
Western Reserve will issue the Contract and allocate the Net Purchase Payment as
indicated in the FAXED Application. At the same time, Western Reserve will also
electronically prepare a new application form, containing the same information
received on the FAXED Application, for delivery with the Contract to the Owner.
Upon delivery, the Owner will sign the electronically prepared application,
which will be retained by Western Reserve.
In the event the original application with original signature is later received
and the allocation instructions in that application are, for any reason,
inconsistent with those previously designated on the FAXED Application, the
initial Purchase Payment will be reallocated in accordance with the allocation
instructions in the application with original signature at the Accumulation Unit
Value next determined after receipt of such application.
Owners wishing to make payments via bank wire should instruct their banks to
wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention: Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any reason
permitted by law.
NET PURCHASE PAYMENTS
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "Premium Taxes," page 14.) Initial and subsequent Net Purchase
Payments are allocated according to the Owner's direction among the
Sub-Accounts of the Series Account, to the Fixed Account, or to a combination of
both. Western Reserve reserves the right to limit any allocation to any account
to no less than 10% of each Net Purchase Payment. No fractional percentages are
permitted. The Owner may change the allocation of future Net Purchase Payments
among the Sub-Accounts and the Fixed Account at any time. Western Reserve will
charge a fee of $25 for each change of allocation in excess of one per Contract
quarter. The request for a change in allocation must be in a form satisfactory
to Western Reserve. The change in allocation is effective on the date the
request for change is recorded by Western Reserve. (For Contracts issued in the
State of Washington, the Fixed Account is not available for allocation of Net
Purchase Payments.) The Owner, or the registered representative/agent of record
for the Contract upon instructions from the Owner, may change the allocation of
subsequent Purchase Payments at any time upon written notice to Western Reserve,
or by telephone by calling Western Reserve's toll-free number, 1-800-851-9777.
Western Reserve will employ the same
13
<PAGE>
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 end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund
Portfolio owned by the Sub-Account times the Portfolio's net asset value
per share; minus
2. The accrued daily percentage for the Mortality and Expense Risk Charge
multiplied by the net assets of the Sub-Account; minus
3. The accrued amount of reserve for any taxes that are determined by Western
Reserve to have resulted from the investment operations of the
Sub-Account; divided by
4. The number of outstanding units in the Sub-Account.
The Mortality and Expense Risk Charge is deducted at an annual rate of 1.40%
from the net assets during each day in the Valuation Period and compensates
Western Reserve for certain mortality and expense risks. (See "CHARGES AND
DEDUCTIONS-Mortality and Expense Risk Charge" on page 12.) The Accumulation
Unit Value may increase, decrease, or remain the same from Valuation Period to
Valuation Period.
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of Units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-
Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated
to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account
or the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any Transfer Charge.
PORTFOLIO SHARE NET ASSET VALUE. The net asset value per share of shares of the
Fund is determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m.
Eastern time), on each day the Exchange is open.
TRANSFERS TO AND FROM, AND AMONG ALLOCATION OPTIONS
Before the Maturity Date, the Owner may, at any time, transfer amounts among
Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts issued
in the State of Washington, the Fixed Account is not available to receive
Annuity Value transferred from the Sub-Accounts.) Transfers may also be made
from the Fixed Account to the Sub-Accounts, subject to certain restrictions.
(See "THE FIXED ACCOUNT-Allocations, Transfers and Partial Withdrawals" on page
26.) Transfers are not available if the Owner has elected Dollar Cost Averaging,
the Asset Rebalancing Program or Systematic Partial Withdrawals.
The amount available for transfer from any Sub-Account or the Fixed Account is
determined at the end of the Valuation Period during which the transfer request
is received at Western Reserve's Administrative Office. As explained in the
previous paragraph, the net asset value for each share of the corresponding
Portfolio of any Sub-Account is determined, once daily, as of the close of the
regular business session of the Exchange (usually 4:00 p.m., Eastern time),
which coincides with the end of each Valuation Period. Therefore, any transfer
request received after 4:00 p.m., Eastern time, on any day the Exchange is open
for business will be processed utilizing the net asset value for each share of
the applicable Portfolio determined as of 4:00 p.m., Eastern time, on the next
day the Exchange is open for business.
The amount available for transfer from the Fixed Account will be determined in
the same manner. Owners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The registered
representative/agent of record for the Contract may, upon instructions from the
Owner, make telephone transfers upon request without the necessity for the Owner
to have previously authorized telephone transfers in writing. If, for any
reason, an Owner does not want the ability to make transfers by telephone, the
Owner should provide written notice to Western
14
<PAGE>
Reserve. All telephone transfers should be made by calling Western Reserve at
the toll-free number 1-800-851-
9777.
Western Reserve will not be liable for complying with telephone instructions it
reasonably believes to be authentic, nor for any loss, damage, costs or expense
in acting on such telephone instructions, and Owners will bear the risk of any
such loss. Western Reserve will employ reasonable procedures to confirm that
telephone instructions are genuine. If Western Reserve does not employ such
procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring forms of
personal identification prior to acting upon such telephone instructions,
providing written confirmation of such transactions to Owners and/or tape
recording of telephone transfer request instructions received from Owners.
Western Reserve may, at any time, revoke or modify the transfer privilege.
Western Reserve ordinarily will effect transfers and determine all values in
connection with transfers at the end of the Valuation Period during which the
transfer request is received at Western Reserve's Administrative Office.
Western Reserve currently imposes a $25 charge for when any transfer of Annuity
Value exceeds one transfer per Contract Month, or twelve transfers per Contract
Year. (See "CHARGES AND DEDUCTIONS-Transfer Charge" on page 12.)
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Owners to conduct
transfers on a Policyowner's behalf, or who provide recommendations as to how
Sub-Account values should be allocated. This includes, but is not limited to,
transferring Sub-Account values among Sub-Accounts in accordance with various
investment allocation strategies such third party may employ. Such independent
third parties may or may not be appointed Western Reserve agents for the sale of
Contracts. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO OFFER
INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS OFFERING
SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH
WESTERN RESERVE FOR THE SALE OF CONTRACTS. WESTERN RESERVE THEREFORE TAKES NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON AN
OWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
an Owner any additional fees for providing these support services. Western
Reserve reserves the right to discontinue providing administrative and support
services for Owners utilizing independent third parties who provide investment
allocation and transfer recommendations.
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to transfer automatically specified amounts
from the Money Market Sub-Account, the Bond Sub-Account, the Fixed Account or
any combination of these Accounts on a monthly basis to any other Sub-Account.
This service is intended to allow the Owner to utilize "Dollar Cost
Averaging," a long-term investment method which provides for regular, level
investments over time. Western Reserve makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss.
To qualify for Dollar Cost Averaging, a minimum of $10,000 must be allocated to
each Account from which transfers will be made and at least $1,000, in the
aggregate, must be transferred each month, unless Western Reserve consents to a
smaller amount. To further qualify for Dollar Cost Averaging from the Fixed
Account, no more than one-tenth (1/10) of the amount in the Fixed Account at the
commencement of Dollar Cost Averaging can be transferred each month. Other types
of transfers from the Fixed Account may also be subject to certain other
restrictions. (See "THE FIXED ACCOUNT-Allocations, Transfers and Partial
Withdrawals" on page 26.)
A written election of this service, on a form provided by Western Reserve, must
be completed by the Owner in order to begin transfers. The first transfer will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. Once elected, transfers from the Money
Market or Bond Sub-Accounts or the Fixed Account will be processed monthly until
the entire value of each Account from which transfers are made is completely
depleted or the Owner instructs Western Reserve in writing to cancel the monthly
transfers. For example, if $15,000 was allocated to the Money Market Sub-Account
and $10,000 was allocated to the Bond Sub-Account and transfers of $500 are made
each month from each of these Sub-Accounts to the Growth Sub-Account, transfers
of $500 per month would continue to be made from the Money Market Sub-Account
even though transfers from the Bond Sub-Account had ceased as a result of
depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
twelve free transfers allowed during each Contract Year. (See "CHARGES AND
DEDUCTIONS-Transfer Charge" on page 12.) Western Reserve reserves the right
to discontinue offering Dollar Cost Averaging upon 30 days' written notice to
Owners. Dollar Cost Averaging is not available if the Owner has elected the
Asset Rebalancing Program or Systematic Partial Withdrawals, or if Western
Reserve is currently providing administrative and other support services to an
independent third party authorized to conduct transfers on the Owner's behalf.
ASSET REBALANCING PROGRAM
Western Reserve offers a program under which an Owner may authorize Western
Reserve to transfer automatically Annuity Value each quarter to maintain a
particular percentage allocation among the Sub-Accounts. Annuity Value allocated
to the Fixed Account may not be included in the Asset Rebalancing Program. The
Annuity Value allocated to each Sub-Account will grow or decline in value at
different rates. The Asset Rebalancing Program automatically reallocates the
Annuity Value in the Sub-Accounts at the end of each period to match the
Contract's currently effective Net Purchase Payment allocation schedule. The
Asset Rebalancing Program is intended to transfer Annuity Value from those
Sub-Accounts that have increased in value to those Sub-Accounts that have
declined in value. Over time, this method of investing may
15
<PAGE>
help an Owner buy low and sell high. This investment method does not guarantee
gains, nor does it assure that any Sub-Account will not have losses.
To qualify for Asset Rebalancing, a minimum Annuity Value of $10,000 for an
existing Contract, or a minimum initial Purchase Payment of $10,000 for a new
Contract, is required, unless Western Reserve consents to a smaller amount. To
participate in the Asset Rebalancing Program, a properly completed Asset
Rebalancing Request Form must be received by Western Reserve at its
Administrative Office. An Asset Rebalancing Request Form is available upon
request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or annual
anniversary of the Contract Date. Following receipt of the Asset Rebalancing
Request Form, Western Reserve will effect the initial rebalancing of Annuity
Value on the next such anniversary, in accordance with the Contract's current
Net Purchase Payment allocation schedule. The amounts transferred will be
credited at the Accumulation Unit Value as of the end of the Valuation Dates on
which the transfers are made. If a day on which rebalancing would ordinarily
occur falls on a day on which the New York Exchange is closed, rebalancing will
occur on the next day the New York Stock Exchange is open. There is no charge
for the Asset Rebalancing Program. However, each reallocation which occurs under
the Asset Rebalancing Program will be counted towards the twelve free transfers
allowed during each Contract Year. (See "CHARGES AND DEDUCTIONS-Transfer
Charge" on page 12.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by oral or written request to Western Reserve's Administrative Office.
Participation in the Asset Rebalancing Program will terminate automatically if
any transfer is made to, or from, any Sub-Account, other than on account of a
scheduled rebalancing. If an Owner wishes to resume the Asset Rebalancing
Program after it has been canceled, a new Asset Rebalancing Request Form must be
completed and sent to Western Reserve's Administrative Office. Owners may start
and stop participation in the Asset Rebalancing Program at any time; however,
Western Reserve reserves the right to restrict entry into the Asset Rebalancing
Program to once per Contract Year. The Asset Rebalancing Program is available
only during the Accumulation Period, and is not available if the Owner has
elected Dollar Cost Averaging or Systematic Partial Withdrawals, or if Western
Reserve is currently providing administrative and other support services to an
independent third party authorized to conduct transfers on the Owner's behalf.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
PARTIAL WITHDRAWALS AND SURRENDERS
1. PARTIAL WITHDRAWALS. Prior to the earlier of the Maturity Date or the death
of the Annuitant (when no Contingent Annuitant has been named), the Owner may
partially withdraw a portion of the Series Account Value upon written request,
complete with all necessary information, to Western Reserve's Administrative
Office. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $10,000. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT-Allocations, Transfers and Partial Withdrawals" on page 27.) All
partial withdrawals are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the request for
partial withdrawal by Western Reserve at its Administrative Office. Western
Reserve will cancel units equal to the amount requested from each Sub-Account,
and an amount equal to the Withdrawal Charge and any premium tax will also be
withdrawn in order for the Owner to receive the full amount requested, (See
"CHARGES AND DEDUCTIONS-Withdrawal Charge" on page 11 and "Premium Taxes" on
page 12.) The Sub-Accounts for a partial withdrawal may be specified and the
amount requested to be withdrawn from each specified Sub-Account may not exceed
the value of that Sub-Account. If not specified, the amount requested will be
withdrawn from each Sub-Account and the Fixed Account in proportion to the value
each bears to the Annuity Value.
2. SYSTEMATIC PARTIAL WITHDRAWALS. The Owner may elect in writing on a form
provided by Western Reserve to partially withdraw from the Series Account up to
10% of the Cash Value annually (10% of the initial Purchase Payment if elected
at time of application for a Contract), in equal monthly payments
("Systematic Partial Withdrawals") of at least $200 per month. The first
withdrawal will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. If Systematic
Partial Withdrawals are elected at the time of application for a Contract, a
minimum initial Purchase Payment of at least $25,000 must accompany the
application, unless Western Reserve consents to a smaller amount. A subsequent
election is subject to the Contract then having a minimum of $25,000 of Cash
Value, unless Western Reserve consents to a smaller amount. Western Reserve will
pay the Systematic Partial Withdrawal amount requested and cancel units equal to
the amount withdrawn from the Sub-Accounts in the same manner as the current Net
Purchase Payment allocation instructions, except no Systematic Partial
Withdrawals are permitted from the Fixed Account. The amount to be partially
withdrawn from each Sub-Account may not exceed the Cash Value of the
Sub-Account. Western Reserve will not process a Systematic Partial Withdrawal if
the Cash Value for the entire Contract would be reduced below $5,000.
Generally, under a Non-Qualified Contract, Systematic Partial Withdrawals, like
other distributions prior to the Maturity Date, are first treated as taxable
income to the extent that the Contract Value immediately before a withdrawal
exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable. Further, under a Non-Qualified Contract, a 10%
penalty tax will generally be imposed on the taxable portion of a partial
withdrawal and a Systematic Partial Withdrawal made prior to the Owner's age
591/2. unless certain exceptions apply. The Owner should, therefore, consult
with his or her tax advisor before requesting any partial withdrawal or
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Systematic Partial Withdrawals. (See "FEDERAL TAX MATTERS-Taxation of
Annuities" on page 22.)
Systematic Partial Withdrawals are not available if the Owner has elected Dollar
Cost Averaging or the Asset Rebalancing Program, or if Western Reserve is
currently providing administrative and other support services to an independent
third party authorized to conduct transfers on the Owner's behalf. Systematic
Partial Withdrawals may be discontinued by the Owner at any time by notifying
Western Reserve in writing. Western Reserve reserves the right to discontinue
offering Systematic Partial Withdrawals upon 30 days' written notice to Owners.
Western Reserve also reserves the right to assess a processing fee for this
service.
3. SURRENDERS. The Owner may completely surrender the Contract at any time prior
to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct the $35 Annual Contract Charge, any
applicable premium taxes, and any applicable Withdrawal Charge from the
Surrender proceeds.
4. PARTIAL WITHDRAWALS AND SURRENDERS. The amount of any partial withdrawal or
Surrender will be paid promptly, and in any event within seven days of receipt
of the written request, complete with all necessary information at Western
Reserve's Administrative Office, except that Western Reserve reserves the right
to defer the right of partial withdrawal or Surrender under certain
circumstances. (See "OTHER MATTERS RELATING TO THE CONTRACT-Contract Payments"
on page 21.) Under Non-Qualified Contracts, Western Reserve will withhold from
each partial withdrawal, systematic partial withdrawal or Surrender for tax
purposes the minimum amount required by law, unless the Owner affirmatively
elects, before payments begin, to have either nothing withheld or a different
amount withheld. When Western Reserve incurs extraordinary charges, such as wire
transfers or overnight mail expenses, for expediting delivery of a partial
withdrawal or Surrender payment to a Contract Owner, Western Reserve will deduct
such charges from the payment. The current charge for a wire transfer is $15.
The current charge for overnight delivery is $20. For the protection of Owners,
all requests for partial withdrawals or Surrenders of more than $100,000, or
where the partial withdrawal or Surrender proceeds are to be sent to an address
other than the address of record, will require a signature guarantee. All
required guarantees of signatures must be made by a national or state bank, a
member firm of a national stock exchange or any other institution which is an
eligible guarantor institution as defined by rules and regulations of the SEC.
If the Owner is a corpora- tion, partnership, trust or fiduciary, evidence of
the authority of the person seeking redemption is required before the request
for withdrawal is accepted, including withdrawals under $100,000. For additional
information, Owners may call Western Reserve at (800) 851-9777. Partial
withdrawals, Systematic Partial Withdrawls, and Surrenders may be subject to tax
including a 10% penalty tax. (See "FEDERAL TAX MATTERS-Taxation of Annuities" on
page 22.) For certain Qualified Contracts, a partial withdrawal may require the
consent of the Owner's spouse under the Code and the regulations promulgated
thereunder by the Treasury Department (the "Treasury Regulations"). (See
"FEDERAL TAX MATTERS- Qualified Plans" on page 23.) For Qualified Contracts
issued under Code Section 403(b) and Contracts issued under the Texas Optional
Retirement Program, certain restrictions will apply. (See "FEDERAL TAX MATTERS-
Qualified Plans" on page 23.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the Accumulation
Period, (1) Owners of Contracts used in connection with a Tax Sheltered Annuity
Plan ("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not
subject to the Employee Retirement Income Security Act of 1974, and (2) Owners
of Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a
Section 401(k) plan, where a plan trustee is the Owner, may elect a Contract
loan endorsement under which the Owner can receive Contract loans. The
availability of Contract loans will also be governed by the provisions of the
TSA Plans or 401 Plans involved. An Owner of a Contract used in connection with
a TSA Plan or 401 Plan may be subject to income tax or tax penalties if loans
from the plan are not repaid in accordance with applicable provisions of the
Code. In addition, Internal Revenue Service authorities suggest that a Contract
loan may, at least in certain circumstances, result in adverse tax consequences
for the TSA Plan or 401 Plan. Accordingly, a competent tax advisor should be
consulted before a Contract loan is requested.
If the Contract loan endorsement is available, the Owner can borrow against the
Contract an amount which may not exceed the lesser of (1) 50% of the Annuity
Value or (2) $50,000 reduced by the highest outstanding loan balance during the
one-year period ending on the day before the loan date (determined below).
However, if the Annuity Value is less than $20,000, the Owner may borrow against
the Contract the lesser of (1) 80% of the Annuity Value or (2) $10,000. In all
events, the minimum amount that can be borrowed is $1,000. The Owner has the
sole responsibility for requesting loans and making loan repayments that comply
with applicable tax requirements.
When a loan is made, an amount equal to the loan will be withdrawn from the
Sub-Accounts specified by the Owner and transferred to the loan reserve. The
loan reserve is part of the Fixed Account used as collateral for any Contract
loan. If no Sub-Accounts are specified, the loan will be made from each
Sub-Account in 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
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with establishment and administration of the loan reserve. However, Western
Reserve reserves the right to charge such a fee or change it from time to time.
The Contract will be the sole security for the loan. Western Reserve reserves
the right to limit the number of loans an Owner may make during a Contract Year.
On each Contract Anniversary, Western Reserve will compare the amount of the
outstanding loan to the amount in the loan reserve. Western Reserve will also
make this comparison whenever the Owner repays all or part of the loan. At each
such time, if the amount of the outstanding loan (plus any unpaid interest)
exceeds the amount in the loan reserve, Western Reserve will withdraw the
difference from the Contract's Sub-Accounts and transfer it to the loan
reserve, in the same fashion as when a loan is made. If the amount in the loan
reserve exceeds the amount of the outstanding loan, Western Reserve will
withdraw the difference from the loan reserve and transfer it to the
Sub-Accounts in accordance with the Owner's current payment allocation.
However, Western Reserve reserves the right to require the transfer to the Fixed
Account if the amount was transferred from the Fixed Account to establish the
loan.
If the Contract loan at any time exceeds the Cash Value of the Contract, Western
Reserve will mail a notice to the last known address of the Owner and any
assignee of record. If the excess amount is not paid within 31 days after
mailing of the notice, the Contract will terminate without value.
LOAN INTEREST. Interest on any loan will be at the Contract loan annual rate of
6% in arrears unless, under a 401 Plan, a higher rate is requested by the Owner
in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed effective
annual interest rate of 4% per year. Western Reserve may declare from time to
time higher current interest rates. Different current interest rates may be
applied to the Fixed Account attributable to the loan reserve than to the rest
of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in substantially level
quarterly or monthly payments over a 5-year period or, if the loan is used to
acquire the Owner's principal residence, a 10, 15, or 20-year period, but such
an extended period cannot go beyond the year the Owner attains age 701/2. If a
loan installment repayment is not received within 31 days from the
installment's original due date, a deemed distribution of the entire amount of
the outstanding loan principal and interest due, and any applicable charges
under the Contract including any Withdrawal Charge, will take place. Under a
Qualified Plan, this distribution may be subject to income tax and a penalty
tax, and may cause the Contract to fail to qualify under the Code. (See
"FEDERAL TAX MATTERS-
Qualified Plans," page 23.)
While the Contract is In Force and during the Accumulation Period, any loan may
be repaid in full. IF NOT REPAID, LOANS WILL AUTOMATICALLY REDUCE THE AMOUNT OF
ANY DEATH BENEFIT PROCEEDS, THE AMOUNT PAYABLE UPON A PARTIAL WITHDRAWAL OR
SURRENDER OF THE CONTRACT AND THE AMOUNT APPLIED ON THE MATURITY DATE TO PROVIDE
ANNUITY PAYMENTS.
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. GENERAL
In general, if the Annuitant dies during the Accumulation Period and the Owner
is a natural person other than the Annuitant, the Owner will automatically
become the new Annuitant and the Contract will continue In Force and no death
benefit will be payable to the Beneficiary. In the event of Joint Owners, the
younger Joint Owner will automatically become the Owner and the Contract will
continue. If the Annuitant dies during the Accumulation Period and the Owner is
either the same individual as the Annuitant or other than a natural person,
Western Reserve will pay the death benefit proceeds to the Beneficiary in a lump
sum upon receipt of due proof of death unless a written Alternative Election, as
described below, is made. However, in the event of Joint Owners, if the
Annuitant dies during the Accumulation Period and is the same individual as one
of the Joint Owners, the surviving Joint Owner will automatically become the
Annuitant and the Contract will continue.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND (A) PRIOR TO THE END OF
THE SEVENTH CONTRACT YEAR, OR (B) AFTER THE ANNUITANT'S ATTAINED AGE 79, and
the Owner is either the same person as the Annuitant or other than a natural
person, the death benefit proceeds, if payable, will be the greater of: (i) the
Annuity Value as of the date Western Reserve receives due proof of death and a
written election as to the method of payment, as described above; or (ii) the
excess of (a) the amount of Purchase Payments paid less (b) any amounts
partially withdrawn from the Contract to pay for partial withdrawals.
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND AFTER THE SEVENTH
CONTRACT YEAR, BUT PRIOR TO THE ANNUITANT'S ATTAINED AGE 80, and the Owner is
either the same person as the Annuitant or other than a natural person, the
death benefit proceeds, if payable, will be the greatest of: (i) the Annuity
Value as of the date Western Reserve receives due proof of death and a written
election as to the method of payment, as described above; or (ii) the excess of
(a) the amount of Purchase Payments paid less (b) any amounts withdrawn from the
Contract to pay for partial withdrawals, or (iii) the Annuity Value as of the
seventh Contract Anniversary, less any amounts withdrawn from the Contract after
the seventh Contract Year to pay for partial withdrawals. In certain states, the
calculation of death benefit proceeds under item (iii) may vary. The Contract
should be consulted for details.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit proceeds as in 2.
above and is the spouse of the deceased Annuitant, then the spousal Beneficiary
may elect to become the new Owner and Annuitant and keep the Contract in force
in lieu of receiving the death benefit proceeds.
If the Beneficiary is not the spouse of the deceased Annuitant and is entitled
to receive the death benefit proceeds, the Beneficiary may elect, in lieu of a
lump sum payment, one of the following options that provide for complete
distribution of the death benefit proceeds and termination of
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the Contract: (i) within five years of the date of such Annuitant's death; (ii)
over the lifetime of the Beneficiary; or (iii) over a period that does not
exceed the life expectancy of such Beneficiary, as defined by the Code and the
Treasury Regulations. Options (ii) and (iii) may be elected only if the
Beneficiary is a natural person and payments start within one year of the date
of the Annuitant's death, (For a more detailed explanation of these
requirements, see "FEDERAL TAX MATTERS-Additional Considerations" on page
24.) Multiple Beneficiaries may choose individually among any of the three
options.
For options (i) and (iii) above, the Annuity Value as of the date Western
Reserve receives due proof of death and a written election as to the method of
payment, if any, will be adjusted to equal the death benefit proceeds, as
described below, and the Contract will remain in force as a deferred annuity
until the end of the elected distribution period.
Under option (i) above, Western Reserve will:
/bullet/ Allow the Beneficiary, at the time of electing (i), to make one
partial withdrawal. Further partial withdrawals during the
duration of the five-year period are not permitted;
/bullet/ Allow the Beneficiary, at the time of electing (i), to make
"one-time" transfer of Annuity Value among Sub-Accounts and to the
Fixed Account, and transfers from the Fixed Account to the
Sub-Accounts without a transfer charge;
/bullet/ Not deduct the Annual Contract Charge during the duration of the
five-year period;
/bullet/ Not apply the Withdrawal Charge in the event of a partial
withdrawal upon election of (i) or upon a total distribution of
all Contract values during or at the end of the five-year period;
/bullet/ Not allow annuitization during or at the end of the five-year
period. Distribution of all Contract values will be made in a lump
sum;
/bullet/ In the event of the death of the Beneficiary prior to the end of
the five-year period, pay remaining Contract value, according to
its value at the time of payment, to the Beneficiary's estate,
unless a Contingent Beneficiary has been named by the Owner, in
which event payment will be made to the Contingent Beneficiary.
The Beneficiary is NOT entitled to name his or her own beneficiary
of the Contract's value.
Under option (ii), the Maturity Date will be changed to the date Western Reserve
receives due proof of death and a written election as to the method of payment,
if any, and the death benefit proceeds will be used to purchase annuity payments
under the annuity provisions of the Contract. (See "ANNUITY PROVISIONS"
page 19.)
4. DEATH OF AN OWNER WHO IS NOT AN ANNUITANT
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Beneficiary has been named or, if named, is no longer alive, the
Owner's estate will become the new Owner. The Cash Value must be distributed
within five years of the former Owner's death; or
(b) If a Beneficiary has been named, is alive and is the Owner's spouse, the
Contract will continue with the spouse as the new Owner; or
(c) If a Beneficiary has been named, is alive and is not the Owner's spouse,
the Beneficiary will become the new Owner. The Cash Value must be distributed
either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year of the
former Owner's death.
5. QUALIFIED CONTRACTS
If a Qualified Contract is issued to a retirement plan, similar provisions will
apply upon the death of the plan participant. However, the required distribution
rules are more complex in the case of a Qualified Contract held by a plan. Plan
participants should consult a qualified pension or tax advisor concerning the
operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-
Qualified Contracts and Qualified Contracts, the Anniversary nearest the
Annuitant's Attained Age 90. However, the Owner may change the Maturity Date at
any time prior to the Maturity Date by written request. Any new Maturity Date
must be at least five years after the Contract Date, and the Attained Age of the
Annuitant as of the new Maturity Date cannot be greater than 90. After the
Maturity Date, no additional purchase payments, partial withdrawals, transfers,
full Surrenders, or change of Annuitants or annuity options may be made under
the Contract. The Qualified Contract is designed for use with several types 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 below), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change the
annuity option by written request at any time prior to the Maturity Date. The
Annuitant on the Maturity Date will become the payee and receive the annuity
payment. Thirty days prior to the Maturity Date, Western Reserve will mail to
the Owner a notice and a form upon which the Owner can select Allocation Options
for the annuity proceeds as of the Maturity Date, which cannot be changed
thereafter and will remain in effect until the Contract terminates. If a Series
Account annuity option is chosen, the Owner must include in the written notice
the Sub-Account allocation of the Annuity Proceeds as of the Maturity Date. If
Western Reserve does not receive that form or other written notice acceptable to
Western Reserve prior to the Maturity Date, the Contract's existing Allocation
Options will remain in effect until the Contract terminates. The Owner may also,
prior to the Maturity Date, select or change the frequency
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of annuity payments, which may be monthly, quarterly, semi-annually or annually,
provided that the annuity option and payment frequency provides for payments of
at least $100 per period. If none of these is possible, a lump sum payment will
be made.
The Owner may select one of the Fixed Account annuity options or Series Account
annuity options described below or any alternate form of settlement acceptable
to Western Reserve. Treasury Regulations may preclude the availability of
certain annuity options in connection with certain Qualified Contracts.
Fixed Account annuity options provide equal periodic (monthly, quarterly,
semi-annual or annual) payments of a specific amount that Western Reserve
guarantees will not change. The amount of the periodic annuity payment will be
based on the Annuity Proceeds on the Maturity Date, the annuity option selected
(i.e., the form and duration of payments), the age of the Annuitant or
Beneficiary (or ages of Co-Annuitants), the sex of the Annuitant (except for
certain Qualified Contracts), and the applicable annuity rate shown in the
Contract (or a more favorable current rate available under the Contracts on the
Maturity Date). The annuity rates shown in the Contract are based on the Society
of Actuaries 1983 Table A with projection and an assumed investment rate of 3%.
Western Reserve may in its sole discretion increase the amount of a payment or
payments once payments begin.
Series Account annuity options (I.E., variable annuity options) are similar to
fixed annuity options except that the amount of each periodic payment after the
first will vary to reflect the net investment experience of the Sub-Accounts
selected by the Owner. The amount of the first annuity payment is determined in
the manner described in the Statement of Additional Information for a Series
Account annuity option. Under a Series Account annuity option, the Owner applies
the Annuity Proceeds to one or more of the fifteen Sub-Accounts designated to
support annuity payments by purchasing units issued in connection with one or
more of these Sub-Accounts. The number of units purchased is equal to the amount
of the first annuity payment allocated to a particular Sub-Account divided by
the Annuity Unit Value for that Sub-Account on the Maturity Date. The number of
units of a particular Sub-Account supporting payments to an Annuitant never
changes, but the second and subsequent payments will vary with the Annuity Unit
Value because each payment will equal the number of units in each selected Sub-
Account multiplied by the Annuity Unit Value of that Sub-Account on the date
the payment is processed. Annuity Proceeds allocated to Series Account annuity
options are subject to a daily Mortality and Expense Risk Charge of 1.40% per
annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity payments,
is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Fund Portfolio would be calculated (see "THE
CONTRACT-Accumulation Provisions" page 13), 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 joint lifetime of two payees and continuing upon
the death of the first payee for the remaining lifetime of the survivor.
DEATH BENEFITS AFTER THE MATURITY DATE
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If a
payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as rapidly
as under the method of
distribution being used as of the date of the payee's death. (For additional
information about death benefit
payments under the Contract, see "ACCUMULATION PROVISIONS-Death Benefits
during the Accumulation Period" on page 18.)
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IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the Maturity
Date, it is offering annuity contracts of the same type and class as the
Contract with more favorable rates than those contained in the Contract's
income tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If required
by law to ignore differences in sex of any payee, annuity payments will be
determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase Payment
pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and
obtain a refund equal to the sum of: (1) the Purchase Payments received; plus
(or minus) (2) the accumulated gains (or losses), if any, in the Series Account
for the Contract as of the date Western Reserve receives the returned Contract.
Certain states require a Free-Look Period longer than ten days, either for all
Contract Owners or for certain classes of Contract Owners. The Owner bears the
investment risk during the Free-Look Period. Certain states require Western
Reserve to refund the Purchase Payment, which may be greater or less than the
amount computed above. In these states, Western Reserve bears the investment
risk during the Free-Look Period. The specific terms applicable to a particular
Contract will be set forth in the "Right to Examine Contract" provision of
that Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner elects
otherwise. Western Reserve reserves the right to suspend or postpone the right
of partial withdrawal and Surrender or postpone the date of payment for any
period: (1) the New York Stock Exchange is closed, other than customary weekend
and holiday closing, or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC by order permits postponement for the
protection of Owners; or (3) an emergency exists, as determined by the SEC, as a
result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule Page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
Joint Owners can be named provided the Joint Owners are husband and wife. Upon
the death of one Joint Owner, the Contract will continue with the surviving
Joint Owner as the sole Owner. (See "THE CONTRACT-
ACCUMULATION PROVISIONS-Death Benefits during the Accumulation Period-4. Death
of an Owner Who is Not an Annuitant", on page 19.)
With regard to Non-Qualified Contracts, ownership of the Contract may be changed
or the Contract collaterally assigned at any time during the lifetime of the
Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS-
Taxation of Annuities" on page 22.) Any change of ownership or assignment
must be made in writing and accepted by Western Reserve, and, if accepted, will
be effective as of the date accepted by Western Reserve. Western Reserve assumes
no liability for any payments made or actions taken before a change is accepted
and shall not be responsible for the validity or effect of any change of
ownership or assignment.
Changing the Owner cancels any prior Ownership designation, but it does not
change the Beneficiary or the Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties, or even
prohibition under the Code, and must also be permitted under the terms of the
underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. As of the
Maturity Date, and upon agreement with Western Reserve, the Owner may elect a
different Annuitant or, if either annuity Option C or Option E has been
selected, add a joint annuitant. On the Maturity Date, the Annuitant(s) will
become the payee(s) and receive the annuity payments.
BENEFICIARY
The Beneficiary is entitled to receive the death benefit proceeds upon the death
of the Annuitant when the Owner is a natural person other than the Annuitant.
The Beneficiary will become the new Owner when the Owner is not the same person
as the Annuitant and the Owner dies before the Annuitant. The Beneficiary may be
changed during the lifetime of the Annuitant, subject to the rights of any
irrevocable Beneficiary. Any change must be made in writing and received at
Western Reserve's Administrative Office and, if accepted, will be effective as
of the date on which signed by the Owner. Western Reserve assumes no liability
for any payments made or actions taken before the change is received and shall
not be responsible for the validity or effect of the change. Prior to the
Maturity Date, if no Beneficiary survives the Annuitant, the Owner, if living,
or the Owner's estate will
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be the Beneficiary. The interest of any Beneficiary is subject to that of any
assignee. In the case of certain Qualified Contracts, the Treasury Regulations
prescribe certain limitations on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the contrary,
no Beneficiary may assign any payments under the Contract before such payments
are due. To the extent permitted by law, no payments under the Contract will be
subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. No Contract
provision can be waived or changed except by endorsement. Any endorsement must
be signed by the President or Secretary of Western Reserve.
The Contract may not be modified by Western Reserve without the consent of the
Owner, except as may be required to make it conform to any law or regulation or
ruling issued by a governmental agency or to improve the rights and/or benefits
under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans regardless of whether the plans qualify for
special Federal income tax treatment. The ultimate effect of Federal income
taxes on the amounts held under a Contract, on annuity payments, and on the
economic benefits to the Owner, Annuitant or Beneficiary depends on Western
Reserve's tax status, on the type of retirement plan for which the Contract is
purchased, and upon the tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Western Reserve's understanding of the Federal income tax laws as
they are currently interpreted. Western Reserve makes no representations
regarding the likelihood of continuation of the Federal income tax laws, the
Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they
relate to the Fund, please see the accompanying Prospectus for the Portfolios of
the Fund.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Because the Series Account is not an entity separate from Western
Reserve and its operations form a part of Western Reserve, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the
Code. Investment income and realized capital gains on the assets of the Series
Account are reinvested and taken into account in determining the Annuity Value.
Western Reserve believes that under existing Federal income tax law, the Series
Account's investment income, including realized net capital gains, will not be
taxed to Western Reserve. Based upon this belief, it is anticipated that no
charges will be made against the Series Account for Federal income tax. If any
such charge is made a Contract's Annuity Value will reflect a deduction for the
charge. Western Reserve reserves the right to make a deduction from the assets
of the Series Account should any tax or other economic burden resulting from the
application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. IN GENERAL. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is not a natural person
must include in income any increase in the excess of the Contract's Annuity
Value over the investment in the Contract during the taxable year. However,
there are some exceptions to this exception and you may wish to discuss these
with your tax counsel. The taxable portion of a distribution (in the form of an
annuity or lump sum payment) is generally taxed as ordinary income. For this
purpose, the assignment, pledge, or agreement to assign or pledge any portion of
the Annuity Value generally will be treated as a distribution.
2. PARTIAL WITHDRAWALS AND SURRENDERS. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract (other than a Qualified Contract used in
a retirement plan that qualifies for special Federal income tax treatment under
section 457 of the Code as to which there are special rules), a ratable portion
of the amount received is taxable, generally based on the ratio of the
investment in the Contract to the total Annuity Value. The "investment in the
contract" generally equals the portion, if any, of any Purchase Payments paid
by or on behalf of an individual under a Contract which is not excluded from the
individual's gross income. For Contracts issued in connection with qualified
plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial Withdrawal,
or Surrender under a Non-Qualified Contract before the Maturity Date, amounts
received are first treated as taxable income to the extent that the Annuity
Value immediately before the partial withdrawal, Systematic Partial Withdrawal,
or Surrender exceeds the "investment in the contract" at that time. Any
additional amount partially withdrawn, applied to a Systematic Partial
Withdrawal, or Surrender is not taxable. In the event of a partial withdrawal or
Systematic Partial Withdrawal from, or Surrender of, a Non-Qualified Contract,
Western Reserve will withhold for tax purposes the minimum amount required by
law, unless the Owner affirmatively elects, before payments begin, to have
either nothing withheld or a different amount withheld.
3. ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
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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 591/2, (2) made as a result of death of the
Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full Surrender
of the Contract, as described above, or (2) if distributed under an annuity
option, they are taxed in the same manner as Annuity Payments, as described
above. For these purposes, the investment in the Contract is not affected by the
Owner's or Annuitant's death. That is, the investment in the Contract remains
the amount of any Purchase Payments paid which were not excluded from gross
income.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts entered
into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, an Owner should consult a
competent tax advisor before purchasing more than one Contract or other annuity
contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership or
assignment of a Contract, the designation of an Annuitant or other Beneficiary
who is not also the Owner, the selection of certain Maturity Dates, or a change
of Annuitant, may result in certain income or gift tax consequences to the Owner
that are beyond the scope of this discussion. An Owner contemplating any such
transfer, assignment, selection or change should contact a competent tax advisor
in respect to the potential tax effects of such a transaction.
8. POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
that would have adversely modified the Federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies"
by taxing income as it is credited to the annuity. Although as of the date of
this Prospectus Congress is not considering any legislation regarding the
taxation of annuities, there is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as the IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be effective prior to the date of the change.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions (including special rules
for certain lump sum distributions). Adverse tax consequences may result from
contributions in excess of specified limits, distributions prior to age 591/2
(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
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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 591/2, separation from service, disability, or financial
hardship, except that income attributable to elective contributions may not be
distributed in the case of hardship.
(B) Restrictions Under the Texas Optional Retirement Programs. Section 36.105 of
the Texas Educational Code permits participants in the Texas Optional Retirement
Program (ORP) to withdraw their interest in a variable annuity contract issued
under the ORP only upon: (1) termination of employment in the Texas public
institutions of higher education; (2) retirement; or (3) death. Accordingly, a
participant in the ORP (or the participant's estate if the participant has
died) will be required to obtain a certificate of termination from the employer
or a certificate of death before the account can be redeemed.
2. INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA". Individual
Retirement Annuities are subject to limitation on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into an Individual Retirement Annuity on a tax-
deferred basis. The Service has not reviewed the Contract for qualification as
an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
3. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and permit self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to provide benefits under the plans. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax or other legal consequences to
the plan, to the participant or to both may result if this Contract is assigned
or transferred to any individual as a means to provide benefit payments.
4. DEFERRED COMPENSATION PLANS. Section 457 of the Code, although not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with such
plans. Such plans may permit a participant to specify the form of investment in
which his or her participation will be made. In general, for non-governmental
plans, such investments, however, are owned by, and are subject to, the claims
of the general creditors of the sponsoring employer. Depending on the terms of
the particular plan, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its section 457 plan obligations. In
general, all amounts received under a section 457 plan are taxable and are
subject to Federal income tax withholding as wages.
5. DISTRIBUTIONS FROM QUALIFIED PLANS. Under the tax qualification rules for
Section 401(a), 403(b), 408 and 457 plans, distributions generally must commence
no later than the later of April 1 of the calendar year following the calendar
year in which the Owner (or plan participant) (i) reaches age 701/2 or (ii)
retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code),
distributions generally must begin no later than the date described in (i).
Special rules and other restrictions may apply depending on the type of plan and
the particular circumstances. Each Owner is responsible for requesting
distributions under the Contract that satisfy applicable tax rules, and should
consult a qualified tax advisor.
6. RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
The above description of Federal income tax consequences pertaining to the
different types of qualified plans that may be funded by the Contracts is only a
brief summary and is not intended as tax advice. The rules governing the
provisions of qualified plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for qualified plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of a
Contract in connection with a qualified plan should first consult a qualified
and competent tax advisor with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the investments of
the Series Account must be "adequately diversified" in accordance with
Treasury Regulations in order for the Contracts to qualify as annuity contracts
under Section 72 of the Code. The Series Account, through the Fund, intends to
comply with the diversification requirements prescribed by the Treasury in Reg.
Sec. 1.817.5, which affect how the Fund's assets may be invested. Western
Reserve believes the Series Account will, thus, meet the diversification
requirements of Section 817(h). If the Series Account does not meet those
diversification requirements, Owners would be taxed currently on any investment
income under the Contract.
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for Federal income tax purposes, of the assets of the separate
account used to support their contracts. In those circumstances, income and
gains from the separate account assets would be includable in the variable
annuity contract owner's gross income. The Treasury Department has stated in
published
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rulings that a variable annuity contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (I.E., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement further
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
sub-accounts without being treated as owners of the underlying assets."
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners were not owners of separate account assets. For example,
the owner of a Contract has the choice of more Sub-Accounts in which to allocate
net purchase payments and Contract values, and may be able to transfer among
Sub-Accounts more frequently than in such rulings. These differences could
result in an Owner being treated as the owner of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Contract as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Series Account.
2. DISTRIBUTION-AT-DEATH RULES. The Code also requires Non-Qualified Contracts
to contain specific provisions for distribution of the Contract proceeds upon
the death of an Owner. In order to be treated as an annuity contract for Federal
income tax purposes, the Code requires that such Contract provide that (a) if
any Owner dies on or after the Maturity Date and before the entire interest in
the Contract has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on the Owner's death; and (b) if
any Owner dies before the Maturity Date, the entire interest in the Contract
must generally be distributed within 5 years after the Owner's date of death.
These requirements will be considered satisfied if the entire interest of the
Contract is used to purchase an immediate annuity under which payments will
begin within one year of the Owner's death and will be made for the life of the
Beneficiary or for a period not extending beyond the life expectancy of the
Beneficiary. The Owner's Beneficiary is the person to whom ownership of the
Contract passes because of death and must be a natural person. (In the Contract,
the successor owner is the Owner's Beneficiary.) If the Beneficiary is the
Owner's surviving spouse, the Contract may be continued with the surviving
spouse as the new Owner. Non-
Qualified Contracts will be reviewed and modified, if necessary, to attempt to
assure that they comply with the Code requirements when clarified by regulation
or otherwise. Other rules may apply to Qualified Contracts.
3. WITHHOLDING. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring withholding.
Effective January 1, 1993, certain distributions from Section 401(a), 403(a) and
403(b) plans are subject to mandatory withholding.
4. SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another. If
the surrendered Contract was issued prior to August 14, 1982, the tax rules that
formerly provided that the Surrender was taxable only to the extent the amount
received exceeds the Owner's investment in the Contract will continue to apply
to amounts allocable to investment in the Contract before August 14, 1982. In
contrast, Contracts issued on or after January 19, 1985 in a Code Section 1035
exchange are treated as new Contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to Code Section
1035 transactions. Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisors.
5. DIVERSIFICATION AND QUALIFIED PLANS. Code Section 817(h) applies to variable
annuity contracts other than pension plan contracts. The regulations reiterate
that the diversification requirements do not apply to pension plan contracts.
All of the qualified retirement plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (I.E., the Fund) will be structured
to comply with the diversification standards because it serves as the investment
vehicle for Non-Qualified Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the State of Washington has disapproved, for Contracts
issued in Washington, the ability both to allocate Net Purchase Payments to the
Fixed Account and to transfer Annuity Value from Sub-Accounts to the Fixed
Account.
Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 and neither the Fixed
Account nor the general account has been registered as an investment company
under the 1940 Act. Accordingly, neither the Fixed Account, the general account
or any interests therein are generally subject to the provisions of these acts,
and Western Reserve has been advised that the staff of the SEC has not reviewed
the disclosure in this Prospectus relating to the Fixed Account. Disclosure
regarding the Fixed Account may, however, be subject to certain generally
applicable provisions of the Federal
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securities laws relating to the accuracy and completeness of statements made in
prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 3%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Because
Western Reserve, at its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the Fixed
Account Value will be credited with different current interest rates.
Western Reserve further guarantees that when a higher or lower current interest
rate is declared on an allocation to the Fixed Account Value, that new interest
rate will be guaranteed on such allocation for at least a one year period
measured from the date of each Purchase Payment or transfer (the "Guarantee
Period"). At the end of the Guarantee Period, Western Reserve reserves the
right to declare a new current interest rate on such allocation and accrued
interest thereon (which may be a different current interest rate than the
current interest rate on new allocations to the Fixed Account Value on that
date). The rate declared on such allocation and accrued interest thereon at the
end of each Guarantee Period will be guaranteed again for another Guarantee
Period. At the end of any Guarantee Period, any interest credited on the Fixed
Account Value in excess of the minimum guaranteed rate of 4% per year will be
determined in the sole discretion of Western Reserve. The Owner assumes the risk
that interest credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting interest
from time to time, provided that such changes will not have the effect of
reducing the guaranteed rate of interest below 3% per annum.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial
withdrawals; minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
Transfer Charges, if any.
ALLOCATIONS, TRANSFERS AND PARTIAL WITHDRAWALS
Net Purchase Payments and transfers to the Fixed Account will be allocated to
the Fixed Account on the first Valuation Date on or following the date Western
Reserve receives the payment or transfer request at its Administrative Office,
except that any allocation of the initial Net Purchase Payment will take place
on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each
Contract Year. The amount that may be transferred is the greater of (a) 25% of
the amount in the Fixed Account, or (b) the amount transferred in the prior
Contract Year from the Fixed Account, unless Western Reserve consents otherwise.
No transfer charge will apply to transfers from the Fixed Account to a
Sub-Account. Amounts may be withdrawn from the Fixed Account for partial
withdrawals and Surrenders only upon written request and (other than for
Surrenders) only with Western Reserve's consent, Western Reserve further
reserves the right to defer payment of transfers, partial withdrawals, or
Surrenders from the Fixed Account for up to six months. In addition, Contract
provisions relating to transfers, partial withdrawals or Surrenders from the
Series Account will also apply to the Fixed Account. Dollar Cost Averaging may
be done from the Fixed Account. (See "THE CONTRACT-ACCUMULATION
PROVISIONS-Transfers to and from, and among Allocation Options" on page 14.)
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by individuals who, in addition
to being licensed as life insurance agents for Wes-
tern Reserve, are also registered representatives of InterSecurities, Inc. which
has the same address as Western Reserve, an affiliate of Western Reserve and the
principal underwriter of the Contracts, or of broker-dealers who have entered
into written sales agreements with the principal underwriter. ISI is registered
with the SEC under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. No amounts will be retained by
ISI for acting as principal underwriter for the Contracts. Broker-dealers will
generally receive first-year sales commissions of up to 6% of Purchase Payments.
Renewal Commissions in subsequent years will equal 0.20% of Annuity Value,
subject to the Contract's having at least $5,000 of Annuity Value. In addition,
certain production, persistency and managerial bonuses may be paid. Subject to
applicable Federal and state laws and regulations, Western Reserve may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the Contracts. The level of such
compensation will not exceed that paid to broker-dealers for their sale of the
Contracts. The offering of Contracts will be made on a continuing basis.
26
<PAGE>
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.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Series Account is a party
or to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account. ISI, the Series Account's
principal underwriter, is not presently a party to any legal proceedings that
are likely to have a material adverse effect upon its ability to perform its
contract with the Series Account.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 34618-9051; telephone number (800) 851-9777.
WRL00174-07/97
27
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
WRL SERIES ANNUITY ACCOUNT
WRL FREEDOM WEALTH CREATORSM
Flexible Payment Variable
Deferred Annuity Contract
Issued by
Western Reserve Life Assurance Co. of Ohio
201 Highland Avene
Largo, Florida 33770
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 WRL Freedom Wealth CreatorSM Prospectus, dated ,
1997, 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 number above.
, 1997
WRL00175-07/97
<PAGE>
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........ 6
Calculation of Variable Annuity Payments................... 7
Financial Statements....................................... 8
</TABLE>
2
<PAGE>
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. WRL Investment Services, Inc. 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 bond issued to AEGON U.S. Holding Corporation ("AEGON
U.S.") in the amount of $5 million (subject to a $1 million deductible),
covering all of the employees of AEGON U.S. and its affiliates, including
Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities,
Inc. provides additional fidelity coverage, to a limit of $12 million, subject
to a $50,000 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,
1996. 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, 1996. The principal business address of Ernst & Young LLP is
801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., 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, Associate General Counsel and Assistant Secretary of
Western Reserve.
CALCULATION OF PERFORMANCE RELATED INFORMATION
A. YIELD AND EFFECTIVE YIELD QUOTATIONS FOR THE MONEY MARKET SUB-ACCOUNT
YIELD - The yield quotation set forth in the Prospectus for the Money
Market Sub-Account is for the seven days ended on the date of the most recent
balance sheet of the Series Account included in the registration statement, and
is computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one unit in the
Money Market Sub-Account at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
EFFECTIVE YIELD - The effective yield quotation for the Money Market
Sub-Account set forth in the Prospectus is for the seven days ended on the date
of the most recent balance sheet of the Series Account included in the
registration statement. The effective yield is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing Sub-Account having a balance of one Unit in the Money Market
Sub-Account at the beginning of the period. A hypothetical charge, reflecting
deductions from Owner accounts, is subtracted from the balance. The difference
is divided by the value of the Sub-Account at the beginning of the base period
to obtain the base period return, which is then compounded by adding 1. Next the
sum is raised to a power equal to 365 divided by 7, and 1 is subtracted from the
result. The following formula describes the computation:
EFFECTIVE YIELD = ({BASE PERIOD RETURN + 1}365/7)- 1
3
<PAGE>
The effective yield is shown at least to the nearest hundredth of one
percent.
HYPOTHETICAL CHARGE - For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all Owner accounts in proportion to the length of the base 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 yield
and effective yield quotations do not reflect any deduction for premium taxes or
Transfer Charges that may be applicable to a particular Contract, nor do they
reflect the Withdrawal Charge that may be assessed at the time of redemption in
an amount ranging up to 8% of the requested redemption amount. The specific
Withdrawal Charge percentage applicable to a particular redemption depends on
the length of time Purchase Payments have been held under the Contract and
whether redemptions have been previously made during that Contract Year. (See
"Charges and Deductions-Withdrawal Charge" on page 11 of the Prospectus.)
No fees or sales charges are assessed upon annuitization under the Contracts,
except premium taxes. Realized gains and losses from the sale of securities, and
unrealized appreciation and depreciation of assets held by the Money Market
Sub-Account and the Fund are excluded from the calculation of yield.
B. TOTAL RETURN AND YIELD QUOTATIONS FOR THE AGGRESSIVE GROWTH, EMERGING
GROWTH, GROWTH, GLOBAL, BALANCED, STRATEGIC TOTAL RETURN, BOND, GROWTH &
INCOME, TACTICAL ASSET ALLOCATION, VALUE EQUITY, C.A.S.E. GROWTH, GLOBAL
SECTOR, INTERNATIONAL EQUITY AND U.S. EQUITY SUB-ACCOUNTS
The total return quotations set forth in the Prospectus for all of these
Sub-Accounts, except the Money Market Sub-Account, 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(l + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the particular period of a
hypothetical $1,000 payment made at the beginning of
the particular period
For purposes of the total return quotations for all of the Sub-Accounts, except
the Money Market Sub-Account, 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.
4
<PAGE>
The yield quotations for all of the Sub-Accounts, except the Money Market
Sub-Account, 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 [ (--- + 1)6 - 1]
cd
<TABLE>
<S> <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, except the Money
Market Sub-Account, 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 11 of the Prospectus.)
C. 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 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.
D. 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
5
<PAGE>
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 lbbotson 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 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 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
6
<PAGE>
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
sixteen 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.
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.
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.
7
<PAGE>
FINANCIAL STATEMENTS
There are no financial statements for the Sub-Accounts of the Series
Account included in this Statement of Additional Information because the
Contracts described in this Statement of Additional Information and the
Contracts' Prospectus have not yet been offered for sale as of the date of this
Statement of Additional Information.
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,
1996, 1995 and 1994, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
INDEX TO FINANCIAL STATEMENTS
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Report of Independent Auditors dated February 21, 1997
Statutory-Basis balance sheets at December 31, 1996 and 1995
Statutory-Basis statements of operations for the years ended December 31,
1996, 1995 and 1994
Statutory-Basis statements of capital and surplus for the years ended
December 31, 1996, 1995 and 1994
Statutory-Basis statements of cash flows for the years ended December 31,
1996, 1995 and 1994
Notes to Statutory-Basis financial statements
Statutory-Basis financial statement schedules
8
<PAGE>
WRL Series Annuity Account
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
The financial statements for Western Reserve Life Assurance
Co. of Ohio ("Western Reserve") are included in Part B.
The financial statements for the WRL Series Annuity Account
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. 4/
(b) Form of Broker/Dealer Supervisory and Service
Agreement. 2/
(c) Form of Broker/Dealer Supervisory and Service
Agreement. 6/
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract.
(5) Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract. 10/
(6) (a) Copy of Second Amended Articles of Incorporation of
Western Reserve. 3/
(b) Copy of Amended Code of Regulations of Western
Reserve. 4/
(7) Not Applicable.
(8) Not Applicable.
(9) Opinion and Consent of William H. Geiger, Esq. as
to Legality of Securities Being Registered. 6/
(10) (a) Written Consent of Sutherland, Asbill & Brennan,
L.L.P. 10/
(b) Written Consent of Ernst & Young LLP. 10/
(c) Written Consent of Price Waterhouse LLP. 10/
C-1
<PAGE>
(11) Not Applicable.
(12) Not Applicable.
(13) Schedules for Computation of Performance
Quotations 7/
(14) Not Applicable.
(15) (a) Power of Attorney. 8/
(b) Power of Attorney - James R. Walker 9/
- -------------------------------------
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. 3 to
the Form N-4 Registration Statement dated March 1, 1991 (File No.
33-24856) and is incorporated herein by reference.
5/ 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.
6/ 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.
7/ 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.
8/ 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.
9/ This exhibit was previously filed on Post-Effective Amendment No. 7 to
the Form N-4 Registration Statement dated December 23, 1996 (File No.
33-49556) and is incorporated herein by reference.
10/ To be filed by amendment.
C-2
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
John R. Kenney (1) Chairman of the Board,
Chief Executive Officer
and President
Patrick S. Baird 4333 Edgewood Rd. N.E. Director
Cedar Rapids, Iowa 52499
Lyman H. Treadway 30195 Chagrin Blvd. Director
Suite 210N
Cleveland, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
Alan M. Yaeger (1) Executive Vice President,
Actuary and Chief Financial
Officer
G. John Hurley (1) Executive Vice President
William H. Geiger (1) Senior Vice President,
Secretary and
General Counsel
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
- ------------------------
(1) 201 Highland Avenue, Largo, Florida 33770
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON Netherlands Membership Association
AEGON n.v. Netherlands Corporation (53.63%)
AEGON Netherland N.V. Netherlands Corporation (100%)
AEGON Nevark Holding B.V. Netherlands Corporation (100%)
Groninger Financieringen B.V. Netherlands Corporation (100%)
AEGON International N.V. Netherlands Corporation (100%)
Voting Trust - (Trustees - K.J. Storm, Donald J. Shepard, H.B. Van Wijk,
Dennis Hersch)
AEGON U.S. Holding Corporation (DE) (100%)
C-3
<PAGE>
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%)
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%)
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 Series Fund - Mutual fund (MA)
Transunion Casualty Company - Insurance (IA) (100%)
AUSA Institutional Marketing Group, Inc. - Insurance agency (MN) (100%)
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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%)
QUANTRA Corporation - (DE) (100%)
QUANTRA Software Corporation - (DE) (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)
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
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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;
(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
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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;
(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,
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officer, employee, or agent of such a constituent corporation, or is or was
serving at the request of such constituent corporation as a director, trustee,
officer, employee or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
shall stand in the same position under this section with respect to the new or
surviving corporation as he would if he had served the new or surviving
corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' 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.
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Such determination shall be made (a) by a majority vote of a quorum consisting
of directors of the indemnifying corporation who were not and are not parties to
or threatened with any such action, suit, or proceeding, or (b) if such a quorum
is not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years, or (c) by the shareholders, or (d) by
the court of common pleas or the court in which such action, suit, or proceeding
was brought. Any determination made by the disinterested directors under section
(4)(a) or by independent legal counsel under section (4)(b) of this article
shall be promptly communicated to the person who threatened or brought the
action or suit by or in the right of the corporation under section (2) of this
article, and within ten days after receipt of such notification, such person
shall have the right to petition the court of common pleas or the court in which
such action or suit was brought to review the reasonableness of such
determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this article,
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination 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,
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judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
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
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<PAGE>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH UNDERWRITER
---- ---------------- --------------------
John R. Kenney (1) Chairman of the Board
G. John Hurley (1) Director, President
and Chief Executive
Officer
Thomas R. Moriarty (1) Senior Vice President
William H. Geiger (1) Secretary and Director
William G. Cummings (1) Vice President and Treasurer
- -------------------------
(1) 201 Highland Avenue, Largo, Florida 33770
(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 33770.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in
the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by
Western Reserve.
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.
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<PAGE>
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>
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
Initial Registration Statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of Largo, State of Florida, on this 9th
day of April, 1997.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ JOHN R. KENNEY
------------------------------------------
John R. Kenney, Chairman of the Board,
Chief Executive Officer and President 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, Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN R. KENNEY Chairman of the Board, April 9, 1997
- --------------------------- Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
<PAGE>
/s/ ALAN M. YAEGER Executive Vice President, April 9, 1997
- --------------------------- Actuary & Chief Financial
Alan M. Yaeger Officer
/s/ ALAN J. HAMILTON Vice President, Treasurer April 9, 1997
- --------------------------- and Controller
Allan J. Hamilton
/s/ PATRICK S. BAIRD Director April 9, 1997
- ---------------------------
Patrick S. Baird */
/s/ LYMAN H. TREADWAY Director April 9, 1997
- ---------------------------
Lyman H. Treadway */
/s/ JACK E. ZIMMERMAN Director April 9, 1997
- ---------------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director April 9, 1997
- ---------------------------
James R. Walker */
*/ /s/ THOMAS E. PIERPAN
- - ------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
EXHIBIT (4)(a)
Specimen Flexible Payment
Variable Accumulation Deferred
Annuity Contract
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
(A STOCK COMPANY)
Home Office: Columbus, Ohio
Administrative Office: P.O. Box 5068
Clearwater, Florida 34618-5068
813-585-6565
- --------------------------------------------------------------------------------
IN THIS CONTRACT Western Reserve Life Assurance Co. Of Ohio will be referred to
as WE, OUR or US. OFFICE refers to our Administrative Office located in
Clearwater, Florida.
- --------------------------------------------------------------------------------
WE agree to pay the benefits of this Contract in accordance with its provisions.
CONTRACT VALUES DURING THE ACCUMULATION PERIOD WILL INCREASE OR DECREASE IN
ACCORDANCE WITH THE CONTRACT VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF
THE APPLICABLE SUB-ACCOUNTS IN THE SEPARATE ACCOUNT. CONTRACT VALUES, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SUB-ACCOUNT OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
THE CONSIDERATION for this Contract is the application and the payment of the
Initial Payment.
THE ANNUITANT, OWNER, AND BENEFICIARY are as shown in the application unless
changed in accordance with the provisions of this Contract.
THE PROVISIONS on the following pages are part of this Contract.
IN WITNESS WHEREOF, we have signed this Contract at our Office in Clearwater,
Florida as of the Contract Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
--------------------- ------------------
William H. Geiger John R. Kenney
Secretary President
- --------------------------------------------------------------------------------
RIGHT TO EXAMINE CONTRACT - The Owner may cancel this Contract at any time
within ten days after receipt by returning it to us at P.O. Box 5068,
Clearwater, Florida 34618. If the Contract is returned within this period, we
will pay to the Owner the sum of:
1. The purchase payments received; plus (or minus)
2. The accumulated gains (or losses), if any, in the Separate Account for
this Contract as of the date we receive the returned Contract.
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity.
Monthly Annuity Commencing on Maturity Date.
Non-Participating - No Dividends
<PAGE>
CONTRACT GUIDE
ENDORSEMENTS............................................................. 2
CONTRACT SCHEDULE........................................................ 3
DEFINITIONS.............................................................. 5
GENERAL PROVISIONS....................................................... 6
SEPARATE ACCOUNT PROVISIONS.............................................. 8
PURCHASE PAYMENT PROVISIONS.............................................. 9
CONTRACT VALUE PROVISIONS................................................ 9
DEATH BENEFIT PROVISIONS................................................. 13
ANNUITY PROVISIONS....................................................... 14
FIXED ACCOUNT ANNUITY PAYMENTS........................................... 15
VARIABLE ACCOUNT ANNUITY PAYMENTS........................................ 16
- --------------------------------------------------------------------------------
ENDORSEMENTS
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WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
CONTRACT SCHEDULE
OWNER: JOHN DOE CONTRACT NUMBER: 01-12345678
ANNUITANT: JOHN DOE CONTRACT DATE: JANUARY 1, 1997
ANNUITY OPTION: D-10 YEAR CERTAIN MATURITY DATE: JANUARY 1, 2042
INITIAL PAYMENT: $100,000
ANTICIPATED PURCHASE PAYMENT PATTERN
AMOUNT MODE YEAR PAYABLE
$ 100,000 ANNUAL 45 YEARS
* THE ANTICIPATED PURCHASE PAYMENT PATTERN IS BASED UPON SELECTION MADE IN THE
APPLICATION. THE AMOUNT AND MODE MAY BE CHANGED IN ACCORDANCE WITH THE PURCHASE
PAYMENT PROVISIONS ON PAGE 9.
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT: WRL SERIES ANNUITY ACCOUNT
MORTALITY AND EXPENSE CHARGE: 1.40% (Annually)
PURCHASE PAYMENT PROVISIONS
MAXIMUM ADDITIONAL PAYMENT: $ 1,000,000
MINIMUM ADDITIONAL PAYMENT: $ 50
CONTRACT VALUE PROVISIONS
ANNUAL CONTRACT CHARGE: $ 35
MINIMUM BALANCE $ 5,000
WITHDRAWAL CHARGE PERIOD: 84 MONTHS FROM THE DATE OF EACH
PURCHASE PAYMENT
WITHDRAWAL CHARGE PERCENTAGE (AS A PERCENTAGE OF EACH RESPECTIVE PURCHASE
PAYMENT):
MONTHS SINCE DATE OF PAYMENT PERCENTAGE
12 MONTHS OR LESS 8%
13 MONTHS THROUGH 24 MONTHS 7%
25 MONTHS THROUGH 36 MONTHS 6%
37 MONTHS THROUGH 48 MONTHS 5%
49 MONTHS THROUGH 60 MONTHS 4%
61 MONTHS THROUGH 72 MONTHS 3%
73 MONTHS THROUGH 84 MONTHS 2%
85 MONTHS OR MORE 0%
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DEFINITIONS
ACCOUNTS. Allocation options including the Fixed Account and the Sub-Accounts of
the Separate Account.
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 for the Contract during the Accumulation Period.
AGE. Issue Age refers to the age of the Annuitant's birthday nearest the
Contract Date. Attained Age refers to the Issue Age plus the number of Completed
Contract years.
ANNUITANT. The person named on the application, or as subsequently changed, to
receive annuity payments. The Annuitant may be changed as provided in the 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 UNIT VALUE. An accounting unit of measure used to calculate annuity
payments from a Sub-Account after the Maturity Date.
ANNUITY VALUE. The value as described in the Annuity Value section of the
Contract Value Provisions.
CASH VALUE. The value as described in the Cash Value section of the Contract
Value Provisions.
CONTINGENT BENEFICIARY. The new Beneficiary upon the current Beneficiary's
death.
CONTRACT DATE. The later of the date on which payments are first received and
the date the properly completed application is received by us at our Office.
DEATH BENEFIT PROCEEDS. The value as described in the Death Benefit Proceeds
section of the Death Benefit Provisions.
DEATH REPORT DAY. The Valuation Date coincident with or next following the day
on which we have received both (1) due proof of death and (2) a Written Notice
for an election of:
a) a single sum payment; or
b) an alternative election as described under the Death Benefit Provisions.
FIXED ACCOUNT. An allocation option other than the Separate Account.
MATURITY DATE. The date on which the Accumulation Period ends and annuity
payments are to commence. The date may be changed as provided in the Annuity
Provisions.
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PREMIUM TAX. Premium Tax levied by a state or other government entity. The
Premium Tax will be paid when due and charged either against the purchase
payment or the contract value.
SEC. The Securities and Exchange Commission
SEPARATE ACCOUNT. A separate investment account composed of several Sub-Accounts
established to receive and invest net payments under the Contract and under
other variable annuity contracts issued by the Company.
SERIES FUND. A designated mutual fund from which a Sub-Account of the Separate
Account will buy shares.
SUB-ACCOUNT. A Separate Account allocation option that is made available under
this Contract.
SURRENDER. The termination of the 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.
WITHDRAWAL CHARGE PERIOD. The period of time during which a withdrawal charge
may be imposed as shown on Page 3. For each purchase payment, the period begins
on the date the payment is received by us.
WRITTEN NOTICE. Written Notice means a notice by the Owner to us requesting or
exercising a right of the Owner as provided in the Contract provisions. In order
for a notice to be considered a Written Notice, it must: be in writing, signed
by the Owner; be in a form acceptable to us; and contain the information and
documentation, as determined in our sole discretion, necessary for us to take
the action requested or for the Owner to exercise the right specified. A Written
Notice will not be considered complete until all necessary supporting
documentation required or requested by us has been received by us at our
Administrative Office.
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GENERAL PROVISIONS
THE CONTRACT. This Contract and the application, if any, constitute the entire
Contract. No Contract provision can be waived or changed except by endorsement.
Such endorsement must be signed by our President or Secretary. We reserve the
right to amend the Contract to meet the requirements of any applicable Federal
or state laws or regulations.
OWNERSHIP. This Contract belongs to the Owner. The Owner as shown on Page 3, or
as subsequently changed, may exercise all rights under this Contract including
the right to transfer ownership. These rights may be subject to the consent of
any assignee or irrevocable beneficiary. Joint owners may be named, provided the
Joint Owners are husband and wife.
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CHANGE OF OWNERSHIP UPON REQUEST. We will not be bound by any requested change
in the ownership designation unless it is made by Written Notice. The change
will be effective on the date the Written Notice is accepted by us. If we
request, this Contract must be returned to our Office for endorsement.
Changing the Owner cancels any prior Ownership designation, but it does not
change the Beneficiary or the Annuitant.
CHANGE OF OWNERSHIP UPON DEATH OF OWNER. Should the Owner die during the
Accumulation Period, we will be bound by the following:
1. In the event of death of one Joint Owner, this Contract will continue
with the surviving Joint Owner as sole Owner.
2. If the Owner is the Annuitant, then the Death Benefit Proceeds are
payable as provided in the Death Benefit Provisions.
3. If the Owner is not the Annuitant and dies before the Annuitant:
a. If no Beneficiary 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;
b. If the Beneficiary is alive and is the Owner's spouse, this
Contract will continue with the spouse as the new Owner; or
c. If the Beneficiary is alive and is not the Owner's spouse, the
Beneficiary will become the new Owner. The Cash Value must be
distributed either:
1) within five years of the former Owner's death; or
2) over the lifetime of the new Owner, if a natural person, with
payments beginning within one year of the former Owner's death;
or
3) over a period that does not exceed the life expectancy (as
defined by the Internal Revenue Code and Regulations adopted
under the Code) of the new Owner, if a natural person, with
payments beginning within one year of the former Owner's death.
BENEFICIARY. The Beneficiary, as named in the application or subsequently
changed, is entitled to receive the Death Benefit Proceeds, if any, as provided
in the Death Benefit Provisions of this Contract, or the Cash Value, if any, as
provided in 3.c above. If no Beneficiary is alive, the benefits payable to the
Beneficiary will be paid to the Owner's estate.
CHANGE OF BENEFICIARY. We will not be bound by any change in the Beneficiary
designation unless it is made by Written Notice. The change will be effective on
the date the Written Notice was signed; however, no change will apply to any
payment we made before the Written Notice is received. If we request, this
Contract must be returned to our Office for endorsement.
ASSIGNMENT. This Contract may be assigned prior to the Maturity Date. We will
not be bound by any assignment unless made by Written Notice. The assignment
will be effective on the date the Written Notice is received at our Office and
accepted by us. We assume no responsibility for the validity of any assignment.
INCONTESTABILITY. This Contract is incontestable from the Contract Date.
AGE AND SEX. If a date of birth or sex has been misstated, any amount payable
will be adjusted to conform to the correct date of birth and sex.
CONTRACT YEARS. Contract years, quarters and anniversaries are measured from the
Contract Date.
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REPORTS. During the Accumulation Period, we will send a report to the Owner at
least once each year. It will show the activity that occurred during the year
and the value of the Contract as of the date of the report.
CONTRACT PAYMENT. All payments from the Fixed Account will be paid in one sum
unless otherwise elected under the Annuity Provisions of this Contract. We have
the right to postpone payments and transfers from the Fixed Account for up to
six months. All payments and transfers from the Sub-Accounts will be processed
as provided in this Contract unless one of the following situations exists:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted or declares an emergency; or
3. The SEC allows us to defer payments to protect our contract owners.
PROTECTION OF PROCEEDS. Unless the Owner directs by filing Written Notice, no
Beneficiary may assign any payments under this Contract before the same are due.
To the extent permitted by law, no payments under this Contract will be subject
to the claims of creditors of any Beneficiary.
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SEPARATE ACCOUNT PROVISIONS
The variable benefits under this Contract are provided through the Separate
Account referenced on Page 3. The assets of the Separate Account are our
property. Assets equal to the liabilities of the Separate Account will not be
charged with liabilities arising out of any other business we may conduct. If
the assets of the Separate Account exceed the liabilities arising under the
contracts supported by the Separate Account, then the excess may be used to
cover the liabilities of our general account. The assets of the Separate Account
shall be valued as often as any Contract benefits vary, but at least monthly.
SUB-ACCOUNTS. The Separate Account has various Sub-Accounts. Each Sub-Account
invests exclusively in shares of one of the portfolios of an underlying Series
Fund. Assets invested after the Maturity Date may be invested in different
Sub-Accounts than assets invested during the Accumulation Period. We reserve the
right to add or remove any Sub-Account of the Separate Account. Income and
realized and unrealized gains and losses from assets in each Sub-Account are
credited to, or charged against, that Sub-Account without regard to income,
gains, or losses in other Sub-Accounts. Any amount charged against the Contract
value for federal or state income taxes will be deducted from that Sub-Account.
TRANSFERS AMONG SUB-ACCOUNTS. During the Accumulation Period, the Owner may
transfer all or a portion of this Contract's value in its Sub-Accounts to other
Sub-Accounts or the Fixed Account. We reserve the right to charge a $25 fee for
each transfer in excess of one per Contract month, or twelve per Contract year.
This charge will be deducted from the funds transferred. We must be notified in
a manner satisfactory to us. The transfer ordinarily will take effect on the
first Valuation Date on or following the date notice is received at our Office.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. We reserve the right to
transfer assets of the Separate Account, which we determine to be associated
with the class of contracts to which this Contract belongs, to another Separate
Account. If this type of transfer is made, the term "Separate Account", as used
in this Contract, shall then mean the Separate Account to which the assets were
transferred. We also reserve the right to add, delete, or substitute investments
held by any Sub-Account.
We reserve the right, when permitted by law, to:
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1. Deregister the Separate Account under the Investment Company Act of
1940;
2. Manage the Separate Account under the direction of a committee at any
time;
3. Restrict or eliminate any voting privileges of contract owners or other
persons who have voting privileges as to the Separate Account; and
4. Combine the Separate Account or any Sub-Account(s) with one or more
other separate accounts or sub-accounts.
CHANGE OF INVESTMENT OBJECTIVES. We reserve the right to change the investment
objective of any Sub-Account. If required by law or regulation, an investment
objective of the Separate Account, or of a Series Fund portfolio designated for
a Sub-Account, will not be materially changed unless a statement of the change
is filed with and approved by the appropriate insurance official of the state of
our domicile or deemed approved in accordance with such law or regulation. If
required, approval or change of any investment objective will be filed with the
Insurance Department of the state where this Contract is delivered.
ACCUMULATION UNIT VALUE. Some of the Contract values fluctuate with the
investment results of the Sub-Accounts. In order to determine how investment
results affect the Contract values, an Accumulation Unit Value is determined for
each Sub-Account. The Accumulation Unit Value may increase or decrease from one
Valuation Period to the next. Accumulation Unit Values also will vary between
Sub-Accounts.
The Accumulation Unit Value of any Sub-Account at the end of a Valuation Period
is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Series
Fund portfolio owned by the Sub-Account times the net asset value per
share; minus
2. The accrued charge for adverse mortality and expense experience. The
daily amount of this charge is equal to the daily net assets of the
Sub-Account multiplied by the daily Mortality and Expense Charge. The
maximum annual factor for the Mortality and Expense Charge is shown on
Page 3; minus
3. The accrued amount of reserve for any taxes that are determined by us
to have resulted from the investment operations of the Sub-Account; and
the result divided by
4. The number of outstanding units in the Sub-Account.
The use of the Accumulation Unit Value in determining Contract values is
described in the Contract Value Provisions.
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PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS. Payments after the first are payable at our Office. The
amount of payment which may be paid during any Contract year may not exceed the
Maximum Additional Payment shown on Page 3 without our consent. Payments will
not be accepted in an amount less than the Minimum Additional Payment shown on
Page 3 without our consent. Our acceptance of any payment shall not constitute a
waiver of these limits with respect to subsequent payments.
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CONTRACT VALUE PROVISIONS
NET PURCHASE PAYMENT. The net payment will be the payment received less Premium
Tax, if any.
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ALLOCATION OF NET PURCHASE PAYMENTS. Net payments will be allocated to the
Accounts on the first Valuation Date on or following the date the payment is
received at our Office. With respect to the Initial Payment, the allocation will
take place on the Contract Date.
We reserve the right to limit any allocaton to any Account to no less than 10%
of each net purchase payment. No fractional percentages are permitted. The
allocation of future net purchase payments may be changed by the Owner. We
reserve the right to charge a fee of $25 for each change of allocation in excess
of one per Contract quarter. The request for change of allocations must be in a
manner satisfactory to us. The allocation change will be effective the date the
request for change is recorded by us.
SUB-ACCOUNT VALUE. At the end of any Valuation Period, the Sub-Account 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 the 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 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 Account;
minus
6. Any units that are redeemed to pay the Annual Contract Charge, Premium
Tax and transfer fees, if any.
FIXED ACCOUNT. At the end of any Valuation Period, the Fixed Account value is
equal to:
1. The sum of all net purchase payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial
withdrawals; minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, Premium Tax and
transfer fees, if any.
Interest on the Fixed Account will be compounded daily at a minimum guaranteed
effective annual interest rate of 3% per year. We may declare from time to time
higher current interest rates. The interest rates we set will be credited for
increments of at least one year measured from each purchase payment or transfer
date.
On transfers from the Fixed Account to a Sub-Account, unless we otherwise
consent:
1. Written Notice must be within 30 days after a Contract anniversary.
2. The transfer will ordinarily take place on the first Valuation Date on
or following the date we receive such Written Notice.
3. 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.
We reserve the right to defer payment of any amounts from the Fixed Account for
no longer than six months after we receive such Written Notice.
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ANNUAL CONTRACT CHARGE. During the Accumulation Period, the Annual Contract
Charge shown on Page 3 will be made once a year on each Contract anniversary
from the Annuity Value. This charge will be deducted from each Sub-Account and
the Fixed Account in proportion to the value each bears to the Annuity Value. If
the Contract is Surrendered on other than a Contract anniversary, the charge
will also be made on the date of Surrender.
The Annual Contract Charge will be waived if the sum of all Net Purchase
Payments received, minus all withdrawals, exceeds $50,000 as of the Contract
anniversary for which the charge is payable. However, we reserve the right to
discontinue such waiver of the Annual Contract Charge at any time and to assess
the charge as it becomes payable.
ANNUITY VALUE. At the end of any Valuation Period, the Annuity Value is equal to
the sum of the Account values.
PARTIAL WITHDRAWAL. Prior to the Maturity Date, a partial withdrawal may be made
by the Owner without Surrender of this Contract. Unless we otherwise consent:
1. The request must be made by Written Notice.
2. The partial withdrawal may not reduce the Cash Value to less than the
Minimum Balance shown on Page 3.
The amount payable will be the partial withdrawal less any applicable withdrawal
charge and Premium Tax. The Sub-Account(s) for the withdrawal may be specified.
If not specified, withdrawals will be deducted from each Sub-Account and the
Fixed Account in proportion to the value each bears to the Annuity Value.
CASH VALUE. This Contract may be Surrendered by the Owner for its Cash Value
upon Written Notice at any time prior to the then current Maturity Date. The
Cash Value at any time equals the Annuity Value on the Valuation Date coincident
with or next following the date we receive Written Notice of Surrender less any
applicable withdrawal charge and Premium Tax. Payment will usually be made
within seven days of Written Notice subject to the Contract Payment section of
the General Provisions and the Fixed Account section of these provisions.
WITHDRAWAL CHARGE. On the Surrender or partial withdrawal of purchase payments
paid beyond the Withdrawal Charge Period shown on Page 3, no withdrawal charge
will be imposed.
On the partial withdrawal of purchase payments within the Withdrawal Charge
Period, the withdrawal charge will equal the purchase payment paid within the
Withdrawal Charge Period times the applicable Withdrawal Charge Percentage shown
on Page 3. However, for the first partial withdrawal during each Contract year,
any withdrawal charge will be waived on the first 10% of the Annuity Value
withdrawn.
On the Surrender of purchase payments within the Withdrawal Charge Period, the
withdrawal charge will equal the purchase payment paid within the Withdrawal
Charge Period times the applicable Withdrawal Charge Percentage shown on Page 3.
No waiver of a withdrawal charge will be made for any portion of a Surrender.
BASIS OF COMPUTATION. A detailed statement of the method of computation of
values has been filed with the insurance supervisory official of the
jurisdiction in which this Contract is delivered. All values for this Contract
are equal to or greater than the values required by statutes in such
jurisdiction.
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DEATH BENEFIT PROVISIONS
DEATH OF ANNUITANT DURING THE ACCUMULATION PERIOD. 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 Annuitant and the Contract
will continue. In the event of Joint Owners, the younger Joint Owner will
automatically become the Annuitant and the Contract will continue.
If the Annuitant dies during the Accumulation Period and the Owner is either (1)
the same individual as the Annuitant, or (2) other than a natural person, then
the Death Benefit Proceeds as calculated below are payable to the Beneficiary.
However, in the event of Joint Owners, if the Annuitant dies during the
Accumulation Period and is the same individual as one of the Joint Owners, the
surviving Joint Owner will automatically become the Annuitant and the Contract
will continue.
DEATH BENEFIT PROCEEDS. If the Annuitant dies during the Accumulation Period,
and (a) prior to the end of the seventh Contract year, or (b) after the
Annuitant's Attained Age 79, the Death Benefit Proceeds, if payable, will be the
greater of:
1. The Annuity Value as of the Death Report Day; or
2. The excess of (a) the amount of purchase payments paid as of the Death
Report Day less (b) any amounts withdrawn from the Contract to pay for
partial withdrawals.
If the Annuitant dies during the Accumulation Period and after the seventh
Contract year but prior to the Annuitant's attained age 80, the Death Benefit
Proceeds, if payable, will be the greater of:
1. The Annuity Value as of the Death Report Day; or
2. The excess of (a) the amount of purchase payments paid as of the Death
Report Day less (b) any amounts withdrawn from the Contract to pay for
partial withdrawals; or
3. The Annuity Value as of the seventh Contract anniversary, less any
amounts withdrawn from the Contract after the seventh Contract year to
pay for partial withdrawals.
ALTERNATIVE ELECTION. If the Beneficiary 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 provides for complete distribution and termination
of this Contract at the end of the distribution period:
1. Within five years of the date of death of the Annuitant; or
2. Over the lifetime of the Beneficiary; 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
such Beneficiary.
Multiple beneficiaries may choose individually among any of the three options.
For subparagraphs (1) and (3), the Annuity Value as of the Death Report Day will
be adjusted to equal the Death Benefit Proceeds and this Contract will remain in
force as a deferred annuity until the end of the elected distribution period.
For subparagraph (2), the Maturity Date will be changed to the Death Report Day
and the Death Benefit Proceeds will be used to purchase annuity payments under
the Annuity Provisions of this Contract.
For elections made under subparagraph (1), we will:
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a. at the time of election, allow one partial withdrawal, without a
withdrawal charge, and one transfer of all or a portion of the
Contract's value among Sub-Accounts or the Fixed Account without a
transfer charge. Additional partial withdrawals and transfers are not
permitted;
b. not deduct the Annual Contract Charge nor assess the Withdrawal Charge
upon complete distribution;
c. not permit payment of the Death Benefit Proceeds under the Annuity
Provisions of this Contract upon complete distribution.
The Beneficiary may not name a Beneficiary for payment of the Death Benefit
Proceeds. In the event the Beneficiary dies prior to distribution of all
Death Benefit Proceeds, we will pay the remaining value of the Death
Benefit Proceeds to the Contingent Beneficiary, if named by the Owner. If
no Contingent Beneficiary is named, such payment will be made to the
Beneficiary's estate.
Subparagraphs (2) and (3) may be elected only if the Beneficiary is a natural
person and payments start within one year of the date of death of the Annuitant.
Except in the event of Joint Owners, as provided in the Death of Annuitant
During the Accumulation Period provision, 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 Annuitant and Owner and keep
the Contract in force in lieu of receiving the Death Benefit Proceeds. However,
if the spouse is also a Joint Owner of this Contract, the terms of the Death of
Annuitant During the Accumulation Period provision shall apply.
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ANNUITY PROVISIONS
COMMENCEMENT OF ANNUITY PAYMENTS. Monthly annuity payments will begin as of the
Maturity Date shown on Page 3, unless another Maturity Date has been elected as
provided in these provisions.
MATURITY DATE. The Maturity Date shown on Page 3 may be changed to a different
Maturity Date, subject to all of the following:
1. Written Notice is received at Our Office prior to the Maturity Date.
2. The new Maturity Date is at least 5 years after the Contract Date.
3. The Attained Age of the Annuitant as of the new Maturity Date is not
greater than 90.
ANNUITY OPTION. The Annuity Option shown on Page 3 may be changed to any other
option available upon Written Notice prior to the Maturity Date. If a variable
account annuity payment option is chosen, the Owner must include in the Written
Notice the Sub-Account allocation of the Annuity Proceeds as of the Maturity
Date.
CHANGE OF ANNUITANT. As of the Maturity Date and upon agreement with us, the
Owner may elect a different Annuitant or add a joint annuitant who will be a
joint payee under either Option C or Option E.
PAYEE. The Annuitant(s) on the Maturity Date will become the payee(s) and
receive the annuity payments.
AVAILABILITY. If the payee is not a natural person, an Annuity Option is only
available with our permission. No Annuity Option is available if:
1. The payee is an assignee; or
2. The periodic payment is less than $100.
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AGE. Age, when required, means age nearest birthday on the effective date of the
option. We will furnish rates for ages or combination of ages not shown upon
request.
PROOF OF AGE AND SEX. Prior to making the first monthly annuity payment under
this Contract, we reserve the right to require satisfactory evidence of the
birthdate and the sex of any payee. If required by law to ignore differences in
sex of any payee, annuity payments will be determined using unisex rates.
PROOF OF SURVIVAL. Prior to making any payment under this Contract, we reserve
the right to require satisfactory evidence that the payee is:
1. Alive on the due date of such payment; and
2. Legally qualified to receive such payment.
DEATH BENEFIT AFTER THE MATURITY DATE. The death benefit 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.
RESTRICTIONS. After the Maturity Date, no additional purchase payments, partial
withdrawals, transfers, full Surrenders, change of Annuitants or Annuity Options
may be made under this Contract.
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FIXED ACCOUNT ANNUITY PAYMENTS
INTEREST AND MORTALITY. All Fixed Account annuity option payments are based on a
guaranteed interest rate of 3%. Mortality is based on the "1983 Table a"
mortality table with projection. Gender based mortality tables will be used
unless prohibited by law.
AMOUNT OF MONTHLY FIXED ACCOUNT ANNUITY PAYMENT. The amount of each monthly
annuity payment will be determined by multiplying:
1. The appropriate rate based on the guaranteed interest rate and, for
Options B and C, the mortality table for Fixed Account annuity
payments; times
2. The Annuity Proceeds as of the Maturity Date.
FIXED ACCOUNT ANNUITY OPTIONS. The following options are available for payment
of Fixed Account monthly annuity payments. The rates shown are the guaranteed
rates for each $1,000 of Annuity Proceeds at selected ages. Any guaranteed rates
not shown for the options below will be available upon request. Higher current
rates may be available at the Maturity Date.
Option A - Fixed Period. The Annuity Proceeds will be paid in equal
installments. The installments will be paid over a fixed period determined from
the following table:
FIXED PERIOD
(IN MONTHS) RATE
------------ -----
60 17.91
120 9.61
180 6.87
240 5.51
Option B - Life Income. The Annuity Proceeds will be paid in equal installments
determined from the following table. Such installments are payable:
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1. During the payee's lifetime only (Life Annuity); or
2. During a 10 Year fixed period certain and for the payee's remaining
lifetime (Certain Period); or
3. Until the sum of installments paid equals the Annuity Proceeds applied
and for the payee's remaining lifetime (Installment Refund).
<TABLE>
<CAPTION>
LIFE ANNUITY CERTAIN PERIOD INSTALLMENT REFUND
------------------------------ ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payee's
Age Male Female Unisex Male Female Unisex Male Female Unisex
55 4.20 3.81 4.01 4.15 3.79 3.98 4.00 3.71 3.85
60 4.67 4.17 4.43 4.59 4.14 4.37 4.37 4.02 4.19
65 5.33 4.68 5.01 5.17 4.61 4.90 4.84 4.42 4.62
70 6.26 5.39 5.82 5.89 5.24 5.58 5.45 4.94 5.18
75 7.53 6.42 6.97 6.75 6.06 6.42 6.24 5.64 5.91
80 9.33 7.95 8.63 7.66 7.04 7.37 7.25 6.57 6.88
85 11.84 10.21 11.02 8.48 8.04 8.27 8.55 7.78 8.14
90 15.31 13.49 14.40 9.08 8.81 8.96 10.21 9.30 9.74
</TABLE>
Option C - Joint and Survivor Life Income. The Annuity Proceeds will be paid in
equal installments during the joint lifetime of two payees and continuing upon
the death of the first payee for the remaining lifetime of the survivor.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT ANNUITY PAYMENTS
ANNUITY UNIT VALUE. The Annuity Proceeds will be used to purchase variable
annuity units in the chosen Sub-Account(s). The Annuity Unit Value in any
Sub-Account will increase or decrease reflecting 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 (a) multiplied by (b) multiplied by (c), where:
(a) is the Annuity Unit Value for that Sub-Account at the end of the
immediately preceding Valuation Period;
(b) is the net investment factor for the Sub-Account for the Valuation
Period; and (c) is the Assumed Investment Return adjustment factor for
the Valuation Period.
The Assumed Investment Return adjustment factor for the Valuation Period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of the Annuity Unit Value
in each Sub-Account for the Valuation Period is determined by dividing (d) by
(e) and subtracting (f) from the result, where:
(d) is the net result of:
(1) the net asset value of a Series 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 Series 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 we
determine to have resulted from the investment operations of the
Sub-Account.
(e) is the net asset value of a Series Fund share held in the Sub-Account
determined as of the end of the immediately preceding Valuation Period.
(f) is a factor representing the mortality and expense risk charge. This
factor is equal, on an annual basis, to 1.40% of the daily net asset
value of a Series Fund share held in the Separate Account for that
Sub-Account.
Page 15
<PAGE>
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first variable
payment is determined by multiplying the Annuity Proceeds times the appropriate
rate from the variable option selected. The tables are based on the "1983 Table
a" mortality table with projection with 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:
MATURITY DATE ADJUSTED AGE
------------- ------------
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
After the year 2040 as determined by us.
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
variable annuity units 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 variable annuity units in any selected Sub-Account is determined by dividing
the first variable annuity payment allocated to that Sub-Account by the variable
Annuity Unit Value of that Sub-Account on the date the first annuity payment is
processed.
VARIABLE ACCOUNT ANNUITY OPTIONS. The following options are available for
payment of Variable Account monthly annuity payments. The rates shown are the
guaranteed rates for each $1,000 of Annuity Proceeds at selected ages. These
rates are used to determine the first variable payment under each option. Any
guaranteed rates not shown for the options below will be available upon request.
Option D - Variable Life Income. The Annuity Proceeds will be paid in
installments determined from the following table. 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).
<TABLE>
<CAPTION>
VARIABLE LIFE ANNUITY VARIABLE CERTAIN PERIOD
---------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted
Payee's Age Male Female Unisex Male Female Unisex
55 5.39 4.98 5.19 5.33 4.95 5.14
60 5.88 5.36 5.63 5.77 5.31 5.55
65 6.57 5.88 6.23 6.35 5.78 6.07
70 7.53 6.61 7.08 7.05 6.41 6.75
75 8.84 7.68 8.25 7.86 7.21 7.54
80 10.69 9.26 9.97 8.71 8.15 8.44
85 13.27 11.62 12.44 9.48 9.07 9.29
90 16.82 15.02 15.89 10.03 9.79 9.93
</TABLE>
Option E - Variable Joint and Survivor Life Income. The Annuity Proceeds will be
paid in installments during the joint lifetime of two payees and continuing upon
the death of the first payee for the remaining lifetime of the survivor.
Page 16
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity.
Monthly Annuity Commencing on Maturity Date.
Non-Participating - No Dividends
