As filed with the Securities and Exchange Commission on June 26, 1997
Registration No. 333-24959
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1 (X)
POST-EFFECTIVE AMENDMENT NO. ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Post-Effective Amendment No. 52 (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
PRE-EFFECTIVE AMENDMENT NO. 1 TO
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
FREEDOM
WEALTH
CREATOR(SM)
Flexible Payment
Variable Accumulation
Deferred Annuity
Contract
PROSPECTUS DATED
July , 1997
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
201 HIGHLAND AVENUE
LARGO, FLORIDA 33770
(800) 851-9777
(813) 585-6565
This Prospectus describes the WRL Freedom Wealth Creator(SM) Variable Annuity
(the "Contract"), a tax deferred variable annuity contract issued by Western
Reserve Life Assurance Co. of Ohio ("Western Reserve").
The Contract provides for accumulation of Contract values on a variable basis,
a fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. If
the variable basis is chosen, Contract values will be held in the WRL Series
Annuity Account (the "Series Account") and will vary according to the
investment performance of the underlying investment portfolios of the WRL
Series Fund, Inc. (the "Fund"). If the fixed basis is chosen, Contract values
will be allocated to the Fixed Account and earn interest at no less than the
minimum guaranteed rate.
There are currently fifteen Sub-Accounts of the Series Account (in addition to
the Fixed Account) available through this Contract during the Accumulation
Period and after the Maturity Date. Each Sub-Account invests in one investment
portfolio of the Fund and Net Purchase Payments will be allocated to one or
more of these Sub-Accounts or the Fixed Account as directed by the Owner. These
fifteen investment portfolios of the Fund are: the Aggressive Growth Portfolio,
Emerging Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced
Portfolio, Strategic Total Return Portfolio, Bond Portfolio, Growth & Income
Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio, Value
Equity Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio,
International Equity Portfolio and U.S. Equity Portfolio.
This Prospectus sets forth information about the Contract that a prospective
investor should know before investing. Additional information about the Series
Account has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated July , 1997, which is incorporated
herein by reference. The Statement of Additional Information is available upon
written or oral request and without charge from Western Reserve, P.O. Box 9051,
Clearwater, FL 34618-9051; telephone number (800) 851-9777. The table of
contents for the Statement of Additional Information appears on page 28 of this
Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, A
BANK OR DEPOSITORY INSTITUTION AND THE CONTRACT IS NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE WRL
SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
PAGE
-----
DEFINITIONS OF SPECIAL TERMS .......................................... 1
SUMMARY ............................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS .............................. 6
OTHER PERFORMANCE DATA ................................................ 7
PUBLISHED RATINGS ...................................................... 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ..................... 9
/bullet/ Western Reserve Life Assurance Co. of Ohio .................. 9
/bullet/ WRL Series Annuity Account ................................. 9
/bullet/ WRL Series Fund, Inc ....................................... 9
CHARGES AND DEDUCTIONS ................................................ 10
/bullet/ Withdrawal Charge .......................................... 10
/bullet/ Transfer Charge ............................................. 11
/bullet/ Change in Purchase Payment Allocation Fee .................. 11
/bullet/ Mortality and Expense Risk Charge ........................... 11
/bullet/ Annual Contract Charge .................................... 12
/bullet/ Premium Taxes ............................................. 12
/bullet/ Deductions for Other Taxes ................................. 12
/bullet/ Expenses of the Fund ....................................... 12
THE CONTRACT ......................................................... 12
ACCUMULATION PROVISIONS ................................................ 12
/bullet/ Purchase Payments .......................................... 12
/bullet/ Net Purchase Payments ....................................... 13
/bullet/ Accumulation Unit Value .................................... 14
/bullet/ Computing Sub-Account Value ................................. 14
/bullet/ Transfers to and from, and among Allocation Options ......... 14
/bullet/ Dollar Cost Averaging ....................................... 15
/bullet/ Asset Rebalancing Program ................................. 15
/bullet/ Partial Withdrawals and Surrenders ........................ 16
/bullet/ Contract Loans For 401(a), 401(k), and 403(b) Contracts ... 17
/bullet/ Death Benefits during the Accumulation Period ............... 18
ANNUITY PROVISIONS ................................................... 19
/bullet/ Maturity Date and Selection of Annuity Options ............ 19
/bullet/ Fixed Account Annuity Options .............................. 20
/bullet/ Series Account Annuity Options .............................. 21
/bullet/ Death Benefits after the Maturity Date ..................... 21
/bullet/ Improved Annuity Rates .................................... 21
/bullet/ Proof of Age, Sex, and Survival ........................... 21
OTHER MATTERS RELATING TO THE CONTRACT ................................. 21
/bullet/ Changes in Purchase Payments .............................. 21
/bullet/ Right To Examine Contract ................................. 21
/bullet/ Contract Payments .......................................... 21
/bullet/ Ownership ................................................ 21
/bullet/ Annuitant ................................................... 22
/bullet/ Beneficiary ................................................ 22
/bullet/ Modification or Waiver .................................... 22
FEDERAL TAX MATTERS ................................................... 22
/bullet/ Introduction ................................................ 22
/bullet/ Company Tax Status .......................................... 22
/bullet/ Taxation of Annuities ....................................... 22
/bullet/ Qualified Plans ............................................. 24
/bullet/ Additional Considerations ................................. 25
(ii)
<PAGE>
TABLE OF CONTENTS (CONTINUED)
PAGE
------
THE FIXED ACCOUNT ............................................. 26
/bullet/ Minimum Guaranteed and Current Interest Rates ...... 26
/bullet/ Fixed Account Value ................................. 27
/bullet/ Allocations, Transfers and Partial Withdrawals ...... 27
DISTRIBUTION OF THE CONTRACTS ................................. 27
VOTING RIGHTS ................................................... 27
LEGAL PROCEEDINGS ............................................. 28
STATEMENT OF ADDITIONAL INFORMATION ........................... 28
APPENDIX A--Condensed Financial Information ..................... A-1
(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 9051, Clearwater, Florida 34618-5068. Telephone number:
1-800-851-9777; Fax number:1-813-588-1620.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive annuity
payments. The Annuitant may be changed as provided in the Contract's
death benefit provisions and annuity provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the
Annuity Value on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain
Sub-Accounts after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the
Contract remains In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and any Withdrawal
Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT The person named in the application, or subsequently designated, to become the
BENEFICIARY new Beneficiary upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the
date that the properly completed application is received at Western Reserve's
Administrative Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any
Anniversary thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that
provides for accumulation of Net Purchase Payments, and options for annuity
payments on a fixed basis. For Contracts issued in the State of Washington, the
Fixed Account is used solely for Contract loans, and is not available for allocation
of Net Purchase Payments or transfers of Annuity Value from the Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Account.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise
all rights under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to
commence.
NET PURCHASE PAYMENT The Purchase Payment less any applicable premium taxes.
NON-QUALIFIED Contracts issued other than in connection with retirement plans. Non-Qualified
CONTRACTS Contracts do not qualify for special Federal income tax treatment under the Code.
OWNER The person(s) entitled to exercise all rights under the Contract. The Annuitant is
the Owner unless the application states otherwise, or unless a change of ownership
is made at a later time.
PORTFOLIO A separate investment portfolio of the Fund.
</TABLE>
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
PURCHASE PAYMENTS Amounts paid by an Owner or on the Owner's behalf to Western Reserve as
consideration for the benefits provided by the Contract.
QUALIFIED CONTRACTS Contracts issued in connection with retirement plans that qualify for special Federal
income tax treatment under the Code.
SERIES ACCOUNT (OR WRL Series Annuity Account, a separate investment account composed of several
SEPARATE ACCOUNT) Sub-Accounts established to receive and invest Net Purchase Payments not allocated
to the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a
Contract, which value is equal to the total of the values allocable to a Contract in each
of the Sub-Accounts during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a specified
Portfolio and supports the Contracts. Sub-Accounts corresponding to each applicable
Portfolio hold assets under the Contract during the Accumulation Period.
Other Sub-Accounts corresponding to each applicable Portfolio will hold assets after
the Maturity Date if a Series Account annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The period commencing at the end of one Valuation Date and continuing to the end of
the next succeeding Valuation Date.
</TABLE>
2
<PAGE>
SUMMARY
This summary provides you with an overview of the tax deferred variable annuity
contract offered by Western Reserve and funded by the Series Account and the
Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be purchased
by submitting a completed application to Western Reserve for its approval. The
Contract provides for accumulation of Annuity Values on a variable basis, a
fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. (See
"THE CONTRACT--Accumulation Provisions" on page 12 and "--Annuity Provisions"
on page 19.) (For information about tax status, see "FEDERAL TAX MATTERS" on
pages 22-26.)
RIGHT TO EXAMINE CONTRACT
If an Owner is not satisfied with the Contract, it may be cancelled by
returning it within ten days after receipt together with a written request for
cancellation. In such event, Western Reserve will pay the Owner an amount equal
to the sum of: (i) the Purchase Payments received; plus (or minus) (ii) the
accumulated gains (or losses), if any, in the Series Account for the Contract
as of the date Western Reserve receives the returned Contract. (In certain
states, Western Reserve will refund the Purchase Payments.) (See "OTHER MATTERS
RELATING TO THE CONTRACT--Right to Examine Contract" on page 21.)
THE FUND
The underlying variable investments for the Contracts are shares of several of
the Portfolios of the Fund, namely: the Aggressive Growth Portfolio, Emerging
Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio,
Money Market Portfolio, Tactical Asset Allocation Portfolio, Value Equity
Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio, International
Equity Portfolio and U.S. Equity Portfolio. Western Reserve reserves the right
to offer additional investment portfolios or other mutual funds with differing
investment objectives. (See "WESTERN RESERVE, THE SERIES ACCOUNT, AND THE
FUND--WRL Series Fund, Inc." on page 9.)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects. The
initial Purchase Payment generally must accompany the application, and for
Non-Qualified Contracts must be at least $5,000; however, a minimum initial
Purchase Payment of $1,000 is allowed provided the application reflects
anticipated additional monthly periodic Purchase Payments of at least $100, via
electronic funds transfer from the Owner's bank account. For Individual
Retirement Annuities ("IRAs"), the minimum initial Purchase Payment is $1,000.
For Qualified Contracts other than IRAs, the minimum initial Purchase Payment
is $50. For all Contracts, subsequent Purchase Payments must be at least $50,
unless Western Reserve consents to a smaller amount. The maximum amount of
Purchase Payments that may be made in any Contract Year is $1,000,000, unless
Western Reserve consents to a larger amount. Western Reserve reserves the right
to reject any Purchase Payment for any reason permitted by law. (See
"ACCUMULATION PROVISIONS--Purchase Payments" on page 12.)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $5,000. (See "THE
CONTRACT--Partial Withdrawals and Surrenders" on page 16.) For Qualified
Contracts issued under Code Section 403(b), certain restrictions will apply.
Moreover, a partial withdrawal or Surrender may have Federal income tax
consequences. (See "FEDERAL TAX MATTERS--Qualified Plans" on pages 24-25.)
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may, however, be assessed
against Annuity Value when partially withdrawn or surrendered.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or Surrender of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of the amount of
each Purchase Payment partially withdrawn or surrendered within seven years of
its payment. In determining which amounts withdrawn are subject to the
Withdrawal Charge, partial withdrawals and Surrenders will be deemed made first
from Purchase Payments on a first-in, first-out basis and then from any
Contract earnings. The charge is as follows:
NUMBER OF MONTHS
FROM DATE OF RECEIPT OF
CHARGE EACH PURCHASE PAYMENT
- - - -------- ------------------------
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
For the first withdrawal or series of Systematic Partial Withdrawals during
each Contract Year, the Withdrawal Charge is waived for the first 10% of the
Annuity Value that is subject to the Withdrawal Charge. No Withdrawal Charge
will be assessed if Annuity Values are applied to any annuity option under the
Contract. (See "CHARGES AND DEDUCTIONS--Withdrawal Charge" on page 10.)
3
<PAGE>
Additionally, a 10% penalty tax under Code Section 72(q) is currently imposed
on partial withdrawals or Surrenders from Non-Qualified Contracts if such
partial withdrawals or Surrenders are made prior to age 59-1/2 and other
exceptions do not apply. (See "FEDERAL TAX MATTERS" on page 22.)
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western Reserve
imposes a 1.40% per annum charge against all Annuity Value held in the Series
Account. This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. (See "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge" on page 11.)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $35 is deducted annually on the Anniversary. (See
"CHARGES AND DEDUCTIONS--Annual Contract Charge", page 12.)
PREMIUM TAXES
No deduction is made for premium taxes unless Western Reserve incurs a premium
tax under state law. Certain states impose premium taxes ranging up to 3.5% of
Purchase Payments. (See "CHARGES AND DEDUCTIONS--Premium Taxes" on page 12.)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 9 and
the Prospectus for the Fund.) TOTAL FUND ANNUAL EXPENSES FOR THE GLOBAL SECTOR
PORTFOLIO EXCEED 2.00%.
OTHER CONTRACTS
Western Reserve offers other variable annuity contracts which also invest in
the same Portfolios of the Fund. These contracts may have different charges
that could affect Sub-Account performance, and may offer different benefits
more suitable to your needs. To obtain more information about these contracts,
contact your agent, or call (800) 851-9777.
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract during
the Accumulation Period, as well as the fees and expenses of the Fund.
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases ......... None
Maximum Withdrawal Charge
(as a % of each Purchase Payment
surrendered or partially withdrawn within
7 years of receipt) ..................... 8%
Transfer Charge
On one transfer per Contract Month, or
the first 12 transfers each year ...... None
On each transfer thereafter ............ $25.00
Change in Purchase Payment Allocation Fee
One change in allocation per
Contract quarter ..................... None
Each change thereafter .................. $25.00
ANNUAL CONTRACT CHARGE* .................. $35.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average Series Account value)
Mortality and Expense Risk Charge ...... 1.40%
Total Separate Account Annual Expenses ... 1.40%
- - - --------------------------------------------------------------------------------
FUND ANNUAL EXPENSES** (as a % of Fund average net assets)
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- -----------
Management Fees ........................ 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.18% 0.14% 0.08%
Total Fund Annual Expenses ............ 0.98% 0.94% 0.88%
<TABLE>
<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>
STRATEGIC
TOTAL GROWTH & MONEY
BOND RETURN INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------
Management Fees ................. 0.50% 0.80% 0.75% 0.40%
Other Expenses
(after reimbursement) ........ 0.14% 0.11% 0.25% 0.12%
Total Fund Annual Expenses ..... 0.64% 0.91% 1.00% 0.52%
<TABLE>
<CAPTION>
TACTICAL
ASSET VALUE C.A.S.E. GLOBAL
ALLOCATION EQUITY GROWTH SECTOR
PORTFOLIO PORTFOLIO*** PORTFOLIO PORTFOLIO***
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Management Fees .................. 0.80% 0.80% 0.80% 1.10%
Other Expenses
(after reimbursement) ......... 0.10% 0.20% 0.20% 1.27%
Total Fund Annual Expenses ...... 0.90% 1.00% 1.00% 2.37%
<FN>
- - - --------------
* Deduction of the Annual Contract Charge is currently waived when the sum
of all Net Purchase Payments received, minus all partial withdrawals,
exceeds $50,000 as of the Contract Anniversary for which the charge is
payable.
** Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and
pursuant to the Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under
the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths
of one percent) on an annualized basis of the average daily net assets.
This fee is measured and accrued daily and paid monthly. ISI has
determined that it will not seek payment by the Fund of distribution
expenses incurred with respect to any Portfolio during the fiscal year
ending December 31, 1997. Prior to ISI's seeking reimbursement,
Policyowners will be notified in advance.
*** Because the Value Equity and Global Sector Portfolios commenced operations
on May 1, 1996, the percentages set forth as "Other Expenses" and "Total
Fund Annual Expenses" are annualized. Because the International Equity and
U.S. Equity Portfolios commenced operations on January 2, 1997, the
percentages set forth as "Other Expenses" and "Total Fund Annual Expenses"
are estimates.
</FN>
</TABLE>
4
<PAGE>
The purpose of the preceding Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects charges and expenses of the Separate Account as well as the
Portfolios of the Fund for the fiscal year ended December 31, 1996, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the Value Equity and
Global Sector Portfolios are annualized and the "Other Expenses" and "Total
Fund Annual Expenses" for the International Equity and U.S. Equity Portfolios
are estimates. Expenses of the Fund may be higher or lower in the future.
Certain states and other governmental entities may impose a premium tax, which
the Table does not include. For more information on the charges described in
this Table, see "CHARGES AND DEDUCTIONS" on page 10 and the Fund prospectus
which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30, 1998,
to pay Fund expenses on behalf of the Portfolios to the extent normal operating
expenses of a Portfolio exceed a stated percentage of the Portfolio's average
daily net assets, 0.70% for the Bond and Money Market Portfolios; 1.00% for the
Aggressive Growth, Emerging Growth, Growth, Global, Balanced, Strategic Total
Return, Growth & Income, Tactical Asset Allocation, Value Equity, C.A.S.E.
Growth Portfolios; 1.50% for the International Equity Portfolio; and 1.30% for
the U.S. Equity Portfolio. No expense limit applies to the Global Sector
Portfolio. In 1996, Western Reserve, the Fund's Investment Adviser prior to
January 1, 1997, reimbursed the Value Equity Portfolio in the amount of $13,672
and the C.A.S.E. Growth Portfolio in the amount of $73,269. Without such
reimbursement, the total annual Fund expenses during 1996 for the Value Equity
Portfolio and the C.A.S.E. Growth Portfolio would have been 1.03% and 1.64%,
respectively. See the Fund's prospectus for a description of the expense
limitation applicable to each Portfolio.
EXAMPLES
1. If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $105 $137 $172 $282
Emerging Growth Sub-Account ............... 105 136 170 278
Growth Sub-Account ........................ 104 134 167 272
Global Sub-Account ........................ 105 138 173 283
Balanced Sub-Account ........................ 105 137 172 281
Strategic Total Return Sub-Account ......... 104 135 169 275
Bond Sub-Account ........................... 102 127 155 248
Growth & Income Sub-Account ............... 105 138 173 284
Money Market Sub-Account .................. 101 124 149 235
Tactical Asset Allocation Sub-Account ...... 104 135 168 274
Value Equity Sub-Account .................. 105 138 173 284
C.A.S.E. Growth Sub-Account ............... 105 138 173 284
Global Sector Sub-Account .................. 119 178 239 410
International Equity Sub-Account ............ 108 147 N/A N/A
U.S. Equity Sub-Account ..................... 106 139 N/A N/A
</TABLE>
2. If you annuitize or do not surrender at the end of the applicable time
period (note that annuitization is not available prior to a Contract's fifth
anniversary):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1YEAR 3 YEARS 5 YEARS 10 YEARS
------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $25 $77 $132 $282
Emerging Growth Sub-Account ............... 25 76 130 278
Growth Sub-Account ........................ 24 74 127 272
Global Sub-Account ........................ 25 78 133 283
Balanced Sub-Account ........................ 25 77 132 281
Strategic Total Return Sub-Account ......... 24 75 129 275
Bond Sub-Account ........................... 22 67 115 248
Growth & Income Sub-Account ............... 25 78 133 284
Money Market Sub-Account .................. 21 64 109 235
Tactical Asset Allocation Sub-Account ...... 24 75 128 274
Value Equity Sub-Account .................. 25 78 133 284
C.A.S.E. Growth Sub-Account ............... 25 78 133 284
Global Sector Sub-Account .................. 39 118 199 410
International Equity Sub-Account ............ 28 87 N/A N/A
U.S. Equity Sub-Account ..................... 26 79 N/A N/A
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $35 ANNUAL CONTRACT CHARGE BASED ON AN
ESTIMATED AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $33,268, WHICH CONVERTS
THAT CHARGE TO AN ANNUAL RATE OF 0.10% OF THE SERIES ACCOUNT VALUE.
5
<PAGE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
DEATH BENEFIT
If the Annuitant is also the Owner, or if the Owner is not a natural person,
and the Annuitant dies at any time before the Maturity Date, a death benefit
will be provided, unless certain elections have been made that would keep the
Contract In Force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 18 and
"ANNUITY PROVISIONS--Death Benefits after the Maturity Date" on page 21.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution of
the Annuity Proceeds after the Maturity Date. The Maturity Date may not be
earlier than the end of the fifth Contract Year and cannot be deferred beyond
the Annuitant reaching Attained Age 90. Subject to these limitations, the
default Maturity Date may be changed by the Owner, at any time prior to that
date, by delivering a written request to Western Reserve. (See "ANNUITY
PROVISIONS--Maturity Date and Selection of Annuity Options" on page 19.)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the Annuity
Value from a Sub-Account to the Fixed Account, from the Fixed Account to a
Sub-Account (subject to certain restrictions), or among the Sub-Accounts. (For
Contracts issued in the State of Washington, the Fixed Account is not available
for transfers of Annuity Value from the Sub-Accounts.) (See "THE CONTRACT--
ACCUMULATION PROVISIONS--Transfers to and from, and among Allocation Options,"
on page 14.) One transfer per Contract Month, or twelve transfers per Contract
Year, are permitted without charge. Each additional transfer will be subject to
a transfer charge of $25. Currently, Western Reserve only charges the transfer
charge after twelve transfers per Contract Year. This charge will not be
increased. Certain restrictions apply to transfers from the Fixed Account. (See
"ACCUMULATION PROVISIONS--Transfers to and from, and among Allocation Options"
on page 14 and "THE FIXED ACCOUNT--Allocations, Transfers and Partial
Withdrawals" on page 27.)
FIXED ACCOUNT
Fixed Account Values will be held in the general account of Western Reserve and
earn interest at no less than the minimum guaranteed rate. The Fixed Account is
discussed in the section entitled "THE FIXED ACCOUNT" beginning on page 26.
CONDENSED FINANCIAL INFORMATION
A table that contains the accumulation unit value history of the Sub-Accounts
is presented in Appendix A--Condensed Financial Information.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Western Reserve may disclose in advertisements and sales
literature yields and total returns for the Sub-Accounts representing the
Accumulation Period under a Contract. In addition, Western Reserve may, on the
same basis, advertise the effective yield of the Money Market Sub-Account under
a Contract. THESE YIELDS AND TOTAL RETURNS ARE BASED ON THE SUB-ACCOUNTS'
HISTORICAL PERFORMANCE ONLY AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. For more detailed information about the performance data
calculations described below, see the Statement of Additional Information.
YIELD
The yield of the Money Market Sub-Account refers to the annualized income
produced by a hypothetical Series Account Value in the Money Market Sub-Account
under a Contract over a specified seven day period. The yield calculation
assumes that the same amount of income produced for that seven day period is
also produced for each seven day period over a fifty-two week period and is
shown as a percentage of the Series Account Value. The effective yield is
calculated similarly but, when annualized, the income earned by the Series
Account Value in the Money Market Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment of income. Based on the method
of calculation described in the Statement of Additional Information, for the
seven-day period ended December 31, 1996, the current yield and effective yield
for the Money Market Sub-Account were as follows:
Current Yield = 3.66%
Effective Yield = 3.73%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Account"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Account over a specified thirty day period expressed as
a percentage rate of return for that period. The yield is calculated by
assuming that the income produced by the investment during that thirty day
period is produced each thirty day period over a twelve month period and is
shown as a percentage of the Series Account Value. Based on the method of
calculation described in the Statement of Additional Information, for the
thirty day period ended December 31, 1996, the yield for the Bond Sub-Account
was 4.12%.
6
<PAGE>
TOTAL RETURN
The average annual total return of the Sub-Accounts shown below is based upon
the actual historical performance of the Sub-Accounts. The calculations
represent the performance of a hypothetical initial Purchase Payment of $1,000
over certain stated periods of time. Total return is calculated according to
the formula provided in the Statement of Additional Information.
THE STANDARD TOTAL RETURN CALCULATIONS IN THE TABLE BELOW HAVE BEEN REDUCED BY
ALL FEES AND CHARGES UNDER THE CONTRACT. Such fees and charges include the
Mortality and Expense Risk Charge of 1.40%, and the $35 Annual Contract Charge
based on an average Series Account Value of $33,268, which translates into an
annual charge of 0.10%. The total return calculations in the table below also
assume a complete surrender of the Contract at the end of the period, and
therefore THE WITHDRAWAL CHARGE IS DEDUCTED.
THE STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUB-ACCOUNTS SINCE THE
INCEPTION OF EACH SUB-ACCOUNT IS:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
------------------------------------------
ONE THREE FIVE FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS INCEPTION DATE
- - - ----------------------- ---------- ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth ............... 8.16% 13.50% N/A 11.28% 2/24/89
Bond .................. -9.38% 1.17% N/A 4.37% 2/24/89
Money Market ......... -4.47% 1.20% N/A 1.38% 2/24/89
Global ............... 17.76% 13.09% N/A 18.32% 12/3/92
Emerging Growth ...... 9.04% 14.10% N/A 17.37% 3/1/93
Strategic Total
Return ............ 5.25% 9.23% N/A 10.60% 3/1/93
Aggressive Growth . 0.76% N/A N/A 11.90% 3/1/94
Balanced ............ 1.06% N/A N/A 4.44% 3/1/94
Growth & Income ...... 1.96% N/A N/A 7.01% 3/1/94
Tactical Asset
Allocation ......... 4.70% N/A N/A 12.04% 1/3/95
C.A.S.E. Growth ...... N/A N/A N/A -0.34% 5/1/96
Value Equity ......... N/A N/A N/A 4.06% 5/1/96
Global Sector ......... N/A N/A N/A -2.98% 5/1/96
</TABLE>
Because the International Equity and U.S. Equity Sub-Accounts had not yet
commenced operations as of December 31, 1996, no performance information is
provided for these Sub-Accounts.
OTHER PERFORMANCE DATA
Western Reserve may 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.
Western Reserve may present hypothetical illustrations that present average
total return performance information for the hypothetical Contract, assuming
allocation of net premium payments to the Sub-Accounts, and reflects the
performance of those Sub-Accounts for the duration of the allocations under the
hypothetical Contract. The information presented may be compared to various
indices.
Western Reserve may also present total returns based on the performance of the
Portfolios from the time the Portfolios began operations. Some Portfolios were
in existence before their corresponding Sub-Accounts. The calculations in the
table below show the actual average annual total return for the Portfolios
reduced by all fees and charges under the Contract, as if the Contract had been
in existence. Such fees and charges include the Mortality and Expense Risk
Charge of 1.40%, and the $35 Annual Contract Charge based on an average Series
Account value of $33,268, which translates that charge into an annual rate of
0.10%. The total return calculations below also assume a complete surrender of
the Contract at the end of the period, and therefore THE WITHDRAWAL CHARGE IS
DEDUCTED.
THE STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUB-ACCOUNTS SINCE THE
INCEPTION OF EACH PORTFOLIO IS:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- - - ---------------------- ---------- ----------- ------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth*** ............ 8.16% 13.50% 8.64% 16.20% 15.89% 10/2/86*
Bond*** ............ -9.38% 1.17% 4.36% 5.78% 6.01% 10/2/86*
Money Market*** . -4.47% 1.20% 1.50% 3.41% 3.40% 10/2/86*
Global ............... 17.76% 13.09% N/A N/A 18.32% 12/3/92**
Emerging
Growth ............ 9.04% 14.10% N/A N/A 17.37% 3/1/93**
Strategic Total
Return ............ 5.25% 9.23% N/A N/A 10.60% 3/1/93**
Aggressive
Growth ............ 0.76% N/A N/A N/A 11.90% 3/1/94**
Balanced ............ 1.06% N/A N/A N/A 4.44% 3/1/94**
Growth &
Income ............ 1.96% N/A N/A N/A 7.01% 3/1/94**
Tactical Asset
Allocation ......... 4.70% N/A N/A N/A 12.04% 1/3/95**
C.A.S.E. Growth . 7.73% N/A N/A N/A 13.37% 5/1/95*
Value Equity ......... N/A N/A N/A N/A 4.06% 5/1/96**
Global Sector ...... N/A N/A N/A N/A 2.98% 5/1/96**
<FN>
- - - --------------
* 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.
</FN>
</TABLE>
NON-STANDARD PERFORMANCE DATA WILL ONLY BE DISCLOSED IF THE STANDARD
PERFORMANCE DATA FOR THE REQUIRED PERIODS IS ALSO DISCLOSED.
Western Reserve may also present non-standard total returns based on the actual
performance of the Portfolios, which were in existence prior to the
Sub-Account's inception. The table below shows the actual average annual total
return for the Portfolios reduced by all fees and
7
<PAGE>
charges of the Contract, as if the Contract had been in existence, EXCEPT THAT
THE WITHDRAWAL CHARGE IS NOT DEDUCTED. Such fees and charges include the
Mortality and Expense Risk Charge of 1.40%, and the $35 Annual Contract Charge
based on an average Series Account Value of $33,268, which translates that
charge into an annual rate of 0.10%.
THE NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUB-ACCOUNTS SINCE THE
INCEPTION OF EACH PORTFOLIO IS:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS YEARS INCEPTION DATE
- - - ---------------------- ----------- ----------- ------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth ............... 16.16% 15.03% 9.44% 16.20% 15.89% 10/2/86*
Bond ............... -1.38% 3.08% 5.16% 5.78% 6.01% 10/2/86*
Money Market ......... 3.53% 3.12% 2.30% 3.41% 3.40% 10/2/86*
Global ............... 25.76% 14.63% N/A N/A 19.04% 12/3/92**
Emerging
Growth ............ 17.04% 15.62% N/A N/A 18.35% 3/1/93**
Strategic Total
Return ............ 13.25% 10.88% N/A N/A 11.75% 3/1/93**
Aggressive
Growth ............ 8.76% N/A N/A N/A 13.88% 3/1/94**
Balanced ............ 9.06% N/A N/A N/A 6.67% 3/1/94**
Growth &
Income ............ 9.96% N/A N/A N/A 9.15% 3/1/94**
Tactical Asset
Allocation ......... 12.70% N/A N/A N/A 15.57% 1/3/95**
C.A.S.E. Growth . 15.73% N/A N/A N/A 21.37% 5/1/95*
Value Equity ......... N/A N/A N/A N/A 12.06% 5/1/96**
Global Sector ...... N/A N/A N/A N/A 5.02% 5/1/96**
<FN>
- - - --------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
</FN>
</TABLE>
Because the International Equity and U.S. Equity Sub-Accounts had not commenced
operations as of December 31, 1996, no performance information is provided for
these Sub-Accounts.
SUB-ADVISER PERFORMANCE
The Prospectus for the Fund presents the total returns of certain existing
SEC-registered funds that are managed by Sub-Advisers for the Portfolios and
that have investment objectives, policies, and strategies substantially similar
to those of certain Portfolios ("Similar Sub-Adviser Funds"). The Prospectus
for the Fund also presents the hypothetical total returns of a composite of
private accounts managed by certain Sub-Advisers for the Portfolios that have
investment objectives, policies and strategies substantially similar to those
of certain Portfolios ("Similar Sub-Adviser Accounts"). NONE OF THE FEES AND
CHARGES UNDER THE CONTRACT HAVE BEEN DEDUCTED FROM SUCH SUB-ADVISER PERFORMANCE
DATA. IF THOSE FEES AND CHARGES WERE DEDUCTED, THE INVESTMENT RETURNS WOULD BE
LOWER. THE SIMILAR SUB-ADVISER FUNDS AND SIMILAR SUB-ADVISER ACCOUNTS ARE NOT
AVAILABLE FOR INVESTMENT UNDER THE CONTRACT. For more information on Sub-Adviser
Performance, see the Prospectus for the Fund.
OTHER INFORMATION
Western Reserve may compare the performance of each Sub-Account in advertising
and sales literature to the performance of other variable annuity issuers in
general or to the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts. For this purpose, Western
Reserve may use as sources of performance comparison such organizations as
Lipper Analytical Services, Inc. ("Lipper"), Variable Annuity Research & Data
Service ("VARDS"), CDA Investment Technologies, Inc. ("CDA") and Morningstar,
Inc. ("Morningstar"), or other services, companies, individuals or industry or
financial publications of general interest, such as FORBES, MONEY, THE WALL
STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE and
FORTUNE. Lipper, VARDS, CDA and Morningstar are independent services which
monitor and rank the performances of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS and CDA rankings compare only variable
annuity issuers. The performance analysis prepared by Lipper, VARDS, CDA and
Morningstar each rank such issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales charges, redemption fees
or certain expense deductions at the separate account level into consideration.
In addition, VARDS prepares risk adjusted rankings, which consider the effects
of market risk on total return performance. This type of ranking provides data
as to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Western Reserve may also compare, as appropriate, the performance of each
Sub-Account in advertising and sales literature to widely used measures of
market performance, such as the Standard and Poor's Index of 500 Common Stocks,
Dow Jones Industrials Average, Value Line (Arithmetic) Index, CDA/Wiesenberger
Long Term Growth Average - VA, Wilshire 5000, Financial Times (FT) World Index
Ex-USA, Morgan Stanley Capital International World Index, FT World Index,
Lehman Brothers Government/Corporate Bond Index, Dow Jones Utilities Average,
Donoghue's Taxable Money Fund Average and others. Unmanaged indices may assume
the reinvestment of dividends, but usually do not reflect any "deduction" for
the expense of operating or managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate
indices measuring the performance of a defined group of securities
8
<PAGE>
widely recognized by investors as representing a particular segment of the
securities markets. For example, Sub-Account performance may be compared with
Donoghue Money Market Institutional Averages (money market rates), Lehman
Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
PUBLISHED RATINGS
Western Reserve may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps Credit
Rating Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings reflect their
current opinion on the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. Standard & Poor's and Duff & Phelps provide ratings which measure the
claims-paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(I.E., debt/commercial paper).
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on October
1, 1957. Western Reserve is engaged in the business of writing life insurance
policies and annuity contracts. Western Reserve is admitted to do business in
49 states and the District of Columbia. The Administrative Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
9051, Clearwater, FL 34618-9051. Western Reserve is wholly-owned by First AUSA
Life Insurance Company ("First AUSA"), a stock life insurance company which is
wholly-owned by AEGON USA, Inc. ("AEGON"). AEGON is a financial services
holding company whose primary emphasis is on life and health insurance and
annuity and investment products. AEGON is a wholly-owned indirect subsidiary of
AEGON nv, a Netherlands corporation, which is a publicly traded international
insurance group.
WRL SERIES ANNUITY ACCOUNT
The Series Account was established by Western Reserve as a separate account and
a unit investment trust on April 12, 1988. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The
Series Account will receive and invest Net Purchase Payments paid under the
Contracts. In addition, the Series Account may be used for other variable
annuity contracts issued by Western Reserve.
Although the assets of the Series Account belong to Western Reserve, Ohio
insurance law provides that the assets in the Series Account attributable to
variable annuity contracts are not chargeable with liabilities arising out of
any other business of Western Reserve. However, the assets of the Series
Account are available to cover the liabilities of the general asset account of
Western Reserve to the extent that the Series Account's assets exceed the
liabilities arising under variable annuity contracts supported by it.
The Series Account is currently divided into twenty-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.
9
<PAGE>
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, (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
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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:
NUMBER OF MONTHS FROM
DATE OF RECEIPT OF EACH
WITHDRAWAL CHARGE PURCHASE PAYMENT
- - - ------------------- ------------------------
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
For Contracts issued with an appropriate endorsement, if the Owner or a joint
Owner is confined to a nursing care facility (as defined in the endorsement)
for thirty (30) consecutive days or longer, Western Reserve will also waive the
Withdrawal Charge on partial withdrawals or Surrenders as follows. Such
confinement must begin after the Contract Date. Western Reserve must receive
satisfactory written evidence of such confinement within two (2) months after
the confinement ends. Western Reserve will waive the Withdrawal Charge under
the endorsement only for Surrenders and partial withdrawals made during such
confinement or within two (2) months after the confinement ends. The
endorsement is not available in all States.
The Withdrawal Charge is imposed to enable Western Reserve to recover sales
expenses it advances, including compensation to broker-dealers, the cost of
printing prospectuses and sales literature and any advertising costs. The
Withdrawal Charge is deducted from the Annuity Value by cancelling the number
of Accumulation Units equal to the charge. The amount of the Withdrawal Charge
will be determined as of the date the partial withdrawal or Surrender payment
is processed. In the event of a partial withdrawal, the Owner will receive the
full amount requested, and an amount equal to the Withdrawal Charge will also
be withdrawn in order for the Owner to receive the full amount requested. For
example, if the Owner requests a distribution in the amount of $100 during the
second Contract Year (such distribution is deemed to be made from the initial
Purchase Payment) and the Withdrawal Charge is to be imposed on the full
amount, the Owner would receive $100, the total Annuity Value partially
withdrawn would be $107.53, and the Withdrawal Charge would be $7.53 (which is
7% of $107.53). Any partial withdrawal or Surrender may be subject to tax, and
the Owner should, therefore, consult with his or her tax advisor before
requesting any partial withdrawal or Surrender. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 22-24 and "--Qualified Plans" on pages
24-25.)
The Withdrawal Charge may be reduced when sales of Contracts are made to a
group of directors, officers and employees of the same employer (including
directors, officers and employees of Western Reserve and its affiliates) as
outlined in the following paragraph. The amount of reduction will depend on
factors such as the size of the group, total Purchase Payments, and other
relevant factors that might tend to reduce expenses incurred in connection with
such sales.
The Withdrawal Charge may be eliminated for the sale of the Contract to: (a)
current and retired directors, officers, full-time employees and agents of
Western Reserve and its affiliates; (b) current and retired directors, officers,
full-time employees and registered representatives of ISI, an affiliate of
Western Reserve, and any broker-dealer which has a sales agreement with
InterSecurities, Inc.; (c) any Trust, pension, profit-sharing or other employee
benefit plan of any of the foregoing persons or entities; (d) current and
retired directors, officers and full-time employees of WRL Series Fund, Inc. and
any IDEX mutual fund, and any investment adviser or investment sub-adviser
thereto; and (e) any member of a family of any of the foregoing (e.g., spouse,
child, sibling, parent or parent-in-law). Western Reserve reserves the right to
modify or terminate this arrangement at any time.
TRANSFER CHARGE
Each transfer of Annuity Value among the Sub-Accounts and the Fixed Account
exceeding one transfer per Contract Month, or twelve transfers per Contract
Year, will be subject to a Transfer Charge of $25. The Transfer Charge will be
deducted from the amount transferred to compensate Western Reserve for the
costs of the transfer. All transfers made on any one day will be considered a
single transfer. The Transfer Charge will not be increased.
CHANGE IN PURCHASE PAYMENT ALLOCATION FEE
During the Accumulation Period, the Owner may allocate a percentage of the Net
Purchase Payment to one or more Sub-Accounts, to the Fixed Account, or to a
combination of both. Western Reserve reserves the right to limit any allocation
to any Sub-Account or the Fixed Account to no less than 10% of each Net
Purchase Payment. No fractional percentages are permitted. The Owner may change
the allocation of future Net Purchase Payments among the Sub-Accounts and the
Fixed Account at any time. Western Reserve will charge a fee of $25 for each
change of allocation in excess of one per Contract quarter.
MORTALITY AND EXPENSE RISK CHARGE
Western Reserve will deduct a daily Mortality and Expense Risk Charge from the
Series Account at an annual rate of 1.40% of the average daily net assets of
the Series Account. Western Reserve assumes two mortality risks: (1) that the
annuity rates under the Contracts
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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.
Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan,
has entered into a Distribution Agreement with ISI, principal underwriter for
the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundreths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek
payment by the Fund of distribution expenses incurred with respect to any
Portfolio during the fiscal year ending December 31, 1997. Prior to ISI's
seeking reimbursement, Policyowners will be notified in advance.
THE CONTRACT ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase
Payments after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany
the application, and for Non-Qualified Contracts must be at least $5,000;
however, a minimum initial Purchase Payment of $1,000 is allowed provided the
application reflects anticipated additional monthly periodic Purchase Payments
of at least $100, via electronic funds transfer from the owner's bank account.
For IRAs the minimum initial Purchase Payment is $1,000 and for Qualified
Contracts other than IRAs the minimum initial Purchase Payment is $50. For all
Contracts, subsequent
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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 12.) Initial and subsequent Net Purchase
Payments are allocated according to the Owner's direction among the Sub-Accounts
of the Series Account, to the Fixed Account, or to a combination of both.
Western Reserve reserves the right to limit any allocation to any account to no
less than 10% of each Net Purchase Payment. No fractional percentages are
permitted. The Owner may change the allocation of future Net Purchase Payments
among the Sub-Accounts and the Fixed Account at any time. Western Reserve will
charge a fee of $25 for each change of allocation in excess of one per Contract
quarter. The request for a change in allocation must be in a form satisfactory
to Western Reserve. The change in allocation is effective on the date the
request for change is recorded by Western Reserve. (For Contracts issued in the
State of Washington, the Fixed Account is not available for allocation of Net
Purchase Payments.) The Owner, or the registered representative/agent of record
for the Contract upon instructions from the Owner, may change the allocation of
subsequent Purchase Payments at any time upon written notice to Western Reserve,
or by telephone by calling Western Reserve's toll-free number, 1-800-851-9777.
Western Reserve will employ the same procedures to confirm that such telephone
instructions are genuine as it employs regarding transfers among Sub-Accounts
and the Fixed Account by telephone. Western Reserve reserves the right to limit
such change to once each Contract Year.
Upon allocation to the Series Account, Net Purchase Payments are converted into
units of the appropriate Sub-Account based upon the Accumulation Unit Value in
that Sub-Account on or following the Valuation Date on which the Purchase
Payment is received at Western Reserve's Administrative Office. (See
"Accumulation Unit Value" below.) If the Contract application and other
information necessary for processing the request to apply the Purchase Payment
(collectively, "application") are complete upon receipt, Western Reserve will
accept the application and apply the initial Net Purchase Payment within two
business days of receipt. If it is incomplete, Western Reserve will attempt to
have it properly completed within five business days of receipt, and if unable
to do so, Western Reserve will inform the prospective purchaser of the reasons
that the application is incomplete and request that the prospective purchaser
consent to Western
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Reserve retaining the Purchase Payment until the application is properly
completed. If such consent is not obtained, Western Reserve will immediately
return the entire Purchase Payment. Once the application is complete, Western
Reserve will accept it and apply the initial Net Purchase Payment within two
business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund
Portfolio owned by the Sub-Account times the Portfolio's net asset value per
share; minus
2. The accrued daily percentage for the Mortality and Expense Risk Charge
multiplied by the net assets of the Sub-Account; minus
3. The accrued amount of reserve for any taxes that are determined by Western
Reserve to have resulted from the investment operations of the Sub-Account;
divided by
4. The number of outstanding units in the Sub-Account.
The Mortality and Expense Risk Charge is deducted at an annual rate of 1.40%
from the net assets during each day in the Valuation Period and compensates
Western Reserve for certain mortality and expense risks. (See "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge" on page 11.) The Accumulation
Unit Value may increase, decrease, or remain the same from Valuation Period to
Valuation Period.
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of Units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated to
the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account or
the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any Transfer Charge.
PORTFOLIO SHARE NET ASSET VALUE. The net asset value per share of shares of the
Fund is determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m. Eastern
time), on each day the Exchange is open.
TRANSFERS TO AND FROM, AND AMONG ALLOCATION OPTIONS
Before the Maturity Date, the Owner may, at any time, transfer amounts among
Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts issued in
the State of Washington, the Fixed Account is not available to receive Annuity
Value transferred from the Sub-Accounts.) Transfers may also be made from the
Fixed Account to the Sub-Accounts, subject to certain restrictions. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page 27.)
Transfers are not available if the Owner has elected Dollar Cost Averaging, the
Asset Rebalancing Program or Systematic Partial Withdrawals.
The amount available for transfer from any Sub-Account or the Fixed Account is
determined at the end of the Valuation Period during which the transfer request
is received at Western Reserve's Administrative Office. As explained in the
previous paragraph, the net asset value for each share of the corresponding
Portfolio of any Sub-Account is determined, once daily, as of the close of the
regular business session of the Exchange (usually 4:00 p.m., Eastern time),
which coincides with the end of each Valuation Period. Therefore, any transfer
request received after 4:00 p.m., Eastern time, on any day the Exchange is open
for business will be processed utilizing the net asset value for each share of
the applicable Portfolio determined as of 4:00 p.m., Eastern time, on the next
day the Exchange is open for business.
The amount available for transfer from the Fixed Account will be determined in
the same manner. Owners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the Contract may, upon
instructions from the Owner, make telephone transfers upon request without the
necessity for the Owner to have previously authorized telephone transfers in
writing. If, for any reason, an Owner does not want the ability to make
transfers by telephone, the Owner should provide written notice to Western
Reserve. All telephone transfers should be made by calling Western Reserve at
the toll-free number 1-800-851-9777.
Western Reserve will not be liable for complying with telephone instructions it
reasonably believes to be authentic, nor for any loss, damage, costs or expense
in acting on such telephone instructions, and Owners will bear the risk of any
such loss. Western Reserve will employ reasonable procedures to confirm that
telephone instructions are genuine. If Western Reserve does not employ such
procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring forms of
personal identification
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prior to acting upon such telephone instructions, providing written
confirmation of such transactions to Owners and/or tape recording of telephone
transfer request instructions received from Owners. Western Reserve may, at any
time, revoke or modify the transfer privilege. Western Reserve ordinarily will
effect transfers and determine all values in connection with transfers at the
end of the Valuation Period during which the transfer request is received at
Western Reserve's Administrative Office. Western Reserve currently imposes a
$25 charge for when any transfer of Annuity Value exceeds one transfer per
Contract Month, or twelve transfers per Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 11.)
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Owners to conduct
transfers on a Policyowner's behalf, or who provide recommendations as to how
Sub-Account values should be allocated. This includes, but is not limited to,
transferring Sub-Account values among Sub-Accounts in accordance with various
investment allocation strategies such third party may employ. Such independent
third parties may or may not be appointed Western Reserve agents for the sale
of Contracts. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO
OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS
OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY
HAVE WITH WESTERN RESERVE FOR THE SALE OF CONTRACTS. WESTERN RESERVE THEREFORE
TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED
ON AN OWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
an Owner any additional fees for providing these support services. Western
Reserve reserves the right to discontinue providing administrative and support
services for Owners utilizing independent third parties who provide investment
allocation and transfer recommendations.
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to transfer automatically specified
amounts from the Money Market Sub-Account, the Bond Sub-Account, the Fixed
Account or any combination of these Accounts on a monthly basis to any other
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss.
To qualify for Dollar Cost Averaging, a minimum of $5,000 must be allocated to
each Account from which transfers will be made and at least $1,000, in the
aggregate, must be transferred each month, unless Western Reserve consents to a
smaller amount. To further qualify for Dollar Cost Averaging from the Fixed
Account, no more than one-tenth (1/10) of the amount in the Fixed Account at
the commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain other
restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers and Partial
Withdrawals" on page 27.)
A written election of this service, on a form provided by Western Reserve, must
be completed by the Owner in order to begin transfers. The first transfer will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. Once elected, transfers from the Money
Market or Bond Sub-Accounts or the Fixed Account will be processed monthly until
the entire value of each Account from which transfers are made is completely
depleted or the Owner instructs Western Reserve in writing to cancel the monthly
transfers. For example, if $15,000 was allocated to the Money Market Sub-Account
and $10,000 was allocated to the Bond Sub-Account and transfers of $500 are made
each month from each of these Sub-Accounts to the Growth Sub-Account, transfers
of $500 per month would continue to be made from the Money Market Sub-Account
even though transfers from the Bond Sub-Account had ceased as a result of
depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
twelve free transfers allowed during each Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 11.) Western Reserve reserves the right to
discontinue offering Dollar Cost Averaging upon 30 days' written notice to
Owners. Dollar Cost Averaging is not available if the Owner has elected the
Asset Rebalancing Program or Systematic Partial Withdrawals, or if Western
Reserve is currently providing administrative and other support services to an
independent third party authorized to conduct transfers on the Owner's behalf.
ASSET REBALANCING PROGRAM
Western Reserve offers a program under which an Owner may authorize Western
Reserve to transfer automatically Annuity Value each quarter to maintain a
particular percentage allocation among the Sub-Accounts. Annuity Value allocated
to the Fixed Account may not be included in the Asset Rebalancing Program. The
Annuity Value allocated to each Sub-Account will grow or decline in value at
different rates. The Asset Rebalancing Program automatically reallocates the
Annuity Value in the Sub-Accounts at the end of each period to match the
Contract's currently effective Net Purchase Payment allocation schedule. The
Asset Rebalancing Program is intended to transfer Annuity Value from those
Sub-Accounts that have increased in value to those Sub-Accounts that have
declined in value. Over time, this method of investing may help an Owner buy low
and sell high. This investment method does not guarantee gains, nor does it
assure that any Sub-Account will not have losses.
To qualify for Asset Rebalancing, a minimum Annuity Value of $5,000 for an
existing Contract, or a minimum
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initial Purchase Payment of $5,000 for a new Contract, is required, unless
Western Reserve consents to a smaller amount. To participate in the Asset
Rebalancing Program, a properly completed Asset Rebalancing Request Form must
be received by Western Reserve at its Administrative Office. An Asset
Rebalancing Request Form is available upon request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or annual
anniversary of the Contract Date. Following receipt of the Asset Rebalancing
Request Form, Western Reserve will effect the initial rebalancing of Annuity
Value on the next such anniversary, in accordance with the Contract's current
Net Purchase Payment allocation schedule. The amounts transferred will be
credited at the Accumulation Unit Value as of the end of the Valuation Dates on
which the transfers are made. If a day on which rebalancing would ordinarily
occur falls on a day on which the New York Exchange is closed, rebalancing will
occur on the next day the New York Stock Exchange is open. There is no charge
for the Asset Rebalancing Program. However, each reallocation which occurs
under the Asset Rebalancing Program will be counted towards the twelve free
transfers allowed during each Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 11.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by oral or written request to Western Reserve's Administrative Office.
Participation in the Asset Rebalancing Program will terminate automatically if
any transfer is made to, or from, any Sub-Account, other than on account of a
scheduled rebalancing. If an Owner wishes to resume the Asset Rebalancing
Program after it has been canceled, a new Asset Rebalancing Request Form must
be completed and sent to Western Reserve's Administrative Office. Owners may
start and stop participation in the Asset Rebalancing Program at any time;
however, Western Reserve reserves the right to restrict entry into the Asset
Rebalancing Program to once per Contract Year. The Asset Rebalancing Program is
available only during the Accumulation Period, and is not available if the
Owner has elected Dollar Cost Averaging or Systematic Partial Withdrawals, or
if Western Reserve is currently providing administrative and other support
services to an independent third party authorized to conduct transfers on the
Owner's behalf.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
PARTIAL WITHDRAWALS AND SURRENDERS
1. PARTIAL WITHDRAWALS. Prior to the earlier of the Maturity Date or the death
of the Annuitant (when no Contingent Annuitant has been named), the Owner may
partially withdraw a portion of the Series Account Value upon written request,
complete with all necessary information, to Western Reserve's Administrative
Office. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $5,000. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page 27.) All
partial withdrawals are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the request for
partial withdrawal by Western Reserve at its Administrative Office. Western
Reserve will cancel units equal to the amount requested from each Sub-Account,
and an amount equal to the Withdrawal Charge and any premium tax will also be
withdrawn in order for the Owner to receive the full amount requested, (See
"CHARGES AND DEDUCTIONS--Withdrawal Charge" on page 10 and "Premium Taxes" on
page 12.) The Sub-Accounts for a partial withdrawal may be specified and the
amount requested to be withdrawn from each specified Sub-Account may not exceed
the value of that Sub-Account. If not specified, the amount requested will be
withdrawn from each Sub-Account and the Fixed Account in proportion to the value
each bears to the Annuity Value.
2. SYSTEMATIC PARTIAL WITHDRAWALS. The Owner may elect in writing on a form
provided by Western Reserve to partially withdraw from the Series Account up to
10% of the Cash Value annually (10% of the initial Purchase Payment if elected
at time of application for a Contract), in equal monthly payments ("Systematic
Partial Withdrawals") of at least $200 per month. The first withdrawal will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. If Systematic Partial Withdrawals are
elected at the time of application for a Contract, a minimum initial Purchase
Payment of at least $25,000 must accompany the application, unless Western
Reserve consents to a smaller amount. A subsequent election is subject to the
Contract then having a minimum of $25,000 of Cash Value, unless Western Reserve
consents to a smaller amount. Western Reserve will pay the Systematic Partial
Withdrawal amount requested and cancel units equal to the amount withdrawn from
the Sub-Accounts in the same manner as the current Net Purchase Payment
allocation instructions, except no Systematic Partial Withdrawals are permitted
from the Fixed Account. The amount to be partially withdrawn from each
Sub-Account may not exceed the Cash Value of the Sub-Account. Western Reserve
will not process a Systematic Partial Withdrawal if the Cash Value for the
entire Contract would be reduced below $5,000.
Generally, under a Non-Qualified Contract, Systematic Partial Withdrawals, like
other distributions prior to the Maturity Date, are first treated as taxable
income to the extent that the Contract Value immediately before a withdrawal
exceeds the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable. Further, under a Non-Qualified Contract, a 10%
penalty tax will generally be imposed on the taxable portion of a partial
withdrawal and a Systematic Partial Withdrawal made prior to the Owner's age
59-1/2, unless certain exceptions apply. The Owner should, therefore, consult
with his or her tax advisor before requesting any partial withdrawal or
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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 corporation, partnership, trust or fiduciary, evidence of the
authority of the person seeking redemption is required before the request for
withdrawal is accepted, including withdrawals under $100,000. For additional
information, Owners may call Western Reserve at (800) 851-9777. Partial
withdrawals, Systematic Partial 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 24.) For Qualified Contracts
issued under Code Section 403(b) and Contracts issued under the Texas Optional
Retirement Program, certain restrictions will apply. (See "FEDERAL TAX
MATTERS--Qualified Plans" on page 24.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the Accumulation
Period, (1) Owners of Contracts used in connection with a Tax Sheltered Annuity
Plan ("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not
subject to the Employee Retirement Income Security Act of 1974, and (2) Owners
of Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a Section
401(k) plan, where a plan trustee is the Owner, may elect a Contract loan
endorsement under which the Owner can receive Contract loans. The availability
of Contract loans will also be governed by the provisions of the TSA Plans or
401 Plans involved. An Owner of a Contract used in connection with a TSA Plan
or 401 Plan may be subject to income tax or tax penalties if loans from the
plan are not repaid in accordance with applicable provisions of the Code. In
addition, Internal Revenue Service authorities suggest that a Contract loan
may, at least in certain circumstances, result in adverse tax consequences for
the TSA Plan or 401 Plan. Accordingly, a competent tax advisor should be
consulted before a Contract loan is requested.
If the Contract loan endorsement is available, the Owner can borrow against the
Contract an amount which may not exceed the lesser of (1) 50% of the Annuity
Value or (2) $50,000 reduced by the highest outstanding loan balance during the
one-year period ending on the day before the loan date (determined below).
However, if the Annuity Value is less than $20,000, the Owner may borrow
against the Contract the lesser of (1) 80% of the Annuity Value or (2) $10,000.
In all events, the minimum amount that can be borrowed is $1,000. The Owner has
the sole responsibility for requesting loans and making loan repayments that
comply with applicable tax requirements.
When a loan is made, an amount equal to the loan will be withdrawn from the
Sub-Accounts specified by the Owner and transferred to the loan reserve. The
loan reserve is part of the Fixed Account used as collateral for any Contract
loan. If no Sub-Accounts are specified, the loan will be made from each
Sub-Account in proportion to the
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value each bears to the Annuity Value. Amounts transferred to the loan reserve
do not participate in the investment experience of the Allocation Options from
which they were withdrawn.
All loan requests are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the loan request by
Western Reserve at its Administrative Office. The loan date is the date Western
Reserve processes the loan request. Under its current procedures, Western
Reserve does not charge a fee to cover loan processing and expenses associated
with establishment and administration of the loan reserve. However, Western
Reserve reserves the right to charge such a fee or change it from time to time.
The Contract will be the sole security for the loan. Western Reserve reserves
the right to limit the number of loans an Owner may make during a Contract
Year.
On each Contract Anniversary, Western Reserve will compare the amount of the
outstanding loan to the amount in the loan reserve. At each such time, if the
amount of the outstanding loan (plus any unpaid interest) exceeds the amount in
the loan reserve, Western Reserve will withdraw the difference from the
Contract's Sub-Accounts and transfer it to the loan reserve, in the same
fashion as when a loan is made. If the amount in the loan reserve exceeds the
amount of the outstanding loan, Western Reserve will withdraw the difference
from the loan reserve and transfer it to the Sub-Accounts in accordance with
the Owner's current payment allocation. However, Western Reserve reserves the
right to require the transfer to the Fixed Account if the amount was
transferred from the Fixed Account to establish the loan.
If the Contract loan at any time exceeds the Cash Value of the Contract,
Western Reserve will mail a notice to the last known address of the Owner and
any assignee of record. If the excess amount is not paid within 31 days after
mailing of the notice, the Contract will terminate without value.
LOAN INTEREST. Interest on any loan will be at the Contract loan annual rate of
6% in arrears unless, under a 401 Plan, a higher rate is requested by the Owner
in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed
effective annual interest rate of 4% per year. Western Reserve may declare from
time to time higher current interest rates. Different current interest rates
may be applied to the Fixed Account attributable to the loan reserve than to
the rest of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in substantially
level quarterly or monthly payments over a 5-year period or, if the loan is
used to acquire the Owner's principal residence, a 10, 15, or 20-year period,
but such an extended period cannot go beyond the year the Owner attains age
70-1/2. If a loan installment repayment is not received within 31 days from the
installment's original due date, a deemed distribution of the entire amount of
the outstanding loan principal and interest due, and any applicable charges
under the Contract including any Withdrawal Charge, will take place. Under a
Qualified Plan, this distribution may be subject to income tax and a penalty
tax, and may cause the Contract to fail to qualify under the Code. (See
"FEDERAL TAX MATTERS--Qualified Plans," page 24.)
While the Contract is In Force and during the Accumulation Period, any loan may
be repaid in full. IF NOT REPAID, LOANS WILL AUTOMATICALLY REDUCE THE AMOUNT OF
ANY DEATH BENEFIT PROCEEDS, THE AMOUNT PAYABLE UPON A PARTIAL WITHDRAWAL OR
SURRENDER OF THE CONTRACT AND THE AMOUNT APPLIED ON THE MATURITY DATE TO
PROVIDE ANNUITY PAYMENTS.
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. GENERAL
In general, if the Annuitant dies during the Accumulation Period and the Owner
is a natural person other than the Annuitant, the Owner will automatically
become the new Annuitant and the Contract will continue In Force and no death
benefit will be payable to the Beneficiary. In the event of Joint Owners, the
younger Joint Owner will automatically become the Owner and the Contract will
continue. If the Annuitant dies during the Accumulation Period and the Owner is
either the same individual as the Annuitant or other than a natural person,
Western Reserve will pay the death benefit proceeds to the Beneficiary in a
lump sum upon receipt of due proof of death unless a written Alternative
Election, as described below, is made. However, in the event of Joint Owners,
if the Annuitant dies during the Accumulation Period and is the same individual
as one of the Joint Owners, the surviving Joint Owner will automatically become
the Annuitant and the Contract will continue.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND (A) PRIOR TO THE END
OF THE SEVENTH CONTRACT YEAR, OR (B) AFTER THE ANNUITANT'S ATTAINED AGE 79, and
the Owner is either the same person as the Annuitant or other than a natural
person, the death benefit proceeds, if payable, will be the greater of: (i) the
Annuity Value as of the date Western Reserve receives due proof of death and a
written election as to the method of payment, as described above; or (ii) the
excess of (a) the amount of Purchase Payments paid less (b) any amounts
partially withdrawn from the Contract to pay for partial withdrawals.
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND AFTER THE SEVENTH
CONTRACT YEAR, BUT PRIOR TO THE ANNUITANT'S ATTAINED AGE 80, and the Owner is
either the same person as the Annuitant or other than a natural person, the
death benefit proceeds, if payable, will be the greatest of: (i) the Annuity
Value as of the date Western Reserve receives due proof of death and a written
election as to the method of payment, as described above; or (ii) the excess of
(a) the amount of Purchase Payments paid less (b) any amounts withdrawn from
the Contract to pay for partial withdrawals, or (iii) the Annuity Value as of
the seventh Contract Anniversary, less any amounts withdrawn from the Contract
after the seventh Contract Year
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to pay for partial withdrawals. In certain states, the calculation of death
benefit proceeds under item (iii) may vary. The Contract should be consulted
for details.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit proceeds as in 2.
above and is the spouse of the deceased Annuitant, then the spousal Beneficiary
may elect to become the new Owner and Annuitant and keep the Contract in force
in lieu of receiving the death benefit proceeds.
If the Beneficiary is not the spouse of the deceased Annuitant and is entitled
to receive the death benefit proceeds, the Beneficiary may elect, in lieu of a
lump sum payment, one of the following options that provide for complete
distribution of the death benefit proceeds and termination of the Contract: (i)
within five years of the date of such Annuitant's death; (ii) over the lifetime
of the Beneficiary; or (iii) over a period that does not exceed the life
expectancy of such Beneficiary, as defined by the Code and the Treasury
Regulations. Options (ii) and (iii) may be elected only if the Beneficiary is a
natural person and payments start within one year of the date of the
Annuitant's death, (For a more detailed explanation of these requirements, see
"FEDERAL TAX MATTERS--Additional Considerations" on page 25.) Multiple
Beneficiaries may choose individually among any of the three options.
For options (i) and (iii) above, the Annuity Value as of the date Western
Reserve receives due proof of death and a written election as to the method of
payment, if any, will be adjusted to equal the death benefit proceeds, as
described below, and the Contract will remain in force as a deferred annuity
until the end of the elected distribution period.
Under option (i) above, Western Reserve will:
/bullet/ Allow the Beneficiary, at the time of electing (i), to make one
partial withdrawal. Further partial withdrawals during the
duration of the five-year period are not permitted;
/bullet/ Allow the Beneficiary, at the time of electing (i), to make
"one-time" transfer of Annuity Value among Sub-Accounts and to
the Fixed Account, and transfers from the Fixed Account to the
Sub-Accounts without a transfer charge;
/bullet/ Not deduct the Annual Contract Charge during the duration of the
five-year period;
/bullet/ Not apply the Withdrawal Charge in the event of a partial
withdrawal upon election of (i) or upon a total distribution of
all Contract values during or at the end of the five-year period;
/bullet/ Not allow annuitization during or at the end of the five-year
period. Distribution of all Contract values will be made in a
lump sum;
/bullet/ In the event of the death of the Beneficiary prior to the end of
the five-year period, pay remaining Contract value, according to
its value at the time of payment, to the Beneficiary's estate,
unless a Contingent Beneficiary has been named by the Owner, in
which event payment will be made to the Contingent Beneficiary.
The Beneficiary is NOT entitled to name his or her own
beneficiary of the Contract's value.
Under option (ii), the Maturity Date will be changed to the date Western
Reserve receives due proof of death and a written election as to the method of
payment, if any, and the death benefit proceeds will be used to purchase
annuity payments under the annuity provisions of the Contract. (See "ANNUITY
PROVISIONS" page 19.)
4. DEATH OF AN OWNER WHO IS NOT AN ANNUITANT
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Beneficiary has been named or, if named, is no longer alive, the
Owner's estate will become the new Owner. The Cash Value must be distributed
within five years of the former Owner's death; or
(b) If a Beneficiary has been named, is alive and is the Owner's spouse, the
Contract will continue with the spouse as the new Owner; or
(c) If a Beneficiary has been named, is alive and is not the Owner's spouse,
the Beneficiary will become the new Owner. The Cash Value must be distributed
either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year of the
former Owner's death.
5. QUALIFIED CONTRACTS
If a Qualified Contract is issued to a retirement plan, similar provisions will
apply upon the death of the plan participant. However, the required
distribution rules are more complex in the case of a Qualified Contract held by
a plan. Plan participants should consult a qualified pension or tax advisor
concerning the operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-Qualified Contracts and Qualified
Contracts, the Anniversary nearest the Annuitant's Attained Age 90. However, the
Owner may change the Maturity Date at any time prior to the Maturity Date by
written request. Any new Maturity Date must be at least five years after the
Contract Date, and the Attained Age of the Annuitant as of the new Maturity Date
cannot be greater than 90. After the Maturity Date, no additional purchase
payments, partial withdrawals, transfers, full Surrenders, or change of
Annuitants or annuity options may be made under the Contract. The Qualified
Contract is designed for use with several types
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of qualified plans. A tax advisor should be consulted about the use of a
Qualified Contract with qualified plans, including the specified minimum
distribution rules applicable to such plans.
Annuity Payments will be paid under Option D (described on page 20), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
The Annuitant on the Maturity Date will become the payee and receive the
annuity payment. Thirty days prior to the Maturity Date, Western Reserve will
mail to the Owner a notice and a form upon which the Owner can select
Allocation Options for the annuity proceeds as of the Maturity Date, which
cannot be changed thereafter and will remain in effect until the Contract
terminates. If a Series Account annuity option is chosen, the Owner must
include in the written notice the Sub-Account allocation of the Annuity
Proceeds as of the Maturity Date. If Western Reserve does not receive that form
or other written notice acceptable to Western Reserve prior to the Maturity
Date, the Contract's existing Allocation Options will remain in effect until
the Contract terminates. The Owner may also, prior to the Maturity Date, select
or change the frequency of annuity payments, which may be monthly, quarterly,
semi-annually or annually, provided that the annuity option and payment
frequency provides for payments of at least $100 per period. If none of these
is possible, a lump sum payment will be made.
The Owner may select one of the Fixed Account annuity options or Series Account
annuity options described below or any alternate form of settlement acceptable
to Western Reserve. Treasury Regulations may preclude the availability of
certain annuity options in connection with certain Qualified Contracts.
Fixed Account annuity options provide equal periodic (monthly, quarterly,
semi-annual or annual) payments of a specific amount that Western Reserve
guarantees will not change. The amount of the periodic annuity payment will be
based on the Annuity Proceeds on the Maturity Date, the annuity option selected
(i.e., the form and duration of payments), the age of the Annuitant or
Beneficiary (or ages of Co-Annuitants), the sex of the Annuitant (except for
certain Qualified Contracts), and the applicable annuity rate shown in the
Contract (or a more favorable current rate available under the Contracts on the
Maturity Date). The annuity rates shown in the Contract are based on the
Society of Actuaries 1983 Table A with projection and an assumed investment
rate of 3%. Western Reserve may in its sole discretion increase the amount of a
payment or payments once payments begin.
Series Account annuity options (i.e., variable annuity options) are similar to
fixed annuity options except that the amount of each periodic payment after the
first will vary to reflect the net investment experience of the Sub-Accounts
selected by the Owner. The amount of the first annuity payment is determined in
the manner described in the Statement of Additional Information for a Series
Account annuity option. Under a Series Account annuity option, the Owner applies
the Annuity Proceeds to one or more of the fifteen Sub-Accounts designated to
support annuity payments by purchasing units issued in connection with one or
more of these Sub-Accounts. The number of units purchased is equal to the amount
of the first annuity payment allocated to a particular Sub-Account divided by
the Annuity Unit Value for that Sub-Account on the Maturity Date. The number of
units of a particular Sub-Account supporting payments to an Annuitant never
changes, but the second and subsequent payments will vary with the Annuity Unit
Value because each payment will equal the number of units in each selected
Sub-Account multiplied by the Annuity Unit Value of that Sub-Account on the date
the payment is processed. Annuity Proceeds allocated to Series Account annuity
options are subject to a daily Mortality and Expense Risk Charge of 1.40% per
annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity payments,
is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Fund Portfolio would be calculated (see "THE
CONTRACT--Accumulation Provisions" page 12), and then is adjusted to reflect a
5% assumed investment return. The adjustment results in the Annuity Unit Value
increasing to the extent that the net investment factor increases at greater
than an annual rate of 6.4%. It results in the Annuity Unit Value decreasing to
the extent that the net investment factor decreases or increases at less than
an annual rate of 6.4%. Consequently, if, for a monthly periodic payment, the
net investment experience of a Sub-Account for a given month exceeds an annual
rate of 6.4%, the monthly payment from that Sub-Account will be greater than
the previous payment. Likewise, if the net investment experience for that month
is less than an annual rate of 6.4%, the payment will be less than the previous
payment.
FIXED ACCOUNT ANNUITY OPTIONS
The following options are available for payment of fixed account monthly
annuity payments.
OPTION A--FIXED INSTALLMENTS. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
OPTION B--LIFE INCOME. The Annuity Proceeds will be paid in equal installments:
(1) during the lifetime of the Annuitant only ("Life Annuity"); (2) during a 10
year fixed period certain and for the remaining lifetime of the Annuitant
("Certain Period"); or (3) until the sum of installments paid equals the
Annuity Proceeds applied and for the remaining life of the Annuitant
("Installment Refund").
OPTION C--JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be paid
during the joint lifetimes of the Annuitant and a designated Co-Annuitant and
will continue upon the death of the first payee for the remaining lifetime of
the survivor.
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SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds will
be used to purchase annuity units of the Sub-Accounts, selected by the Owner.
The following Series Account annuity options are available:
OPTION D--VARIABLE LIFE INCOME. The Annuity Proceeds will be paid in
installments determined in accordance with the table set forth in the Contract.
Such installments are payable (1) during the payee's lifetime only ("Variable
Life Annuity"); or (2) during a 10 year fixed period certain and for the
payee's remaining lifetime ("Variable Certain Period").
OPTION E--VARIABLE JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be
paid in installments during the joint lifetime of two payees and continuing
upon the death of the first payee for the remaining lifetime of the survivor.
DEATH BENEFITS AFTER THE MATURITY DATE
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If a
payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as rapidly
as under the method of distribution being used as of the date of the payee's
death. (For additional information about death benefit payments under the
Contract, see "ACCUMULATION PROVISIONS--Death Benefits during the Accumulation
Period" on page 18.)
IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the Maturity
Date, it is offering annuity contracts of the same type and class as the
Contract with more favorable rates than those contained in the Contract's
income tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If
required by law to ignore differences in sex of any payee, annuity payments
will be determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase
Payment pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and obtain
a refund equal to the sum of: (1) the Purchase Payments received; plus (or
minus) (2) the accumulated gains (or losses), if any, in the Series Account for
the Contract as of the date Western Reserve receives the returned Contract.
Certain states require a Free-Look Period longer than ten days, either for all
Contract Owners or for certain classes of Contract Owners. The Owner bears the
investment risk during the Free-Look Period. Certain states require Western
Reserve to refund the Purchase Payment, which may be greater or less than the
amount computed above. In these states, Western Reserve bears the investment
risk during the Free-Look Period. The specific terms applicable to a particular
Contract will be set forth in the "Right to Examine Contract" provision of that
Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner elects
otherwise. Western Reserve reserves the right to suspend or postpone the right
of partial withdrawal and Surrender or postpone the date of payment for any
period: (1) the New York Stock Exchange is closed, other than customary weekend
and holiday closing, or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC by order permits postponement for the
protection of Owners; or (3) an emergency exists, as determined by the SEC, as
a result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule Page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
Joint Owners can be named provided the Joint Owners are husband and wife. Upon
the death of one Joint Owner, the Contract will continue with the surviving
Joint Owner as the sole Owner. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period--4. Death of an Owner
Who is Not an Annuitant", on page 19.)
With regard to Non-Qualified Contracts, ownership of the Contract may be changed
or the Contract collaterally assigned at any time during the lifetime of the
Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on page 22.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and
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shall not be responsible for the validity or effect of any change of ownership
or assignment.
Changing the Owner cancels any prior Ownership designation, but it does not
change the Beneficiary or the Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties, or even
prohibition under the Code, and must also be permitted under the terms of the
underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. As of the
Maturity Date, and upon agreement with Western Reserve, the Owner may elect a
different Annuitant or, if either annuity Option C or Option E has been
selected, add a joint annuitant. On the Maturity Date, the Annuitant(s) will
become the payee(s) and receive the annuity payments.
BENEFICIARY
The Beneficiary is entitled to receive the death benefit proceeds upon the
death of the Annuitant when the Owner is a natural person other than the
Annuitant. The Beneficiary will become the new Owner when the Owner is not the
same person as the Annuitant and the Owner dies before the Annuitant. The
Beneficiary may be changed during the lifetime of the Annuitant, subject to the
rights of any irrevocable Beneficiary. Any change must be made in writing and
received at Western Reserve's Administrative Office and, if accepted, will be
effective as of the date on which signed by the Owner. Western Reserve assumes
no liability for any payments made or actions taken before the change is
received and shall not be responsible for the validity or effect of the change.
Prior to the Maturity Date, if no Beneficiary survives the Annuitant, the
Owner, if living, or the Owner's estate will be the Beneficiary. The interest
of any Beneficiary is subject to that of any assignee. In the case of certain
Qualified Contracts, the Treasury Regulations prescribe certain limitations on
the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the contrary,
no Beneficiary may assign any payments under the Contract before such payments
are due. To the extent permitted by law, no payments under the Contract will be
subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. No Contract
provision can be waived or changed except by endorsement. Any endorsement must
be signed by the President or Secretary of Western Reserve.
The Contract may not be modified by Western Reserve without the consent of the
Owner, except as may be required to make it conform to any law or regulation or
ruling issued by a governmental agency or to improve the rights and/or benefits
under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans regardless of whether the plans qualify for
special Federal income tax treatment. The ultimate effect of Federal income
taxes on the amounts held under a Contract, on annuity payments, and on the
economic benefits to the Owner, Annuitant or Beneficiary depends on Western
Reserve's tax status, on the type of retirement plan for which the Contract is
purchased, and upon the tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion is based upon Western Reserve's understanding of the Federal
income tax laws as they are currently interpreted. Western Reserve makes no
representations regarding the likelihood of continuation of the Federal income
tax laws, the Treasury Regulations, or the current interpretations by the
Internal Revenue Service (the "Service"). For a discussion of Federal income
taxes as they relate to the Fund, please see the accompanying Prospectus for
the Portfolios of the Fund.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Because the Series Account is not an entity separate from
Western Reserve and its operations form a part of Western Reserve, it will not
be taxed separately as a "regulated investment company" under Subchapter M of
the Code. Investment income and realized capital gains on the assets of the
Series Account are reinvested and taken into account in determining the Annuity
Value. Western Reserve believes that under existing Federal income tax law, the
Series Account's investment income, including realized net capital gains, will
not be taxed to Western Reserve. Based upon this belief, it is anticipated that
no charges will be made against the Series Account for Federal income tax. If
any such charge is made a Contract's Annuity Value will reflect a deduction for
the charge. Western Reserve reserves the right to make a deduction from the
assets of the Series Account should any tax or other economic burden resulting
from the application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. IN GENERAL. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who
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is not a natural person must include in income any increase in the excess of
the Contract's Annuity Value over the investment in the Contract during the
taxable year. However, there are some exceptions to this exception and you may
wish to discuss these with your tax counsel. The taxable portion of a
distribution (in the form of an annuity or lump sum payment) is generally taxed
as ordinary income. For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the Annuity Value generally will be treated as
a distribution.
2. PARTIAL WITHDRAWALS AND SURRENDERS. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract (other than a Qualified Contract used in
a retirement plan that qualifies for special Federal income tax treatment under
section 457 of the Code as to which there are special rules), a ratable portion
of the amount received is taxable, generally based on the ratio of the
investment in the Contract to the total Annuity Value. The "investment in the
contract" generally equals the portion, if any, of any Purchase Payments paid
by or on behalf of an individual under a Contract which is not excluded from
the individual's gross income. For Contracts issued in connection with
qualified plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial Withdrawal,
or Surrender under a Non-Qualified Contract before the Maturity Date, amounts
received are first treated as taxable income to the extent that the Annuity
Value immediately before the partial withdrawal, Systematic Partial Withdrawal,
or Surrender exceeds the "investment in the contract" at that time. Any
additional amount partially withdrawn, applied to a Systematic Partial
Withdrawal, or Surrender is not taxable. In the event of a partial withdrawal
or Systematic Partial Withdrawal from, or Surrender of, a Non-Qualified
Contract, Western Reserve will withhold for tax purposes the minimum amount
required by law, unless the Owner affirmatively elects, before payments begin,
to have either nothing withheld or a different amount withheld.
3. ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
Annuity Payment that represents the amount by which the Annuity Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity Payments is
taxable. For variable annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
Fixed Annuity Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable until the
recovery of the "investment in the contract", and thereafter the full amount or
each Annuity Payment is taxable. If death occurs before full recovery of the
"investment in the contract", the unrecovered amount may be deducted on the
Annuitant's final tax return.
4. PENALTY TAX ON CERTAIN DISTRIBUTIONS. In the case of a distribution pursuant
to a Non-Qualified Contract, a penalty tax may be imposed equal to 10% of the
amount treated as taxable income. The penalty tax is not imposed in certain
circumstances, including, generally, distributions: (1) made on or after the
date on which the Owner attains 59-1/2, (2) made as a result of death of the
Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
Surrender of the Contract, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as Annuity Payments, as
described above. For these purposes, the investment in the Contract is not
affected by the Owner's or Annuitant's death. That is, the investment in the
Contract remains the amount of any Purchase Payments paid which were not
excluded from gross income.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts entered
into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, an Owner should consult a
competent tax advisor before purchasing more than one Contract or other annuity
contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership or
assignment of a Contract, the designation of an Annuitant or other Beneficiary
who is not also the Owner, the selection of certain Maturity Dates, or a change
of Annuitant, may result in certain income or gift tax consequences to the
Owner that are beyond the scope of this discussion. An Owner contemplating any
such transfer, assignment, selection or change should contact a competent tax
advisor in respect to the potential tax effects of such a transaction.
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8. POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
that would have adversely modified the Federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
Prospectus Congress is not considering any legislation regarding the taxation
of annuities, there is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as the IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be effective prior to the date of the change.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions (including special rules
for certain lump sum distributions). Adverse tax consequences may result from
contributions in excess of specified limits, distributions prior to age 59-1/2
(subject to certain exceptions), distributions that do not conform to specified
minimum distribution rules, aggregate distributions in excess of a specified
annual amount, and in certain other circumstances. Therefore, Western Reserve
makes no attempt to provide more than general information about use of the
Contract with the various types of qualified plans. Owners and participants
under qualified plans as well as Annuitants and Beneficiaries are cautioned
that the rights of any person to any benefits under qualified plans may be
subject to the terms and conditions of the plan themselves, regardless of the
terms and conditions of the Contract issued in connection therewith. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into our Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Purchasers of Contracts for use with any
qualified plan should seek competent legal and tax advice regarding the
suitability of the Contract therefor.
1. (A) SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be subject
to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions, and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59-1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
(B) Restrictions Under the Texas Optional Retirement Programs. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program (ORP) to withdraw their interest in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
2. INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA". Individual Retirement
Annuities are subject to limitation on the amount which may be contributed and
deducted and the time when distributions may commence. In addition,
distributions from certain other types of qualified plans may be placed into an
Individual Retirement Annuity on a tax-deferred basis. The Service has not
reviewed the Contract for qualification as an IRA, and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
3. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and permit self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Contracts to provide benefits under the
plans. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments.
4. DEFERRED COMPENSATION PLANS. Section 457 of the Code, although not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with
such plans. Such plans may permit a participant to specify the form of
investment in which his or her participation will be made. In general, for
non-governmental plans, such investments, however, are owned by, and are
subject to, the claims of the general creditors of the sponsoring employer.
Depending on the terms of the particular plan, a
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non-governmental employer may be entitled to draw on deferred amounts for
purposes unrelated to its section 457 plan obligations. In general, all amounts
received under a section 457 plan are taxable and are subject to Federal income
tax withholding as wages.
5. DISTRIBUTIONS FROM QUALIFIED PLANS. Under the tax qualification rules for
Section 401(a), 403(b), 408 and 457 plans, distributions generally must
commence no later than the later of April 1 of the calendar year following the
calendar year in which the Owner (or plan participant) (i) reaches age 70-1/2 or
(ii) retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), distributions
generally must begin no later than the date described in (i). Special rules and
other restrictions may apply depending on the type of plan and the particular
circumstances. Each Owner is responsible for requesting distributions under the
Contract that satisfy applicable tax rules, and should consult a qualified tax
advisor.
6. RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
The above description of Federal income tax consequences pertaining to the
different types of qualified plans that may be funded by the Contracts is only
a brief summary and is not intended as tax advice. The rules governing the
provisions of qualified plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for qualified plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of a
Contract in connection with a qualified plan should first consult a qualified
and competent tax advisor with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the investments of
the Series Account must be "adequately diversified" in accordance with Treasury
Regulations in order for the Contracts to qualify as annuity contracts under
Section 72 of the Code. The Series Account, through the Fund, intends to comply
with the diversification requirements prescribed by the Treasury in Reg. Sec.
1.817.5, which affect how the Fund's assets may be invested. Western Reserve
believes the Series Account will, thus, meet the diversification requirements
of Section 817(h). If the Series Account does not meet those diversification
requirements, Owners would be taxed currently on any investment income under
the Contract.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. The Treasury Department has
stated in published rulings that a variable annuity contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also announced,
in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor (I.E., the contract owner), rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement further states that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts without being treated as owners of
the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of more Sub-Accounts in which
to allocate net purchase payments and Contract values, and may be able to
transfer among Sub-Accounts more frequently than in such rulings. These
differences could result in an Owner being treated as the owner of the assets
of the Series Account. In addition, Western Reserve does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. Western Reserve therefore
reserves the right to modify the Contract as necessary to attempt to prevent an
Owner from being considered the owner of a pro rata share of the assets of the
Series Account.
2. DISTRIBUTION-AT-DEATH RULES. The Code also requires Non-Qualified Contracts
to contain specific provisions for distribution of the Contract proceeds upon
the death of an Owner. In order to be treated as an annuity contract for
Federal income tax purposes, the Code requires that such Contract provide that
(a) if any Owner dies on or after the Maturity Date and before the entire
interest in the Contract has been distributed, the remaining portion must be
distributed at least as rapidly as under the method in effect on the Owner's
death; and (b) if any Owner dies before the Maturity Date, the entire interest
in the Contract must generally be distributed within 5 years after the Owner's
date of death. These requirements will be considered satisfied if the entire
interest of the Contract is used to purchase an immediate annuity under which
payments will begin within one year of the Owner's death and will be made for
the life of the Beneficiary or for a period not extending beyond the life
expectancy of the Beneficiary. The Owner's Beneficiary is the person to whom
ownership of the Contract passes because of death and must be a natural person.
(In the Contract, the successor
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owner is the Owner's Beneficiary.) If the Beneficiary is the Owner's surviving
spouse, the Contract may be continued with the surviving spouse as the new
Owner. Non-Qualified Contracts will be reviewed and modified, if necessary, to
attempt to assure that they comply with the Code requirements when clarified by
regulation or otherwise. Other rules may apply to Qualified Contracts.
3. WITHHOLDING. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring
withholding. Effective January 1, 1993, certain distributions from Section
401(a), 403(a) and 403(b) plans are subject to mandatory withholding.
4. SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered Contract was issued prior to August 14, 1982, the tax rules
that formerly provided that the Surrender was taxable only to the extent the
amount received exceeds the Owner's investment in the Contract will continue to
apply to amounts allocable to investment in the Contract before August 14,
1982. In contrast, Contracts issued on or after January 19, 1985 in a Code
Section 1035 exchange are treated as new Contracts for purposes of the penalty
and distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective purchasers wishing to take advantage of
Code Section 1035 should consult their tax advisors.
5. DIVERSIFICATION AND QUALIFIED PLANS. Code Section 817(h) applies to variable
annuity contracts other than pension plan contracts. The regulations reiterate
that the diversification requirements do not apply to pension plan contracts.
All of the qualified retirement plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (I.E., the Fund) will be structured
to comply with the diversification standards because it serves as the
investment vehicle for Non-Qualified Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the State of Washington has disapproved, for Contracts
issued in Washington, the ability both to allocate Net Purchase Payments to the
Fixed Account and to transfer Annuity Value from Sub-Accounts to the Fixed
Account.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 and neither
the Fixed Account nor the general account has been registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account, the general
account or any interests therein are generally subject to the provisions of
these acts, and Western Reserve has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
Disclosure regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 3%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Because
Western Reserve, at its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the Fixed
Account Value will be credited with different current interest rates.
Western Reserve further guarantees that when a higher or lower current interest
rate is declared on an allocation to the Fixed Account Value, that new interest
rate will be guaranteed on such allocation for at least a one year period
measured from the date of each Purchase Payment or transfer (the "Guarantee
Period"). At the end of the Guarantee Period, Western Reserve reserves the
right to declare a new current interest rate on such allocation and accrued
interest thereon (which may be a different current interest rate than the
current interest rate on new allocations to the Fixed Account Value on that
date). The rate declared on such allocation and accrued interest thereon at the
end of each Guarantee Period will be guaranteed again for another Guarantee
Period. At the end of any Guarantee Period, any interest credited on the Fixed
Account Value in excess of the minimum guaranteed rate of 4% per year will be
determined in the sole discretion of Western Reserve. The Owner assumes the
risk that interest credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a
first-in, first-out ("FIFO") method.
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Western Reserve reserves the right to change the method of crediting interest
from time to time, provided that such changes will not have the effect of
reducing the guaranteed rate of interest below 3% per annum.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial withdrawals;
minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
Transfer Charges, if any.
ALLOCATIONS, TRANSFERS AND PARTIAL WITHDRAWALS
Net Purchase Payments and transfers to the Fixed Account will be allocated to
the Fixed Account on the first Valuation Date on or following the date Western
Reserve receives the payment or transfer request at its Administrative Office,
except that any allocation of the initial Net Purchase Payment will take place
on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each Contract
Year. The amount that may be transferred is the greater of (a) 25% of the amount
in the Fixed Account, or (b) the amount transferred in the prior Contract Year
from the Fixed Account, unless Western Reserve consents otherwise. No transfer
charge will apply to transfers from the Fixed Account to a Sub-Account. Amounts
may be withdrawn from the Fixed Account for partial withdrawals and Surrenders
only upon written request and (other than for Surrenders) only with Western
Reserve's consent, Western Reserve further reserves the right to defer payment
of transfers, partial withdrawals, or Surrenders from the Fixed Account for up
to six months. In addition, Contract provisions relating to transfers, partial
withdrawals or Surrenders from the Series Account will also apply to the Fixed
Account. Dollar Cost Averaging may be done from the Fixed Account. (See "THE
CONTRACT--ACCUMULATION PROVISIONS--Transfers to and from, and among Allocation
Options" on page 14.)
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by individuals who, in addition to being licensed as
life insurance agents for Western Reserve, are also registered representatives
of InterSecurities, Inc. which has the same address as Western Reserve, an
affiliate of Western Reserve and the principal underwriter of the Contracts, or
of broker-dealers who have entered into written sales agreements with the
principal underwriter. ISI is registered with the SEC under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. No amounts will be retained by ISI for acting as principal
underwriter for the Contracts. Broker-dealers will generally receive sales
commissions of up to 6% of Purchase Payments. Trail commissions in subsequent
years will generally equal 0.20% of Annuity Value, subject to the Contract's
having at least $5,000 of Annuity Value. In addition, certain production,
persistency and managerial bonuses may be paid. Subject to applicable Federal
and state laws and regulations, Western Reserve may also pay compensation to
banks and other financial institutions for their services in connection with the
sale and servicing of the Contracts. The level of such compensation will not
exceed that paid to broker-dealers for their sale of the Contracts. The offering
of Contracts will be made on a continuing basis.
VOTING RIGHTS
To the extent required by law, Western Reserve will vote the Fund shares held
in the Series Account at shareholder meetings of the Fund in accordance with
instructions received from persons having voting interests in the corresponding
Sub-Accounts of the Series Account. Except as required by the 1940 Act, the
Fund does not hold regular or special shareholder meetings. If the 1940 Act or
any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result Western Reserve determines that it is
permitted to vote the Fund shares in its own right, it may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated
separately for each Sub-Account, and will be determined during the Accumulation
Period by dividing the portion of the Annuity Value in that Sub-Account by $100.
Fractional shares will be counted. After the Maturity Date, the number of votes
that an Annuitant has the right to instruct will be calculated based on the
liability for future variable annuity payments. This liability will be
calculated on the basis of the mortality assumptions used in determining the
number of units purchased by the Annuitant. Because this liability generally
declines as any Annuitant ages, the number of votes attributable to that
Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the right
to instruct will be determined as of the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions are
received and Fund shares that are not attributable to Owners in proportion to
the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain
27
<PAGE>
on any item to be voted upon will reduce the votes eligible to be cast by
Western Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Series Account is a
party or to which the assets of the Series Account are subject. Western Reserve
is not involved in any litigation that is of material importance in relation to
its total assets or that relates to the Series Account. ISI, the Series
Account's principal underwriter, is not presently a party to any legal
proceedings that are likely to have a material adverse effect upon its ability
to perform its contract with the Series Account.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 34618-9051; telephone number (800) 851-9777.
WRL00174-07/97
28
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 3, 1992* TO
DECEMBER 31, 1992
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth ............ $10.000 $10.240 10,000
Bond ............ 10.000 10.140 10,000
Money Market ...... 10.000 10.010 10,000
Global ............ 10.000 10.151 25,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth ............ $10.240 $10.500 7,300,170
Bond ............ 10.140 11.330 1,298,622
Money Market ...... 10.010 10.110 618,769
Global ............ 10.151 13.520 1,927,294
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1993* TO DECEMBER 31, 1993
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------ -------------------- ------------------- -------------------
<S> <C> <C> <C>
Emerging
Growth ......... $10.000 $12.350 2,319,646
Strategic Total
Return** ...... 10.000 11.240 1,874,169
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth ............ $10.500 $9.493 10,691,346
Bond ............ 11.330 10.400 1,516,637
Money Market ...... 10.110 10.319 2,375,242
Global ............ 13.520 13.364 6,555,723
Emerging
Growth ......... 12.350 11.286 5,255,225
Strategic Total
Return** ...... 11.240 11.027 6,078,888
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1994* TO DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Aggressive
Growth ......... $10.000 $9.782 1,104,940
Balanced ......... 10.000 9.339 790,146
Growth &
Income*** ...... 10.000 9.453 384,654
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth ............ $9.493 $13.771 13,303,045
Bond ............ 10.400 12.613 2,298,276
Money Market ...... 10.319 10.728 2,315,107
Global ............ 13.364 16.217 6,454,647
Emerging
Growth ......... 11.286 16.337 6,116,953
Strategic Total
Return** ...... 11.027 13.555 7,005,600
Aggressive
Growth ......... 9.782 13.313 4,238,166
Balanced ......... 9.339 11.032 1,396,713
Growth &
Income*** ...... 9.453 11.676 815,938
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 3, 1995* TO DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Tactical Asset
Allocation ...... $10.000 $11.843 5,948,340
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth ......... $13.771 $16.019 18,529,755
Bond ............ 12.613 12.455 2,818,826
Money Market ...... 10.728 11.119 4,642,483
Global ............ 16.217 20.428 10,475,149
Emerging
Growth ......... 16.337 19.152 8,959,748
Strategic Total
Return** ...... 13.555 15.372 12,133,712
Aggressive
Growth ......... 13.313 14.500 6,567,346
Balanced ......... 11.032 12.045 2,269,160
Growth &
Income*** ...... 11.676 12.853 1,463,937
Tactical Asset
Allocation ...... 11.843 13.363 8,913,473
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MAY 1, 1996* TO DECEMBER 31, 1996
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- - - --------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Value Equity ...... $10.000 $11.213 1,992,766
Global Sector ...... 10.000 10.508 302,972
C.A.S.E. Growth . 10.000 10.773 1,090,757
<FN>
- - - ----------------
* Commencement of operations of the Sub-Account.
** Prior to May 1, 1997, this Sub-Account was known as Equity-Income.
*** Prior to May 1, 1997, this Sub-Account was known as Utility.
</FN>
</TABLE>
Because the International Equity and U.S. Equity Sub-Accounts commenced
operations on January 2, 1997, there is no condensed financial information for
these Sub-Accounts for the year ended December 31, 1996.
A-1
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
WRL SERIES ANNUITY ACCOUNT
WRL FREEDOM WEALTH CREATOR(SM)
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 Creator(SM) Prospectus, dated
July , 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.
July , 1997
WRL00175-07/97
<PAGE>
TABLE OF CONTENTS
Page
-----
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
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 $33,268, which
converts that charge to an annual rate of 0.10% 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 10 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 $33,268, which converts that charge to an
annual rate of 0.10% 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
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
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 $33,268, which converts that charge to an annual
rate of 0.10% 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 10 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:
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 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
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
WRL SERIES ANNUITY ACCOUNT (BELLWETHER AND CONQUEROR VARIABLE ANNUITIES):
Report of Independent Accountants dated January 31, 1997
Statements of assets, liabilities and equity accounts and statements of
operations for the year ended December 31, 1996
Statements of changes in equity accounts for the years ended December 31,
1996 and 1995
Selected per unit data and ratios for the years ended December 31, 1996,
1995, 1994, 1993 and 1992
Notes 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
BELLWETHER AND CONQUEROR
- - - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Contract Owners of the WRL Series Annuity Account - WRL Freedom Bellwether and
WRL Freedom Conqueror Contracts.
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of each of the Sub-Accounts
constituting the WRL Freedom Bellwether and WRL Freedom Conqueror Contracts of
the WRL Series Annuity Account (a separate account of Western Reserve Life
Assurance Co. of Ohio, hereafter referred to as the "Annuity Account") at
December 31, 1996, the results of each of their operations, the changes in each
of their equity accounts and the selected per unit data and ratios for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and selected per unit data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Annuity Account's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1997
9
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
MONEY MARKET BOND GROWTH GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................... 57,466,626.650 3,554,741.151 9,078,227.620 1,531,081.607
================= ================= ================== =================
Cost ..................................... $ 57,466,627 $ 38,253,382 $ 272,878,760 $ 15,791,132
================= ================= ================== =================
Investments, at net asset value ............ $ 57,466,627 $ 38,061,445 $ 317,749,581 $ 15,685,670
Accrued transfers from (to) depositor - net 948,168 (6,201) (44,136) (5,444)
----------------- ----------------- ------------------ -----------------
Total assets ............................. 58,414,795 38,055,244 317,705,445 15,680,226
----------------- ----------------- ------------------ -----------------
LIABILITIES: .................................. 0 0 0 0
----------------- ----------------- ------------------ -----------------
Total net assets .......................... $ 58,414,795 $ 38,055,244 $ 317,705,445 $ 15,680,226
================= ================= ================== =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ..................................... 5,253,582.115062 3,055,304.507335 19,832,581.763517 1,350,785.453748
================= ================= ================== =================
Unit value ................................ $ 11.119041 $ 12.455467 $ 16.019369 $ 11.608228
================= ================= ================== =================
Contract Owners' equity ................... $ 58,414,795 $ 38,055,244 $ 317,705,445 $ 15,680,226
----------------- ----------------- ------------------ -----------------
Depositor's equity:
Units ..................................... N/A N/A N/A N/A
================= ================= ================== =================
Unit value ................................ $ N/A $ N/A $ N/A $ N/A
================= ================= ================== =================
Depositor's equity ........................ $ N/A $ N/A $ N/A $ N/A
----------------- ----------------- ------------------ -----------------
Total equity .............................. $ 58,414,795 $ 38,055,244 $ 317,705,445 $ 15,680,226
================= ================= ================== =================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL EQUITY-INCOME EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................. 12,575,284.272 14,066,539.947 9,703,598.042 7,116,101.849
================== ================== ================= ==================
Cost ................................... $ 201,977,185 $ 178,748,743 $ 151,291,850 $ 97,017,065
================== ================== ================= ==================
Investments, at net asset value ......... $ 227,803,362 $ 196,540,765 $ 179,139,534 $ 100,892,191
Accrued transfers from (to)
depositor - net ....................... 151,683 (235,810) 449,315 (59,706)
------------------ ------------------ ----------------- ------------------
Total assets .......................... 227,955,045 196,304,955 179,588,849 100,832,485
------------------ ------------------ ----------------- ------------------
LIABILITIES: .............................. 0 0 0 0
------------------ ------------------ ----------------- ------------------
Total net assets ...................... $ 227,955,045 $ 196,304,955 $ 179,588,849 $ 100,832,485
================== ================== ================= ==================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units .................................. 11,159,128.232837 12,770,553.738705 9,376,916.835961 6,954,084.354037
================== ================== ================= ==================
Unit value ............................. $ 20.427675 $ 15.371687 $ 19.152228 $ 14.499750
================== ================== ================= ==================
Contract Owners' equity ................ $ 227,955,045 $ 196,304,955 $ 179,588,849 $ 100,832,485
------------------ ------------------ ----------------- ------------------
Depositor's equity:
Units .................................. N/A N/A N/A N/A
================== ================== ================= ==================
Unit value ............................. $ N/A $ N/A $ N/A $ N/A
================== ================== ================= ==================
Depositor's equity ..................... $ N/A $ N/A $ N/A $ N/A
------------------ ------------------ ----------------- ------------------
Total equity ........................... $ 227,955,045 $ 196,304,955 $ 179,588,849 $ 100,832,485
================== ================== ================= ==================
</TABLE>
<TABLE>
<CAPTION>
BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................. 2,526,763.889 1,704,322.466
================= =================
Cost ................................... $ 26,026,058 $ 18,752,418
================= =================
Investments, at net asset value .......... $ 28,791,685 $ 20,047,679
Accrued transfers from (to)
depositor - net ........................ (57,853) (75,781)
----------------- -----------------
Total assets ........................... 28,733,832 19,971,898
----------------- -----------------
LIABILITIES: ............................... 0 0
----------------- -----------------
Total net assets ....................... $ 28,733,832 $ 19,971,898
================= =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................... 2,385,500.177475 1,553,810.728349
================= =================
Unit value .............................. $ 12.045202 $ 12.853495
================= =================
Contract Owners' equity ................. $ 28,733,832 $ 19,971,898
----------------- -----------------
Depositor's equity:
Units ................................... N/A N/A
================= =================
Unit value .............................. $ N/A $ N/A
================= =================
Depositor's equity ...................... $ N/A $ N/A
----------------- -----------------
Total equity ............................ $ 28,733,832 $ 19,971,898
================= =================
</TABLE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
STATEMENTS OF OPERATIONS
For the year or period ended December 31, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TO-
INTERMEDIATE
MONEY MARKET BOND GROWTH GOVERNMENT
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ............................ $2,143,477 $ 2,085,872 $ 3,008,593 $ 769,425
Capital gain distributions ................. 0 0 16,954,024 0
---------- ------------ ----------- ---------
2,143,477 2,085,872 19,962,617 769,425
EXPENSES:
Mortality and expense risk ................. 603,609 486,811 3,673,526 202,164
---------- ------------ ----------- ---------
Net investment income (loss) ............. 1,539,868 1,599,061 16,289,091 567,261
---------- ------------ ----------- ---------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions ........................... 0 (698,802) 4,529,601 240,193
Change in unrealized appreciation
(depreciation) .......................... 0 (1,239,618) 16,387,401 (482,646)
---------- ------------ ----------- ---------
Net gain (loss) on investments .......... 0 (1,938,420) 20,917,002 (242,453)
---------- ------------ ----------- ---------
Net increase (decrease) in equity accounts
resulting from operations ............. $1,539,868 $ (339,359) $37,206,093 $ 324,808
========== ============ =========== =========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
GLOBAL EQUITY-INCOME EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .......................... $ 2,412,240 $ 3,902,311 $ 6,904 $1,237,653
Capital gain distributions ............... 16,965,940 6,583,585 7,848,469 1,736,699
----------- ----------- ----------- ----------
19,378,180 10,485,896 7,855,373 2,974,352
EXPENSES:
Mortality and expense risk ............... 2,497,892 1,846,007 2,049,633 1,151,278
----------- ----------- ----------- ----------
Net investment income (loss) ........... 16,880,288 8,639,889 5,805,740 1,823,074
----------- ----------- ----------- ----------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions ......................... 7,564,103 1,404,575 8,673,249 5,886,038
Change in unrealized appreciation
(depreciation) ....................... 13,561,148 6,796,826 5,434,437 163,846
----------- ----------- ----------- ----------
Net gain (loss) on investments ....... 21,125,251 8,201,401 14,107,686 6,049,884
----------- ----------- ----------- ----------
Net increase (decrease) in equity
accounts resulting from operations . $38,005,539 $16,841,290 $19,913,426 $7,872,958
=========== =========== =========== ==========
</TABLE>
BALANCED UTILITY
SUB-ACCOUNT SUB-ACCOUNT
INVESTMENT INCOME:
Dividend income ............................ $ 643,554 $ 509,611
Capital gain distributions ................. 245,860 515,121
---------- ----------
889,414 1,024,732
EXPENSES:
Mortality and expense risk ................. 304,196 202,558
---------- ----------
Net investment income (loss) ............. 585,218 822,174
---------- ----------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions ........................... 159,957 319,804
Change in unrealized appreciation
(depreciation) .......................... 1,434,264 496,140
---------- ----------
Net gain (loss) on investments ........... 1,594,221 815,944
---------- ----------
Net increase (decrease) in equity accounts
resulting from operations .............. $2,179,439 $1,638,118
========== ==========
The notes to the financial statements are an integral part of this report.
11
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TACTICAL ASSET MERIDIAN/INVESCO
ALLOCATION C.A.S.E. GROWTH GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ..................................... 9,949,981.843 938,598.139 334,024.309 2,118,053.511
================= ================= ================ =================
Cost ....................................... $ 120,546,059 $ 11,962,847 $ 3,402,887 $ 22,330,655
================= ================= ================ =================
Investments at net asset value .............. $ 125,476,362 $ 12,593,116 $ 3,524,725 $ 23,863,074
Accrued transfers from (to) depositor - net . 100,746 (50,827) (15,359) (103,753)
----------------- ----------------- ---------------- -----------------
Total assets ............................... 125,577,108 12,542,289 3,509,366 23,759,321
----------------- ----------------- ---------------- -----------------
LIABILITIES: .................................. 0 0 0 0
----------------- ----------------- ---------------- -----------------
Total net assets ........................... $ 125,577,108 $ 12,542,289 $ 3,509,366 $ 23,759,321
================= ================= ================ =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ...................................... 9,397,630.629186 1,161,733.311699 333,942.618296 2,103,820.411102
================= ================= ================ =================
Unit value ................................. $ 13.362635 $ 10.773003 $ 10.508888 $ 11.213466
================= ================= ================ =================
Contract Owners' equity .................... $ 125,577,108 $ 12,515,356 $ 3,509,366 $ 23,591,119
----------------- ----------------- ---------------- -----------------
Depositor's equity:
Units ...................................... N/A 2,500.000000 N/A 15,000.000000
================= ================= ================= =================
Unit value ................................. $ N/A $ 10.773003 $ N/A $ 11.213466
================= ================= ================= =================
Depositor's equity ......................... $ N/A $ 26,933 $ N/A $ 168,202
----------------- ----------------- ---------------- -----------------
Total equity ............................... $ 125,577,108 $ 12,542,289 $ 3,509,366 $ 23,759,321
================= ================= ================ =================
</TABLE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
STATEMENTS OF OPERATIONS
For the year or period ended December 31, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TACTICAL ASSET MERIDIAN/INVESCO
ALLOCATION C.A.S.E. GROWTH GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT(A) SUB-ACCOUNT(A) SUB-ACCOUNT(A)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ............................ $2,799,917 $ 45,209 $ 5,930 $ 77,464
Capital gain distributions ................. 2,262,947 206,171 12,122 32,728
---------- -------- --------- ----------
5,062,864 251,380 18,052 110,192
EXPENSES:
Mortality and expense risk .................. 1,384,600 51,146 12,669 90,926
---------- -------- --------- ----------
Net investment income (loss) ........... 3,678,264 200,234 5,383 19,266
---------- -------- --------- ----------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from
securities transactions ................ 2,784,681 9,835 (150) 29,764
Change in unrealized appreciation
(depreciation) ......................... 3,008,787 630,268 121,838 1,532,419
---------- -------- --------- ----------
Net gain (loss) on investments ........... 5,793,468 640,103 121,688 1,562,183
---------- -------- --------- ----------
Net increase (decrease) in equity
accounts resulting from operations ..... $9,471,732 $840,337 $ 127,071 $1,581,449
========== ======== ========= ==========
</TABLE>
(a) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
12
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
STATEMENTS OF CHANGES IN EQUITY ACCOUNTS
For the year or period ended
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................. $ 1,539,868 $ 1,313,504 $ 1,599,061 $ 1,334,567
Net gain (loss) on investments ............... 0 0 (1,938,420) 3,265,003
----------- ----------- ----------- -----------
Net increase (decrease) in equity accounts
resulting from operations .................. 1,539,868 1,313,504 (339,359) 4,599,570
----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ......... 37,166,378 3,849,894 8,367,613 12,376,956
----------- ----------- ----------- -----------
Less cost of units redeemed:
Administrative charges ...................... 17,556 15,085 24,284 20,247
Policy loans ................................ 101,493 30,025 11,521 0
Surrender benefits .......................... 8,016,874 4,807,455 2,411,912 1,650,718
Death benefits .............................. 679,267 324,411 296,824 147,684
----------- ----------- ----------- ----------
8,815,190 5,176,976 2,744,541 1,818,649
----------- ----------- ----------- ----------
Increase (decrease) in equity accounts from
capital unit transactions ................. 28,351,188 (1,327,082) 5,623,072 10,558,307
----------- ----------- ----------- ----------
Net increase (decrease) in equity accounts . 29,891,056 (13,578) 5,283,713 15,157,877
Depositors' equity contribution (redemption) 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period .......................... 28,523,739 28,537,317 32,771,531 17,613,654
----------- ----------- ----------- ----------
End of period ................................ $58,414,795 $28,523,739 $38,055,244 $32,771,531
=========== =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
GROWTH
SUB-ACCOUNT
DECEMBER 31
-------------------------------
1996 1995
--------------- --------------
OPERATIONS:
Net investment income (loss) ................. $ 16,289,091 $ 16,764,464
Net gain (loss) on investments ............... 20,917,002 38,316,882
------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 37,206,093 55,081,346
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ......... 98,111,181 40,690,699
------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 242,674 173,999
Policy loans ................................ 176,313 36,385
Surrender benefits .......................... 14,229,582 9,406,104
Death benefits .............................. 1,101,844 399,627
------------ ------------
15,750,413 10,016,115
------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 82,360,768 30,674,584
------------ ------------
Net increase (decrease) in equity accounts .. 119,566,861 85,755,930
Depositors' equity contribution (redemption) 0 0
EQUITY ACCOUNTS:
Beginning of period .......................... 198,138,584 112,382,654
------------ ------------
End of period ................................ $317,705,445 $198,138,584
============ ============
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE
GOVERNMENT GLOBAL
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................. $ 567,261 $ 509,575 $ 16,880,288 $ 2,936,895
Net gain (loss) on investments ............... (242,453) 801,020 21,125,251 16,567,912
------------ ----------- ------------ -------------
Net increase (decrease) in equity accounts
resulting from operations .................. 324,808 1,310,595 38,005,539 19,504,807
------------ ----------- ------------ -------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ......... 4,001,808 1,293,887 88,386,336 3,172,478
------------ ----------- ------------ -------------
Less cost of units redeemed:
Administrative charges ...................... 7,051 7,052 146,170 106,341
Policy loans ................................ 0 31,238 147,825 5,024
Surrender benefits .......................... 1,514,008 1,086,564 9,450,746 5,972,420
Death benefits .............................. 110,873 143,519 650,521 464,451
------------ ----------- ------------ -------------
1,631,932 1,268,373 10,395,262 6,548,236
------------ ----------- ------------ -------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 2,369,876 25,514 77,991,074 (3,375,758)
------------ ----------- ------------ -------------
Net increase (decrease) in equity accounts .. 2,694,684 1,336,109 115,996,613 16,129,049
Depositors' equity contribution (redemption) 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period .......................... 12,985,542 11,649,433 111,958,432 95,829,383
------------ ----------- ------------ -------------
End of period ................................ $ 15,680,226 $12,985,542 $227,955,045 $ 111,958,432
============ =========== ============ =============
</TABLE>
EQUITY-INCOME
SUB-ACCOUNT
DECEMBER 31
---------------------------
1996 1995
------------ ------------
OPERATIONS:
Net investment income (loss) ................. $ 8,639,889 $ 4,061,486
Net gain (loss) on investments ............... 8,201,401 13,464,500
------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 16,841,290 17,525,986
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ......... 85,200,901 17,763,181
------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 91,978 71,983
Policy loans ................................ 78,498 0
Surrender benefits .......................... 6,804,935 4,611,616
Death benefits .............................. 412,933 687,018
------------ ------------
7,388,344 5,370,617
------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 77,812,557 12,392,564
------------ ------------
Net increase (decrease) in equity accounts . 94,653,847 29,918,550
Depositors' equity contribution (redemption) 0 0
EQUITY ACCOUNTS:
Beginning of period .......................... 101,651,108 71,732,558
------------ ------------
End of period ................................ $196,304,955 $101,651,108
============ ============
13
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................. $ 5,805,740 $ 3,189,124 $ 1,823,074 $ 1,078,673
Net gain (loss) on investments ............... 14,107,686 27,441,608 6,049,884 5,453,504
------------ ------------ ------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 19,913,426 30,630,732 7,872,958 6,532,177
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .......... 63,633,185 16,786,688 36,890,434 44,671,168
------------ ------------ ------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 128,353 85,948 69,909 26,869
Policy loans ................................ 108,870 13,781 101,914 8,808
Surrender benefits .......................... 8,245,766 4,544,091 4,071,470 1,799,668
Death benefits .............................. 589,583 273,410 107,157 78,444
------------ ------------ ------------ ------------
9,072,572 4,917,230 4,350,450 1,913,789
------------ ------------ ------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 54,560,613 11,869,458 32,539,984 42,757,379
------------ ------------ ------------ ------------
Net increase (decrease) in equity accounts .. 74,474,039 42,500,190 40,412,942 49,289,556
Depositors' equity contribution (redemption) . 0 0 0 (272,958)
EQUITY ACCOUNTS:
Beginning of period .......................... 105,114,810 62,614,620 60,419,543 11,402,945
------------ ------------ ------------ ------------
End of period ................................ $179,588,849 $105,114,810 $100,832,485 $ 60,419,543
============ ============ ============ ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
BALANCED
SUB-ACCOUNT
DECEMBER 31
----------------------------
1996 1995
------------ ------------
OPERATIONS:
Net investment income (loss) ................. $ 585,218 $ 383,272
Net gain (loss) on investments ............... 1,594,221 1,697,980
------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 2,179,439 2,081,252
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .......... 12,102,679 6,741,534
------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 14,257 8,055
Policy loans ................................ 21,825 0
Surrender benefits .......................... 1,283,676 543,786
Death benefits .............................. 79,316 137,777
------------ ------------
1,399,074 689,618
------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 10,703,605 6,051,916
------------ ------------
Net increase (decrease) in equity accounts .. 12,883,044 8,133,168
Depositors' equity contribution (redemption) . (218,006) 0
EQUITY ACCOUNTS:
Beginning of period .......................... 16,068,794 7,935,626
------------ ------------
End of period ................................ $ 28,733,832 $ 16,068,794
============ ============
14
<PAGE>
<TABLE>
<CAPTION>
TACTICAL ASSET C.A.S.E.
UTILITY ALLOCATION GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
---------------------------- --------------------------- ------------
1996 1995 1996 1995(A) 1996(B)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................$ 822,174 $ 297,189 $ 3,678,264 $ 2,115,992 $ 200,234
Net gain (loss) on investments ............... 815,944 1,157,763 5,793,468 3,169,620 640,103
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 1,638,118 1,454,952 9,471,732 5,285,612 840,337
------------ ------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .......... 9,551,314 5,146,911 51,801,197 70,478,164 11,839,479
------------ ------------ ------------ ------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 9,288 4,161 32,299 7,030 923
Policy loans ................................ 11,838 193 23,207 8,139 10,904
Surrender benefits .......................... 811,139 210,465 7,426,292 3,423,825 150,700
Death benefits .............................. 240,558 87,803 513,632 18,074 0
------------ ------------ ------------ ------------ ------------
1,072,823 302,622 7,995,430 3,457,068 162,527
------------ ------------ ------------ ------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 8,478,491 4,844,289 43,805,767 67,021,096 11,676,952
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in equity accounts .. 10,116,609 6,299,241 53,277,499 72,306,708 12,517,289
Depositors' equity contribution (redemption) . (230,353) 0 0 (7,099) 25,000
EQUITY ACCOUNTS:
Beginning of period .......................... 10,085,642 3,786,401 72,299,609 0 0
------------ ------------ ------------ ------------ ------------
End of period ................................$ 19,971,898 $ 10,085,642 $125,577,108 $ 72,299,609 $ 12,542,289
============ ============ ============ ============ ============
</TABLE>
MERIDIAN/
INVESCO
GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------ ------------
1996(B) 1996(B)
------------ ------------
OPERATIONS:
Net investment income (loss) ................. $ 5,383 $ 19,266
Net gain (loss) on investments ............... 121,688 1,562,183
------------ ------------
Net increase (decrease) in equity accounts
resulting from operations .................. 127,071 1,581,449
------------ ------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .......... 3,409,809 22,294,351
------------ ------------
Less cost of units redeemed:
Administrative charges ...................... 91 1,969
Policy loans ................................ 0 5,853
Surrender benefits .......................... 27,423 258,657
Death benefits .............................. 0 0
------------ ------------
27,514 266,479
------------ ------------
Increase (decrease) in equity accounts from
capital unit transactions ................. 3,382,295 22,027,872
------------ ------------
Net increase (decrease) in equity accounts .. 3,509,366 23,609,321
Depositors' equity contribution (redemption) . 0 150,000
EQUITY ACCOUNTS:
Beginning of period .......................... 0 0
------------ ------------
End of period ................................ $ 3,509,366 $ 23,759,321
============ ============
(a) The inception date of this sub-account was January 3, 1995.
(b) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
15
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992(C)
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ............................... $ 10.73 $ 10.32 $ 10.11 $10.01 $10.00
Income from operations:
Net investment income (loss) .......... 0.39 0.41 0.21 0.10 0.01
Net realized and unrealized gain (loss)
on investments ...................... .00 .00 .00 .00 .00
---------- ---------- ---------- --------- ---------
Total income (loss) from
operations ...................... 0.39 0.41 0.21 0.10 0.01
---------- ---------- ---------- --------- ---------
Accumulation unit value,
end of period ........................... $ 11.12 $ 10.73 $ 10.32 $10.11 $10.01
========== ========== ========== ========= =========
Total return (a) .......................... 3.65% 3.96% 2.07% 1.01% 0.09%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ........................ $58,415 $28,524 $28,537 $8,786 $ 100
Ratio of net investment income (loss) to
average net assets (b) ................ 3.57% 3.89% 2.26% 1.03% 1.08%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BOND
SUB-ACCOUNT
DECEMBER 31
---------------------------------------------------------
1996 1995 1994 1993 1992(C)
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .............................. $ 12.61 $ 10.40 $ 11.33 $ 10.14 $10.00
Income from operations:
Net investment income (loss) ......... 0.56 0.64 0.52 2.69 0.64
Net realized and unrealized gain (loss)
on investments ..................... (0.71) 1.57 (1.45) (1.50) (0.50)
---------- ---------- ---------- --------- ---------
Total income (loss) from
operations ..................... (0.15) 2.21 (0.93) 1.19 0.14
---------- ---------- ---------- ---------- ---------
Accumulation unit value,
end of period .......................... $ 12.46 $ 12.61 $ 10.40 $ 11.33 $10.14
========== ========== ========== ========== =========
Total return (a) ......................... (1.25%) 21.28% (8.23%) 11.81% 1.36%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ........................ $38,055 $32,772 $17,614 $17,280 $ 101
Ratio of net investment income (loss) to
average net assets (b) ................ 4.60% 5.45% 4.91% 24.79% 6.30%
</TABLE>
<TABLE>
GROWTH
SUB-ACCOUNT
DECEMBER 31
----------------------------------------------------------
1996 1995 1994 1993 1992(C)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .............................. $ 13.77 $ 9.49 $ 10.50 $ 10.24 $ 10.00
Income from operations:
Net investment income (loss) ......... 0.95 1.30 (0.03) 0.31 0.39
Net realized and unrealized gain (loss)
on investments ..................... 1.30 2.98 (0.98) (0.05) (0.15)
-------- -------- -------- -------- --------
Total income (loss) from
operations ..................... 2.25 4.28 (1.01) 0.26 0.24
-------- -------- -------- -------- --------
Accumulation unit value,
end of period .......................... $ 16.02 $ 13.77 $ 9.49 $ 10.50 $ 10.24
======== ======== ======== ======== ========
Total return (a) ......................... 16.32% 45.08% (9.58%) 2.55% 2.38%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ........................ $317,705 $198,139 $112,383 $ 87,415 $ 102
Ratio of net investment income (loss) to
average net assets (b) ................ 6.21% 11.07% (0.26%) 3.14% 3.82%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TO-INTERMEDIATE
GOVERNMENT
SUB-ACCOUNT
DECEMBER 31
-------------------------------------------------------
1996 1995 1994 1993 1992(C)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ................................ $ 11.38 $ 10.16 $ 10.35 $ 10.03 $ 10.00
Income from operations:
Net investment income (loss) ........... 0.45 0.48 0.37 0.30 0.01
Net realized and unrealized gain (loss)
on investments ....................... (0.22) 0.74 (0.56) 0.02 0.02
-------- -------- -------- -------- --------
Total income (loss) from
operations ....................... 0.23 1.22 (0.19) 0.32 0.03
-------- -------- -------- -------- --------
Accumulation unit value,
end of period ............................ $ 11.61 $ 11.38 $ 10.16 $ 10.35 $ $10.03
======== ======== ======== ======== ========
Total return (a) ........................... 2.04% 11.96% (1.81%) 3.12% 0.35%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ......................... $15,680 $12,986 $11,649 $13,564 $ 853
Ratio of net investment income (loss) to
average net assets (b) ................. 3.93% 4.39% 3.68% 2.98% 1.56%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
SUB-ACCOUNT
DECEMBER 31
----------------------------------------------------------
1996 1995 1994 1993 1992(C)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .............................. $ 16.22 $ 13.36 $ 13.52 $ 10.15 $ 10.00
Income from operations:
Net investment income (loss) ......... 1.79 0.43 0.53 0.11 (0.01)
Net realized and unrealized gain (loss)
on investments ..................... 2.42 2.43 (0.69) 3.26 0.16
-------- -------- -------- -------- --------
Total income (loss) from
operations ..................... 4.21 2.86 (0.16) 3.37 0.15
-------- -------- -------- -------- --------
Accumulation unit value,
end of period .......................... $ 20.43 $ 16.22 $ 13.36 $ 13.52 $ 10.15
======== ======== ========= ======== ========
Total return (a) ......................... 25.96% 21.35% (1.14%) 33.17% 1.51%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ........................ $227,955 $111,958 $95,829 $29,905 $ 254
Ratio of net investment income (loss) to
average net assets (b) ................ 9.45% 2.96% 3.95% 0.99% (1.32%)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EQUITY-INCOME
SUB-ACCOUNT
DECEMBER 31
---------------------------------------------
1996 1995 1994 1993(D)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning
of period .............................. $ 13.56 $ 11.03 $ 11.24 $ 10.00
Income from operations:
Net investment income (loss) ........... 0.94 0.59 0.16 0.20
Net realized and unrealized gain (loss)
on investments ....................... 0.87 1.94 (0.37) 1.04
-------- -------- -------- --------
Total income (loss) from
operations ....................... 1.81 2.53 (0.21) 1.24
-------- -------- -------- --------
Accumulation unit value,
end of period .......................... $ 15.37 $ 13.56 $ 11.03 $ 11.24
======== ======== ======== ========
Total return (a) ......................... 13.40% 22.93% (1.92%) 12.43%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ....................... $196,305 $101,651 $71,733 $28,312
Ratio of net investment income (loss) to
average net assets (b) ............... 6.55% 4.76% 1.49% 2.24%
<FN>
- - - ---------------
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios on page 24.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
16
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------------------------------ -----------------------------------
1996 1995 1994 1993(D) 1996 1995 1994(E)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ............................ $ 16.34 $ 11.29 $ 12.35 $ 10.00 $ 13.31 $ 9.78 $ 10.00
Income from operations:
Net investment income (loss) ....... 0.73 0.54 (0.15) (0.14) 0.31 0.40 (0.10)
Net realized and unrealized gain
(loss)on investments ............. 2.08 4.51 (0.91) 2.49 0.88 3.13 (0.12)
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from
operations ................... 2.81 5.05 (1.06) 2.35 1.19 3.53 (0.22)
-------- -------- -------- -------- -------- -------- --------
Accumulation unit value,
end of period ........................ $ 19.15 $ 16.34 $ 11.29 $ 12.35 $ 14.50 $ 13.31 $ 9.78
======== ======== ======== ========= ========= ========= ========
Total return (a) ....................... 17.23% 44.75% (8.65%) 23.54% 8.91% 36.10% (2.18%)
Ratios and supplemental data:
Net assets at end of period
(in thousands) ..................... $179,589 $105,115 $62,615 $25,444 $100,832 $60,420 $11,403
Ratio of net investment income (loss)
to average net assets (b) ......... 3.96% 3.85% (1.33%) (1.44%) 2.22% 3.04% (1.19%)
</TABLE>
BALANCED
SUB-ACCOUNT
DECEMBER 31
----------------------------------
1996 1995 1994(E)
-------- ------- --------
Accumulation unit value, beginning
of period .............................. $ 11.03 $ 9.34 $ 10.00
Income from operations:
Net investment income (loss) ........ 0.30 0.32 0.27
Net realized and unrealized gain
(loss) on investments ............. 0.72 1.37 (0.93)
-------- ------- --------
Total income (loss) from
operations ..................... 1.02 1.69 (0.66)
-------- ------- --------
Accumulation unit value,
end of period .......................... $ 12.05 $ 11.03 $ 9.34
======== ======== ========
Total return (a) ......................... 9.18% 18.13% (6.61%)
======== ======== ========
Ratios and supplemental data:
Net assets at end of period
(in thousands) ........................ $ 28,734 $ 16,069 $ 7,936
Ratio of net investment income (loss)
to average net assets (b) ............ 2.69% 3.16% 3.48%
17
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TACTICAL ASSET
UTILITY ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------------- ---------------------
1996 1995 1994(E) 1996 1995(F)
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning
of period ........................... $ 11.68 $ 9.45 $ 10.00 $ 11.84 $ 10.00
Income from operations:
Net investment income (loss) ....... 0.68 0.47 0.33 0.47 0.82
Net realized and unrealized gain
(loss) on investments ............. 0.49 1.76 (0.88) 1.05 1.02
------- ------- ------- -------- -------
Total income (loss) from
operations ...................... 1.17 2.23 (0.55) 1.52 1.84
------- ------- ------- -------- -------
Accumulation unit value,
end of period ....................... $ 12.85 $ 11.68 $ 9.45 $ 13.36 $ 11.84
======= ======= ======= ======== =======
Total return (a) ...................... 10.08% 23.52% (5.47%) 12.83% 18.43%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ..................... $19,972 $10,086 $ 3,786 $125,577 $72,300
Ratio of net investment income (loss)
to average net assets (b) .......... 5.68% 4.50% 4.18% 3.72% 7.29%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MERIDIAN/
C.A.S.E. INVESCO
GROWTH GLOBAL VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ------------
1996(G) 1996(G) 1996(G)
----------- ----------- ------------
<S> <C> <C> <C>
Accumulation unit value, beginning
of period ............................ $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ...... 0.36 0.04 0.02
Net realized and unrealized gain
(loss) on investments ............ 0.41 0.47 1.19
------- ------- -------
Total income (loss) from
operations .................... 0.77 0.51 1.21
------- ------- -------
Accumulation unit value,
end of period ........................ $ 10.77 $ 10.51 $ 11.21
======= ======= =======
Total return (a) ....................... 7.73% 5.09% 12.13%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ..................... $12,542 $ 3,509 $23,759
Ratio of net investment income (loss)
to average net assets (b) .......... 5.46% 0.59% 0.33%
<FN>
- - - -----------------
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period. See Notes to
Selected Per Unit Data and Ratios below.
</FN>
</TABLE>
NOTES TO SELECTED PER UNIT DATA AND RATIOS
(a) For periods less than one year the total return is not annualized.
(b) For periods less than one year the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was December 3, 1992.
(d) The inception date of this sub-account was March 1, 1993.
(e) The inception date of this sub-account was March 1, 1994.
(f) The inception date of this sub-account was January 3, 1995.
(g) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
18
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
NOTES TO THE FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
DECEMBER 31, 1996
NOTE 1--ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
The WRL Series Annuity Account (the "Annuity Account") was established as a
variable accumulation deferred annuity separate account of Western Reserve Life
Assurance Co. of Ohio ("WRL") and is registered as a unit investment trust
("Trust") under the Investment Company Act of 1940, as amended. The Annuity
Account encompasses various contract types: the WRL Freedom Variable Annuity and
the WRL Freedom Attainer ("Annuity #1"); the WRL Freedom Bellwether and the WRL
Freedom Conqueror ("Annuity #2"). Each contains fourteen investment options
referred to as sub-accounts. Each sub-account invests in the corresponding
portfolio of the WRL Series Fund, Inc. (the "Fund"), a registered management
investment company under the Investment Company Act of 1040, as amended. These
portfolios and their respective investmen management organizations are as
follows:
PORTFOLIO INVESTMENT MANAGER
- - - --------------------- -------------------------------
Money Market J.P. Morgan Investment
Management Inc.
Bond Janus Capital Corporation
("JCC")
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc.
("AEGON
Management")
Global JCC
Equity-Income Luther King Capital
Management
Corporation
Emerging Growth Van Kampen American
Capital Asset
Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AEGON Management
Utility Federated Investment Counseling
Tactical Asset Allocation Dean Investment Associates
C.A.S.E. Growth C.A.S.E. Management, Inc.
Meridian/INVESCO Global Meridian Investment
Sector Management
Corporation/INVESCO
Global Asset
Management Limited
Value Equity NWQ Investment
Management
Company, Inc.
WRL and AEGON Management are indirect wholly-owned subsidiaries of AEGON USA,
Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a Netherlands
Corporation.
On May 1, 1996, WRL made an initial contribution of $175,000 to the Annuity
Account. The amount of the contribution and the units received are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
- - - ---------------- --------------- ---------------
C.A.S.E. Growth $ 25,000 2,500.000000
Value Equity $ 150,000 15,000.000000
The Annuity #2 sub-accounts were established on December 3, 1992 to hold
assets that support the benefits under certain flexible payment variable
accumulation deferred annuity contracts (the "Contracts") issued by WRL. The
Annuity Account equity transactions are accounted for using the appropriate
effective date at the corresponding accumulation unit value.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently used in preparation of the Trust's financial statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as
19
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER AND CONQUEROR
NOTES TO THE FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
NOTE 1 (CONTINUED)
determined by the Fund on December 31, 1996. Investment transactions are
accounted for on the trade date, using the Fund NAV next determined after
receipt of sale or redemption order without sales charges. Dividend income
and capital gain distributions are recorded on the ex-dividend date. The cost
of investments sold is determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Annuity Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Annuity Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2--CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration of
the Contracts.
A. CONTRACT CHARGES
No deduction for sales expenses are made from the purchase payments. A
contingent deferred sales charge may, however, be assessed against contract
values when withdrawn or surrendered.
On each anniversary through maturity date, WRL will deduct an annual contract
charge as partial compensation for providing administrative services under
the Contracts.
B. ANNUITY #2 SUB-ACCOUNTS CHARGES
A daily charge equal to an annual rate of 1.40% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks
and administrative services in connection with issuance and administration of
the Contracts. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3--DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are typically declared
and reinvested semiannually, while capital gain distributions are typically
declared and reinvested annually. Dividends and distributions of the Fund are
generally paid to and reinvested by the Annuity Account the next business day
after declaration.
NOTE 4--OTHER MATTERS
As of December 31, 1996 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
SUB-ACCOUNT
- - - ------------
Money Market $ N/A
Bond (191,937)
Growth 44,870,821
Short-to-Intermediate Government (105,462)
Global 25,826,177
Equity-Income 17,792,022
Emerging Growth 27,847,684
Aggressive Growth 3,875,126
Balanced 2,765,627
Utility 1,295,261
Tactical Asset Allocation 4,930,303
C.A.S.E. Growth 630,269
Meridian/INVESCO Global Sector 121,838
Value Equity 1,532,419
20
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1996 and 1995, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Western Reserve Life Assurance Co. of Ohio at December 31, 1996 and 1995, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1996.
21
<PAGE>
Also, in our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic statutory-basis financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
February 21, 1997
22
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
---------- ----------
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 2,480 $ 4,999
Bonds 359,579 452,474
Common stocks at market (cost:
$302 in 1996 and $473 in 1995) 597 834
Mortgage loans on real estate 6,049 6,181
Home office properties, at cost
less accumulated depreciation
($0 in 1996 and $1,505 in 1995) 7,962 5,121
Policy loans 52,604 37,125
---------- ----------
Total cash and invested assets 429,271 506,734
Premiums deferred and uncollected 1,943 1,787
Accrued investment income 5,940 7,565
Receivable from affiliates 1,165 4,337
Transfers from separate accounts 204,181 --
Other assets 3,962 4,264
Separate account assets 3,527,145 2,419,205
---------- ----------
Total admitted assets $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
23
<PAGE>
DECEMBER 31
1996 1995
---------- ----------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 155,166 $ 72,032
Annuity 332,230 319,353
Policy and contract claim reserves 8,584 6,612
Other policyholders' funds 3,104 2,633
Remittances and items not allocated 9,107 5,136
Federal income taxes payable 1,266 1,417
Asset valuation reserve 5,710 5,590
Interest maintenance reserve 7,451 6,392
Payable to affiliate 20,463 --
Other liabilities 13,082 10,984
Separate account liabilities 3,521,888 2,415,804
---------- ----------
Total liabilities 4,078,051 2,845,953
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 26,041 28,424
---------- ----------
Total capital and surplus 95,556 97,939
---------- ----------
Total liabilities and capital and surplus $4,173,607 $2,943,892
========== ==========
SEE ACCOMPANYING NOTES.
24
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations,
net of reinsurance:
Life $ 293,590 $191,508 $150,991
Annuity 740,125 378,390 449,141
Net investment income 36,067 40,891 40,139
Amortization of interest maintenance reserve 1,335 882 726
Commissions and expense allowances on
reinsurance ceded
11 11 12
Other income 13,398 8,237 6,354
---------- -------- --------
1,084,526 619,919 647,363
Benefits and expenses:
Benefits paid or provided for:
Life 21,256 17,844 15,921
Surrender benefits 286,406 206,250 196,169
Other benefits 23,270 19,530 18,403
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 80,139 (15,132) (11,618)
Annuity 12,877 5,229 (78,590)
Other 422 109 286
---------- -------- --------
424,370 233,830 140,571
Insurance expenses:
Commissions 140,261 82,903 78,168
General insurance expenses 47,406 37,246 33,100
Taxes, licenses and fees 10,848 8,919 5,931
Transfer to separate accounts 452,471 242,427 386,174
Other expenses 60 34 18
---------- -------- --------
651,046 371,529 503,391
---------- -------- --------
1,075,416 605,359 643,962
---------- -------- --------
Gain from operations before federal
income taxes and realized capital
losses on investments 9,110 14,560 3,401
Federal income tax expense 9,297 8,917 3,406
---------- -------- --------
Gain (loss) from operations before
realized capital losses on investments (187) 5,643 (5)
Netrealized capital losses on investments
(net of related federal income taxes
and amounts transferred to interest
maintenance reserve) (811) (1,678) (1,133)
---------- -------- --------
Net income (loss) $ (998) $ 3,965 $ (1,138)
========== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $1,500 $23,015 $24,894 $49,409
Capital contribution -- 45,000 -- 45,000
Net loss for 1994 -- -- (1,138) (1,138)
Net unrealized capital losses -- -- (9) (9)
Decrease in non-admitted assets -- -- 368 368
Decrease in asset valuation reserves
-- -- 4,321 4,321
Decrease in surplus in separate accounts
-- -- (748) (748)
Other adjustments -- -- (2,183) (2,183)
------ ------- ------- -------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 -- -- 3,965 3,965
Net unrealized capital losses -- -- (500) (500)
Decrease in non-admitted assets -- -- 903 903
Decrease in asset valuation reserve -- -- 2,901 2,901
Increase in surplus in separate accounts
-- -- 541 541
Change in reserve valuation -- -- (3,496) (3,496)
Other adjustments -- -- (1,395) (1,395)
------ ------- ------- -------
Balance at December 31, 1995 1,500 68,015 28,424 97,939
Net loss for 1996 -- -- (998) (998)
Net unrealized capital gains -- -- 1,294 1,294
Decrease in non-admitted assets -- -- 199 199
Increase in asset valuation reserve -- -- (120) (120)
Increase in surplus in separate accounts
-- -- 237 237
Change in reserve valuation -- -- (2,995) (2,995)
------ ------- ------- -------
Balance at December 31, 1996 $1,500 $68,015 $26,041 $95,556
====== ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations,
net of reinsurance $1,033,565 $569,934 $ 600,405
Net investment income 38,666 42,359 41,977
Other income 12,983 8,052 6,311
---------- -------- ---------
1,085,214 620,345 648,693
Life claims (20,655) (16,759) (14,660)
Surrender benefits and other
fund withdrawals (286,406) (206,250) (196,169)
Other benefits to policyholders (22,129) (19,041) (18,251)
Commissions, other expenses and taxes (196,329) (128,314) (119,755)
Net transfers to separate accounts (658,326) (242,427) (386,174)
Dividends to policyholders (44) (26) (22)
Federal income taxes (9,449) (7,531) (3,378)
---------- -------- ---------
Net cash used in operations (108,124) (3) (89,716)
Proceeds from investments sold,
matured or repaid:
Bonds and redeemable preferred stock 122,820 108,554 99,241
Common stocks 175 2,108 80,066
Mortgage loans on real estate 132 1,954 132
Real estate 4,304 -- --
Miscellaneous proceeds -- -- (28)
---------- -------- ---------
Total cash from investments 127,431 112,616 179,411
Capital contribution -- -- 45,000
Other sources 31,546 2,830 6,135
---------- -------- ---------
Total sources of cash 50,853 115,443 140,830
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 26,826 139,402 47,214
Common stocks 4 589 65,911
Mortgage loans on real estate -- 6 1,004
Real estate 7,837 449 37
Net increase in policy loans 15,479 9,605 4,496
Miscellaneous applications 5 -- --
---------- -------- ---------
Total investments acquired 50,151 150,051 118,662
Other applications, net 3,221 7,115 6,086
---------- -------- ---------
Total applications of cash 53,372 157,166 124,748
---------- -------- ---------
Net change in cash and
short-term investments (2,519) (41,723) 16,082
Cash and short-term investments
at beginning of year 4,999 46,722 30,640
---------- -------- ---------
Cash and short-term investments
at end of year $ 2,480 $ 4,999 $ 46,722
========== ======== =========
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (carried at amortized cost), available-for-sale (carried
at fair value), and trading (carried at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding receivable or payable rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for the
difference between the financial statement amounts and income tax bases of
assets and liabilities; (g) net realized gains or losses attributed to
28
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
changes in the level of interest rates in the market are deferred and amortized
over the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (h)
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(carried as a liability) changes to which are charged directly to surplus,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (i) certain
assets designated as "non-admitted assets" have been charged to surplus rather
than being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; and (k) pension expense is
recorded as amounts are paid rather than accrued and expensed during the periods
in which the employers provide service. The effects of these variances have not
been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The impact of any such changes
on the Company's statutory surplus cannot be determined at this time and could
be material.
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount included $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and
29
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other asset backed securities at regular intervals and adjusts amortization
rates prospectively when such assumptions are changed due to experience and/or
expected future patterns. Investments in preferred stocks in good standing are
reported at cost. Investments in preferred stocks not in good standing are
reported at the lower of cost or market. Common stocks are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without any
adjustment for federal income taxes. Real estate is reported at cost less
allowances for depreciation. Depreciation is computed principally by the
straight-line method. Policy loans are reported at unpaid principal. Other
"admitted assets" are valued, principally at cost, as required or permitted by
Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1996, 1995 and 1994, net realized capital gains of $2,394, $554 and $436,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$1,335, $882 and $726 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1996, 1995 and 1994, the
Company excluded investment income due and accrued of $0, $1 and $237,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by the laws of the State of Ohio.
30
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using interest
rates ranging from 2.25 to 5.50 percent and are computed principally on the Net
Level Premium Valuation and the Commissioners' Reserve Valuation Methods.
Reserves for universal life policies are based on account balances adjusted for
the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 9.25 percent and mortality rates, where appropriate, from a variety
of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $997,513, $466,822 and $534,372
in 1996, 1995 and 1994, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge. Separate account
contractholders have no claim against the assets of the general account.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
31
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparisons to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
32
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 359,579 $ 372,319 $ 452,474 $ 479,656
Common stocks 597 597 834 834
Mortgage loans on real estate 6,049 6,134 6,181 6,536
Policy loans 52,604 52,604 37,125 37,125
Cash and short-term investments 2,480 2,480 4,999 4,999
Separate account assets 3,527,145 3,527,145 2,419,205 2,419,205
LIABILITIES
Investment contract liabilities 321,293 314,748 309,556 279,347
Separate account annuities 2,692,614 2,647,266 1,930,590 1,930,590
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies $ 11,422 $ 13 $ 292 $ 11,143
State, municipal and other
government 5,504 274 -- 5,778
Public utilities 14,808 848 80 15,576
Industrial and miscellaneous 173,097 8,889 910 181,076
Mortgage-backed securities 154,748 4,617 619 158,746
-------- ------- ------ --------
Total bonds $359,579 $14,641 $1,901 $372,319
======== ======= ====== ========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government
Public utilities 15,079 940 - 16,019
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
-------- ------- ---- --------
Total bonds $452,474 $28,101 $919 $479,656
======== ======= ==== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1996 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
Due in one year or less $ 25,420 $ 25,667
Due one through five years 91,070 94,377
Due five through ten years 53,798 57,060
Due after ten years 34,543 36,468
-------- --------
204,831 213,572
Mortgage and other asset backed securities 154,748 158,747
-------- --------
$359,579 $372,319
========= ========
34
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Interest on bonds $33,969 $38,624 $37,495
Dividends on equity investments - 30 700
Interest on mortgage loans 559 573 616
Rental income on real estate 919 1,014 1,014
Interest on policy loans 3,339 2,353 1,830
Other investment income 9 328 611
------- ------- -------
Gross investment income 38,795 42,922 42,266
Investment expenses (2,728) (2,031) (2,127)
------- ------- --------
Net investment income $36,067 $40,891 $40,139
======= ======== =======
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
1996 1995 1994
------- -------- -------
Proceeds $122,820 $108,554 $99,241
======= ======== =======
Gross realized gains $ 2,984 $ 1,631 $ 2,019
Gross realized losses 791 1,346 1,362
------- -------- -------
Net realized gains $ 2,193 $ 285 $ 657
======= ======== =======
At December 31, 1996, bonds with an aggregate carrying value of $5,409 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
35
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
REALIZED
--------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
Debt securities $ 2,193 $ 285 $ 657
Equity securities -- -- (1,579)
Mortgage loans -- (1,409) --
Real estate (606) -- --
Other invested assets (4) -- --
------- ------- -------
1,583 (1,124) (922)
Tax effect -- -- 225
Transfer to interest maintenance
reserve (2,394) (554) (436)
------- ------- -------
Net realized losses $ (811) $(1,678) $(1,133)
======= ======= =======
UNREALIZED
---------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
Debt securities $(14,442) $ 36,399 $ 43,354
Common stock (66) (236) 1,009
-------- -------- --------
Change in unrealized appreciation
(depreciation) $(14,508) $ 36,163 $(42,345)
======== ======== ========
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
Unrealized gains $295 $361 $597
Unrealized losses -- -- --
---- ---- ----
Net unrealized gains $295 $361 $597
==== ==== ====
The Company issued no mortgage loans during 1996. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
36
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
During 1996, 1995 and 1994, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1996, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
1996 1995 1994
----------- ----------- -----------
Direct premiums $ 1,034,757 $ 570,413 $ 600,608
Reinsurance assumed 2,063 1,569 1,232
Reinsurance ceded (3,105) (2,084) (1,708)
----------- ----------- -----------
Net premiums earned $ 1,033,715 $ 569,898 $ 600,132
=========== =========== ===========
The Company received reinsurance recoveries in the amount of $2,156, $512 and
$1,146 during 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $974 and $601, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1996 and 1995 of $1,140 and $848,
respectively.
37
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES
The Company files a separate federal income tax return.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
1996 1995 1994
------- ------- -------
Computed tax at federal statutory rate (35%) $ 3,189 $ 5,096 $ 1,190
Deferred acquisition costs - tax basis 7,172 4,241 4,043
Tax reserve valuation (696) (34) (1,353)
Excess tax depreciation (65) (49) (258)
Amortization of IMR (467) (309) (254)
Other, net 164 (28) 38
------- ------- -------
Federal income tax expense $ 9,297 $ 8,917 $ 3,406
======= ======= =======
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1996). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment. An examination is currently underway for years 1994 through 1995.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service, which resulted in a charge to surplus of $1.8 million as a
prior period adjustment.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $11,101 which expire through 2001.
38
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately .04% and 7.7% of life
insurance in force at December 31, 1996 and 1995, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products, primarily
separate accounts, that are not subject to significant mortality or morbidity
risk; however, there may be certain restrictions placed upon the amount of funds
that can be withdrawn without penalty. The amount of reserves on these products,
by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 14,881 1% $ 13,422 1%
Subject to discretionary withdrawal at
book value less surrender charge 63,619 2 60,970 3
Subject to discretionary withdrawal at
market value 2,692,614 89 1,930,590 85
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 239,204 7 227,549 10
Not subject to discretionary withdrawal
provision 17,603 1 20,034 1
----------- -------- ----------- --------
3,027,921 100% 2,252,565 100%
======== ========
Less reinsurance ceded - -
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities $3,027,921 $2,252,565
========== ==========
</TABLE>
39
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts $ 997,513 $ 466,882 $ 534,372
Transfers from separate accounts 339,523 224,416 148,582
--------- --------- ---------
Net transfers to separate accounts 657,990 242,466 385,790
Reconciling adjustments - change in accruals for
investment management, administration fees
and contract guarantees (205,519) (39) 384
========= ========= =========
Transfers as reported in the summary of
operations of the life, accident and health
annual statement $ 452,471 $ 242,427 $ 386,174
========= ========= =========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1996 and 1995, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
GROSS LOADING NET
------- ------- -------
DECEMBER 31, 1996
Ordinary direct first year business $ 40 $ 9 $ 31
Ordinary direct renewal business 1,431 225 1,206
Group life direct business 622 -- 622
Annuity renewal business 94 10 84
------- ------- -------
$ 2,187 $ 244 $ 1,943
======= ======= =======
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 -- 379
Reinsurance ceded (100) -- (100)
------- ------- -------
$ 2,033 $ 246 $ 1,787
======= ======= =======
40
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
At December 31, 1996 and 1995, the Company had insurance in force aggregating
$1,904 and $2,374, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $27 and $32 to cover these deficiencies at December 31, 1996 and
1995, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $2,995 and $3,496
was made for the years ended December 31, 1996 and 1995, respectively, related
to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $581, $505 and $397 for the years ended
December 31, 1996, 1995 and 1994, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $184, $305 and $250 for the years ended
December 31, 1996, 1995 and 1994, respectively.
41
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $98, $86 and
$70 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996, 1995
and 1994, the Company paid $10,038, $8,825 and $7,497, respectively, for such
services, which approximates their costs to the affiliates. The Company provides
office space, marketing and administrative services to certain affiliates.
During 1996, 1995 and 1994, the Company received $3,271, $4,545 and $3,261,
respectively, for such services, which approximates their cost. The Company had
a net receivable (payable) with affiliates of $(19,298) and $4,337 at December
31, 1996 and 1995, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.48% at December 31, 1996. During 1996,
1995 and 1994, the Company paid (received) net interest of $138, $(294) and $49,
respectively, to affiliates.
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company received capital contributions of $45,000 from its immediate parent,
First AUSA Life Insurance Company, in 1994.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,344 and $4,445 and an offsetting premium tax benefit of $1,218 and
$1,319 at December 31, 1996 and 1995, respectively, for its estimated share of
future guaranty fund assessments related to several major insurer insolvencies.
The guaranty fund expense was $212, $1,950 and $618 at December 31, 1996, 1995
and 1994, respectively.
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
SCHEDULE I
AMOUNT AT
WHICH SHOWN
MARKET IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
------------------- --------- -------- -------------
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 91,807 $ 93,675 $ 91,581
State, municipalities and political
subdivisions 1,498 1,533 1,497
Foreign governments 4,006 4,245 4,006
Public utilities 14,852 15,576 14,808
All other corporate bonds 249,093 257,290 247,687
-------- -------- --------
Total fixed maturities 361,256 372,319 359,579
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 302 597 597
-------- -------- --------
Total equity securities 302 597 597
Mortgage loans on real estate 6,049 6,049
Real estate 7,962 7,962
Policy loans 52,604 52,604
Cash and short-term investments 2,480 2,480
-------- --------
Total investments $430,653 $429,271
======== ========
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
44
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
FUTURE POLICY POLICY AND NET BENEFITS OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT AND CLAIMS OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
------------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Individual life $145,964 $7,017 $ 289,375 $ 8,228 $ 47,051 $124,181
Group life and 9,202 713 4,215 3,940 2,529 2,818
health
Annuity 332,230 854 740,125 23,899 281,352 71,576
----------- ------ ---------- ------- -------- --------
$487,396 $8,584 $1,033,715 $36,067 $330,932 $198,575
=========== ====== ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1995
Individual life $ 64,128 $5,811 $ 188,143 $ 9,470 $ 36,032 $ 83,709
Group life 7,904 701 3,365 1,054 2,217 946
Annuity 319,353 100 378,390 30,367 205,375 44,447
----------- ------ ---------- -------- -------- --------
$391,385 $6,612 $ 569,898 $40,891 $243,624 $129,102
=========== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31,
1994
Individual life $ 76,345 $4,501 $ 147,282 $10,146 $ 29,254 $ 71,825
Group life 7,323 481 3,709 372 1,754 1,329
Annuity 314,124 137 449,141 29,621 199,485 44,063
----------- ------ ---------- ------- -------- --------
$397,792 $5,119 $ 600,132 $40,139 $230,493 $117,217
=========== ======= ========== ======= ======== ========
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
45
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Life insurance in force $28,168,880 $ 4,463,986 $ 2,210,601 $25,915,495 8.5%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 292,239 $ 2,863 $ -- $ 289,376 0.0%
Group life and health 2,393 242 2,063 4,214 49.0
Annuity 740,125 -- -- 740,125 0.0
----------- ----------- ----------- ----------- ----------
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1995
Life insurance in force $19,438,203 $ 1,365,119 $ 1,619,378 $19,692,462 8.2%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 189,870 $ 1,727 $ -- $ 188,143 0.0%
Group life 2,153 357 1,569 3,365 46.6
Annuity 378,390 -- -- 378,390 0.0
----------- ----------- ----------- ----------- ----------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=========== =========== =========== =========== ==========
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $ 1,090,845 $ 1,271,402 $14,501,943 8.8%
=========== =========== =========== =========== ==========
Premiums:
Individual life $ 148,766 $ 1,484 $ -- $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 -- -- 449,141 0.0
----------- ----------- ----------- ----------- ----------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=========== =========== =========== =========== ==========
</TABLE>
46
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements for the WRL Series Annuity Account
and Western Reserve Life Assurance Co. of Ohio ("Western
Reserve") are included in Part B.
(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. 5/
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract. 9/
(5) Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract.
(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 Thomas E. Pierpan, Esq. as to
Legality of Securities Being Registered.
(10) (a) Written Consent of Sutherland, Asbill & Brennan,
L.L.P.
(b) Written Consent of Ernst & Young LLP.
(c) Written Consent of Price Waterhouse LLP.
(11) Not Applicable.
(12) Not Applicable.
C-1
<PAGE>
(13) Schedules for Computation of Performance Quotations 6/
(14) Not Applicable.
(15) (a) Powers of Attorney. 7/
(b) Power of Attorney - James R. Walker 8/
- - - -------------------------------------
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 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.
6/ 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.
7/ 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.
8/ 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.
9/ This exhibit was previously filed on Form N-4 dated April 11, 1997 (File
No. 333-24959) and is incorporated herein by reference.
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%)
C-4
<PAGE>
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 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
C-5
<PAGE>
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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<PAGE>
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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<PAGE>
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.
C-8
<PAGE>
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,
C-9
<PAGE>
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 IDEX Series Fund 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.
<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
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunder duly authorized, in the City of Largo,
State of Florida, on this 25th day of June, 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
Pre-Effective Amendment No. 1 to its 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, June 25, 1997
- - - --------------------- Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
<PAGE>
/s/ ALAN M. YAEGER Executive Vice President, June 25, 1997
- - - --------------------- Actuary & Chief Financial Officer
Alan M. Yaeger
/s/ ALLAN J. HAMILTON Vice President, Treasurer June 25, 1997
- - - --------------------- and Controller
Allan J. Hamilton
/s/ PATRICK S. BAIRD Director June 25, 1997
- - - ---------------------
Patrick S. Baird */
/s/ LYMAN H. TREADWAY Director June 25, 1997
- - - ---------------------
Lyman H. Treadway */
/s/JACK E. ZIMMERMAN Director June 25, 1997
- - - ---------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director June 25, 1997
- - - ---------------------
James R. Walker */
*/ /s/ THOMAS E. PIERPAN
---------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
EXHIBIT (5)
Application for Flexible Payment
Variable Accumulation Deferred
Annuity Contract
<PAGE>
[LOGO]
[LOGO]
WESTERN RESERVE LIFE
VARIABLE ANNUITY
APPLICATION
DO NOT COMPLETE THIS APPLICATION FOR ARIZONA, FLORIDA, KENTUCKY,
MINNESOTA, NEW JERSEY, OHIO, OR PENNSYLVANIA
<PAGE>
[LOGO]
APPLICATION INSTRUCTIONS
1 ANNUITANT
Please provide all of the information requested for the Annuitant. The Annuitant
is the person/individual who will receive the Annuity Payments and whose life
expectancy payments are based.
Please provide the Annuitant's Taxpayer Identification Number, this is also
known as the Social Security Number.
2 CONTRACT OWNER
Complete ONLY if Contract Owner is not the same as the Annuitant.
Please provide all of the information requested for the Contract Owner. Should
the Owner be a Trust, a complete trust date must be supplied. If this is to be
an Individual Retirement Annuity, the Contract Owner must be the same as the
Annuitant.
Please provide the Contract Owner's Taxpayer Identification Number. For
individuals, this is the Social Security Number, for Corporations, this is the
Federal Employer Tax Identification Number.
3 JOINT CONTRACT OWNER
NOTE: IF THIS CONTRACT IS INTENDED TO BE AN INDIVIDUAL RETIREMENT ANNUITY
(IRA), A JOINT CONTRACT OWNER IS NOT PERMITTED.
Joint Owners may be named, provided the Joint Owners are husband and wife.
4 BENEFICIARY DESIGNATION
If the Annuitant is also the Owner or if the Owner is not a natural person, and
the annuitant dies before the maturity date, a death benefit is payable. The
Primary Beneficiary, if living, is entitled to receive the death benefit
proceeds. If the Primary Beneficiary is already deceased, the Contingent
Beneficiary, if designated, will receive the death benefit proceeds; otherwise,
the proceeds will be paid to the Owner's estate. The relationship of the
Beneficiary to the Annuitant must be provided. In the event of death of one
Joint Owner, the contract will continue with the surviving Joint Owner as sole
Owner.
5 NAME OF ANNUITY
The Name of Annuity/Product being applied for must be indicated. The Contract
Owner must answer the replacement question. If replacing a life insurance policy
or an annuity contract from another company, please check the box marked "Yes",
and completed the required form(s). If not replacing a policy or a contract,
check the box marked "No."
6 TYPE OF PLAN
Indicate the type of plan being APPLIED FOR.
7 PURCHASE PAYMENTS
Refer to the prospectus for the minimum initial purchase payment, payable by
check, wire transfer*, 1035 Tax Free Exchange, Custodian to Custodian Transfer,
Direct Rollover or a combination thereof. Indicate the initial purchase amount
if enclosed with the application.
* Consult the prospectus for instructions to wire transfer funds to Western
Reserve Life.
8 ALLOCATION OF PURCHASE PAYMENTS
Payments may be allocated to any combination of the available Sub-Accounts, or
the Fixed Account. Please indicate each allocation selected as a whole
percentage of the Purchase Payment; note that the total allocations must equal
100%. Future Purchase Payments will be allocated as shown in this section,
unless Western Reserve Life is notified differently in writing by the Contract
Owner.
9 STATEMENT OF OWNER
The Owner must sign, as indicated, exactly as the name appears in either Item 1,
if Annuitant and Owner are the same, or in Item 2, if Annuitant and Owner are
different. In the event of Joint Owners, the Joint Owners must sign, as
indicated, exactly as the name appears in Item 2 and Item 3. The State in which
the application was written and the date signed are also required.
NOTE: SOME STATES REQUIRE THAT THE CONTRACT OWNER(S) ACKNOWLEDGE A FRAUD WARNING
STATEMENT. PLEASE REFER TO THE FRAUD WARNING STATEMENT ON THE REVERSE SIDE OF
THE APPLICATION.
10 BROKER/DEALER INFORMATION
The Registered Representative signature and the date signed are required.
Complete all of the remaining information by PRINTING CLEARLY. The replacement
question is required to be answered.
<PAGE>
OPTIONAL FEATURE INSTRUCTIONS
11 AUTOMATIC MONTHLY INVESTING
Complete this section if Automatic Monthly Investing by electronic funds is
desired. A voided, unsigned check from the bank account to be debited must be
attached to the application. The amount debited will be allocated according to
the instructions in Section 8 of the Application, or as subsequently changed in
writing by the Owner. Credit Unions and Savings account may not be eligible.
12 TELEPHONE TRANSFER
Your variable annuity contract will automatically receive telephone transfer
privileges described in the applicable prospectus unless instructions to the
contrary are indicated.
Western Reserve Life will not be liable for complying with the 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 Life will employ such procedures to
confirm that the telephone instructions are genuine. If Western Reserve Life
does not employ such procedures, it may be liable for losses due to unauthorized
or fraudulent instructions. Such 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.
ONLY ONE OF THE FOLLOWING OPTIONS MAY BE CHOSEN
13a DOLLAR COST AVERAGING
Complete this section if Dollar Cost Averaging is desired. If selected, Western
Reserve Life will automatically transfer the stated amount(s) from the
designated Sub-Account(s) or the Fixed Account* to the other Sub-Account(s) or
Fixed Account indicated on the chosen date of each month. The "Dollar Cost
Averaging" feature is a long-term investment method which provides for regular,
level investments over time. Western Reserve Life makes no guarantee that the
Dollar Cost Averaging feature, if implemented, will result in a profit or
protect from loss. To complete this section, indicate the Sub-Account(s) or
Fixed Account* from which the Dollar Cost Averaging are to be made, one
Sub-Account or Fixed Account* per "From" line. A minimum of $5,000 must be
allocated in each Sub-Account chosen (or Fixed Account*) at the time this option
is initiated. At least $1,000 in the aggregate must be transferred each month.
* No more than l/lO of the amount in the Fixed Account at the beginning of the
Dollar Cost Averaging can be transferred each month. (Note: This option is not
available if "Automatic Withdrawal or Asset Rebalancing" option is selected.)
13b ASSET REBALANCING
Complete this section if Asset Rebalancing is desired. If selected, Western
Reserve Life will automatically transfer amounts among the chosen Sub-Accounts
on the frequency selected to maintain a desired allocation of the annuity
purchase value among the various Sub-Accounts offered. Western Reserve Life
makes no guarantee that the Asset Rebalancing feature, if implemented, will
result in a profit or protect against loss. To be eligible, a minimum initial
purchase payment of $5,000 must accompany this application. (Note: This option
is not available if 'Automatic Withdrawal or Dollar Cost Averaging' option is
selected.)
13c AUTOMATIC WITHDRAWAL
The Owner(s) may select to withdraw up to 10% of the Contract value annually,
payable in equal monthly installments of at least $200 per month. To be
eligible, a minimum initial payment of $25,000 must accompany this application.
A penalty tax equal to 10% of the amount of the withdrawals treated as taxable
income will generally be imposed on the withdrawals prior to the Owner's age
59-1/2 Withdrawals will be processed on the date specified herein. If the date
an Automatic Withdrawal transaction would otherwise be processed falls on a
non-business day, the Automatic Withdrawal will be processed on the next
business day. For Tax-Qualified contracts, or if the Owner(s) is/are a resident
of a community property state, spousal signature is required. If an alternate
payee is designated, and the payee is a bank account, the Automatic Withdrawal
will be directly deposited by electronic funds transfer. If the payee is not a
bank, please allow 7 to 10 days for receipt of funds by mail. Indicate whether
or not to withhold Federal income tax from the withdrawal payments. (Note: This
option is not available if "Automatic Monthly Investing or Asset Rebalancing"
option is selected.)
14 APPROVAL OF OPTIONAL FEATURES
If any of the Optional Features available in Section(s) 11, 12 and 13 have been
selected, please complete this section by printing and signing your name as
indicated.
FOR ASSISTANCE IN COMPLETING THIS APPLICATION, PLEASE CALL YOUR DEDICATED "800"
LINE AND DIAL EXTENSION 6525 FOR OUR SALES SUPPORT TEAM.
PLEASE MAIL APPLICATION AND CHECK PAYABLE TO:
Western Reserve Life Assurance Co. of Ohio
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758
IF OVERNIGHT DELIVERY:
Western Reserve Life Assurance Co. of Ohio
Attention: Annuity Department
201 Highland Avenue
Largo, Florida 33770
<PAGE>
APP
FW9 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 9051 /bullet/ CLEARWATER, FLORIDA 34618-9051
- - - --------------------------------------------------------------------------------
1 ANNUITANT
[ ] Male
- - - ------------------------------------------ [ ] Female
Name
- - - ------------------------------------------
Address
- - - ------------------------------------------
City State Zip
- - - ------/------/----------------------------
Date of Birth (Mo/Day/Yr) Age
( )
- - - --------------------- -------------------
Daytime Telephone Social Security or
Taxpayer I.D. No.
3 JOINT CONTRACT OWNER (OPTIONAL)
(IF ELECTED - MUST BE SPOUSE OF OWNER)
[ ] Male
- - - ------------------------------------------ [ ] Female
Name
- - - ------------------------------------------
Address
- - - ------------------------------------------
City State Zip
- - - ------/------/----------------------------
Date of Birth (Mo/Day/Yr) Age
( )
- - - --------------------- -------------------
Daytime Telephone Social Security or
Taxpayer I.D. No.
4 BENEFICIARY DESIGNATION
- - - ------------------------------------------
Primary Relationship to Annuitant
- - - ------------------------------------------
Contingent Relationship to Annuitant
(If more than one Primary or Contingent Beneficiary is designated, proceeds
will be divided equally among the survivors within the classification unless
otherwise indicated.)
5 NAME OF ANNUITY (CHECK ONE)
NA WRL Freedom Wealth Accumulator NA WRL Freedom Wealth Builder
XX WRL Freedom Wealth Creator NA Other
---------------------
REQUIRED: WILL THIS ANNUITY REPLACE OR CHANGE ANY EXISTING ANNUITY OR LIFE
INSURANCE?
[ ] Yes [ ] No If Yes, give name of company and policy number below:
- - - ------------------------------------------
Company Name
- - - ------------------------------------------
Policy Number
6 TYPE OF PLAN
[ ] Non-Qualified [ ] SEP/IRA [ ] S.I.M.P.L.E. IRA
[ ] IRA INDICATE THE SOURCE OF IRA BELOW
[ ] Transfer [ ] Conduit [ ] Rollover/Direct Rollover
[ ] Contributory - Tax Year
--------------
[ ] Other
--------------------------------
7 PURCHASE PAYMENTS
MAKE CHECK PAYABLE TO "WESTERN RESERVE LIFE"
Initial Purchase Payment $
-----------------
[ ] Automatic Monthly Investing (Complete preauthorization section)
8 ALLOCATION OF PURCHASE PAYMENTS
Aggressive Growth (Fred Alger) %
- - - ---------------------------------------------------
Emerging Growth (Van Kampen/American Capital) %
- - - ---------------------------------------------------
Growth (Janus Capital) %
- - - ---------------------------------------------------
Global (Janus Capital) %
- - - ---------------------------------------------------
Global Sector Portfolio (Meridian) %
- - - ---------------------------------------------------
C.A.S.E. Growth (C.A.S.E.) %
- - - ---------------------------------------------------
Value Equity (NWQ) %
- - - ---------------------------------------------------
Tactical Asset Allocation (Dean Investment) %
- - - ---------------------------------------------------
Strategic Total Return (Luther King Capital) %
- - - ---------------------------------------------------
Growth & Income (Federated) %
- - - ---------------------------------------------------
Balanced (AEGON USA) %
- - - ---------------------------------------------------
Bond (Janus Capital) %
- - - ---------------------------------------------------
International Equity (GE & Scottish Equitable) %
- - - ---------------------------------------------------
U.S. Equity (GE) %
- - - ---------------------------------------------------
Money Market (J.P.Morgan) %
- - - ---------------------------------------------------
Fixed (See Prospectus for restrictions) %
- - - ---------------------------------------------------
Other %
- - - ---------------------------------------------------
Other %
- - - ---------------------------------------------------
TOTAL 100%
Does Applicant want a Statement of Additional Information? [ ] Yes
9 STATEMENT OF OWNER (IF APPLICABLE, COMPLETE THE FRAUD WARNING ON THE
REVERSE SIDE)
I hereby represent my answers to the above questions are true to the best of my
knowledge and belief. I agree that this application shall be a part of the
annuity contract. I have received a current Prospectus for the contract. I
understand that I should consult my own tax advisor and/or legal counsel as to
the consequences of using this product in conjunction with my own particular tax
or financial plan. I UNDERSTAND THAT UNDER THE CONTRACT APPLIED FOR VALUES MAY
INCREASE OR DECREASE DEPENDING UPON INVESTMENT EXPERIENCE. I also state that the
contract is in accordance with my financial objectives.
* The standard maturity date is the anniversary nearest Annuitant's age 90. The
standard annuity option is variable account life annuity with 120 monthly
payments guaranteed. Option to change election is permitted by the contract.
Under penalty of perjury, I (the owner) certify that my Taxpayer I.D. # is
correct as it appears on the application and that I am not subject to backup
withholding.
- - - ---------------- ----------- ---------------------------
Signed in (State) Date Signed Signature of Contract Owner
- - - ---------------------------------
Signature of Joint Owner (If any)
10 BROKER/DEALER INFORMATION (REGISTERED REPRESENTATIVE USE ONLY)
I certify that (1) the Applicant signed this completed Application in my
presence; (2) I am authorized and qualified to discuss the contract herein
applied for.
- - - -----------------------------------------------------------------------
Registered Representative Signature Date
- - - -----------------------------------------------------------------------
Name of Broker/Dealer Dealer Number Dealer Branch
- - - ------------------------------------------------------------------------
Print RR Name, Agent Number, Production %, State License (if applicable)
[ ] [ ] [ ] [ ] [ ] HIGH MID LEVEL
RR Number Circle
- - - ------------------------------------------------------------------------
Print RR Name, Agent Number, Production %, State License (if applicable)
[ ] [ ] [ ] [ ] [ ] HIGH MID LEVEL
RR Number Circle
REQUIRED: WILL THIS CONTRACT REPLACE OR CHANGE ANY EXISTING LIFE INSURANCE OR
ANNUITY IN THIS OR ANY OTHER COMPANY [ ] YES [ ] NO IF YES, EXPLAIN
<PAGE>
OPTIONAL FEATURES
11 AUTOMATIC MONTHLY INVESTING -ATTACH VOIDED CHECK-
[ ] I authorize the making of Purchase Payments by electronic funds on a
monthly basis, in the amount of $_______ beginning on or about the______ day
of each month. I have attached to this form a voided, unsigned check from
the bank account to be debited. I may notify Western Reserve Life in writing
at the Administrative Office to cancel this authorization at any time.
(Note: Credit unions and savings accounts may not be eligible, please
consult your banking institution.)
12 TELEPHONE TRANSFER (See Prospectus for Telephone Transfer Procedures)
Your variable Annuity contract will automatically receive telephone transfer
privileges described in the prospectus unless instructions to the contrary are
indicated below. These privileges allow you to give the registered
representative of record for your contract authority to make telephone transfers
and to change the allocation of future payments among the Sub-Accounts and the
Fixed Account (restrictions may apply) on your behalf according to your
instructions.
[ ] I do NOT want telephone transfer privileges as described above.
ONLY ONE OF THE FOLLOWING OPTIONS MAY BE CHOSEN
13a DOLLAR COST AVERAGING ("DCA") (Minimum of $5,000 in each Sub-Account or
Fixed Account required.)
I hereby request and authorize Western Reserve Life to transfer funds from the
selected Sub-Account(s) or Fixed Account to invest in the portfolio(s), in the
amount indicated below. The transfers are to be made on the______ day of the
month. The minimum total to be transferred each month is $1,000.
TRANSFER FROM:
$ $ $
- - - -------------- -------------- ----------------
Bond Fixed Account* Money Market
TRANSFER TO:
$
- - - -------------- -------------- ----------------
$
- - - -------------- -------------- ----------------
$
- - - -------------- -------------- ----------------
$
- - - -------------- -------------- ----------------
NOTE: The First transfer will take place the month following the issuance of the
contract. I understand that DCA transfers do not guarantee a profit and do not
protect against a loss. I further understand and agree: (1) Western Reserve Life
shall not be subjected to any claim, loss, liability, cost or expense if it acts
in reliance upon the instructions contained in the authorization; and (2) this
authorization shall not affect the allocation of future net purchase payments;
and (3) once elected, transfers will be processed monthly until the earlier of:
(a) the date the entire value of each Sub-Account or the Fixed Account from
which transfers are made is completely depleted; (b) the date Western Reserve
Life receives written instructions from me at the Administrative office to
cancel the monthly DCA transfers; or (c) the date Western Reserve Life
discontinues this DCA transfer privilege.
* No more than l/l0 of the amount of the Fixed Account at the beginning of the
DCA can be transferred each month.
13b ASSET REBALANCING (Minimum initial purchase payment of $5,000)
I hereby request and authorize Western Reserve Life to automatically transfer
amounts among the chosen Sub-Accounts (as indicated below) on the frequency
selected to maintain a desired allocation of the Annuity Purchase Value among
the various Sub-Accounts offered.
Frequency: [ ] Quarterly [ ] Semi-Annual [ ] Annual
NOTE: Western Reserve Life will effect the initial rebalancing of Cash Value on
the next such anniversary, in accordance with the Contract's current Net
Purchase Payment Allocation schedule. Asset Rebalancing will be processed in the
frequency requested until the earlier of: (a) the date Western Reserve Life
receives written instructions from me at the Administration Office to cancel the
Asset Rebalancing, or (b) the date any transfer is made to, or from, any
Sub-Account, other than a scheduled rebalancing; or (c) the date Western Reserve
Life discontinues this Asset Rebalancing privilege. Asset Rebalancing is not
available for any amounts in the Fixed Account.
13c AUTOMATIC WITHDRAWAL
Subject to the provisions of the prospectus and this authorization, I hereby
request and authorize Western Reserve Life beginning (month/year)
_________/_________ to systematically make withdrawals of $__________ (minimum
$200) per month on the ___________ day of each month from the Sub-Accounts shown
below and to make payment to me unless a different payee is named below.
AUTOMATIC WITHDRAWALS REQUIRE A MINIMUM INITIAL PURCHASE PAYMENT OF $25,000
(FIXED ACCOUNT NOT AVAILABLE) AGGREGATE WITHDRAWAL CANNOT EXCEED 10% OF CASH
VALUE ANNUALLY.
Amounts received as withdrawals from non-tax qualified annuity contracts prior
to the maturity date are first treated as taxable income to the extent of any
gain. Additionally, a penalty tax equal to lO% of the amount treated as taxable
income will generally be imposed on withdrawals made prior to the Owner's age
59-1/2. This authorization applies only to this Western Reserve
Application/Contract being applied for. A separate authorization must be
completed for any additional Variable Annuity Contracts owned. I understand and
agree to the terms and conditions as set forth in the Prospectus.
ALTERNATE PAYEE DESIGNATION If payee is a Bank Account, Attach a Voided Check
for Direct Deposit by electronic funds transfer
NOTE: Provide the following information only if the name of the payee differs
from the Owner. Western Reserve is directed to make the monthly Automatic
Withdrawal Payments to:
- - - -------------------------------------------------------------------------
Payee's Name or Bank (IF PAYEE IS A BANK ACCOUNT, ATTACH A VOIDED CHECK)
- - - --------------------------------------------------------------------------
Bank Account Number
- - - --------------------------------------------------------------------------
Address City State Zip
ELECTION FOR RECIPIENTS OF PERIODIC PAYMENTS-INSTRUCTIONS
Check box A if you do not want any Federal income tax withheld from your Annuity
withdrawal payments. Check box B if you do want Federal income tax withheld from
your Annuity withdrawal payments. THIS SECTION MUST BE COMPLETED, IF AUTOMATIC
WITHDRAWAL ELECTED.
Even if you elect not to have Federal income tax withheld, you are liable for
payment of Federal income tax on the taxable portion of your annuity payments.
You may also be subject to tax penalties under the estimated tax payment rules
if your payment of estimated tax and withholding, if any, is inadequate.
A [ ] I do not want to have Federal income tax withheld from my annuity
withdrawal payments.
B [ ] I wish to have Federal income tax withheld from my annuity withdrawal
payments.
SUB-ACCOUNT WITHDRAWAL ALLOCATION Specify the Sub-Account(s) in percentages for
Asset Rebalancing (The percent % must equal 100%). Specify the Sub-Accounts in
dollar amounts for Automatic Withdrawals (Minimum $200).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$_______ Aggressive Growth _______% $_______ Emerging Growth _______% $_______ Global _______%
$_______ Growth _______% $_______ Strategic Total Return _______% $_______ Balanced _______%
$_______ Bond _______% $_______ Money Market _______% $_______ Value Equity _______%
$_______ Tactical Asset Allocation _______% $_______ International Equity _______% $_______ C.A.S.E. Growth _______%
$_______ Growth & Income _______% $_______ U.S. Equity _______% $_______ Global Sector _______%
$_______ Other _______% $_______ Other _______% $_______ Other _______%
</TABLE>
14 APPROVAL OF OPTIONAL FEATURES
By signing below, I hereby attest that I have selected the options available in
any or all Sections 11, 12 and 13 above, according to the information which I
have entered in each section.
- - - -------------------------------- ----------------------------------
Owner's Name - Please Print Owner's Signature Date
- - - -------------------------------- ----------------------------------
Joint Owner's Name (or) Name of Signature of Joint Owner (or)
Spouse - Please Print Signature of Spouse* Date
* Signature of the Spouses required if the contract is a Tax-Qualified Plan or
if the Owner is a resident of a community property state.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 9051
CLEARWATER, FLORIDA 34618
- - - --------------------------------------------------------------------------------
FRAUD WARNING
THE FOLLOWING STATES REQUIRE THAT CONTRACT OWNERS
ACKNOWLEDGE A FRAUD WARNING STATEMENT.
PLEASE REFER TO THE FRAUD WARNING STATEMENT FOR YOUR STATE AS INDICATED BELOW.
For Contract Owners in It is unlawful to knowingly provide false, incomplete,
COLORADO: or misleading facts or information to an insurance
company for the purpose of defrauding or attempting to
defraud the company. Penalties may include
imprisonment, fines, denial of insurance, and civil
damages. Any insurance company or agent of an insurance
company who knowingly provides false, incomplete, or
misleading facts or information to a policyholder or
claimant for the purpose of defrauding or attempting to
defraud the policyholder or claimant with regard to a
settlement or award payable from insurance proceeds
shall be reported to the Colorado Division of Insurance
within the Department of Regulatory Agencies.
- - - --------------------------- -------------------------------- -------
Signature of Contract Owner Signature of Joint Owner (if any) Date
- - - --------------------------------------------------------------------------------
For Contract Owners in Any person who knowingly and with intent to injure,
FLORIDA: defraud, or deceive any insurer files a statement of
claim or an application containing any false,
incomplete, or misleading information is guilty of a
felony in the third degree.
- - - --------------------------- -------------------------------- -------
Signature of Contract Owner Signature of Joint Owner (if any) Date
- - - --------------------------------------------------------------------------------
For Contract Owners in Any person who with intent to defraud or knowing that
KENTUCKY and OHIO: he is facilitating a fraud against an insurer, submits
an application or files a claim containing a false or
deceptive statement is guilty of insurance fraud.
- - - --------------------------- -------------------------------- -------
Signature of Contract Owner Signature of Joint Owner (if any) Date
- - - --------------------------------------------------------------------------------
For Contract Owners in Any person who includes any false or misleading
NEW JERSEY: information on an application for an insurance policy
is subject to criminal and civil penalties.
- - - --------------------------- -------------------------------- -------
Signature of Contract Owner Signature of Joint Owner (if any) Date
EXHIBIT (9)
Opinion and Consent of
Thomas E. Pierpan, Esq.
As to Legality of Securities Being Registered
<PAGE>
WRL Letterhead
June 26, 1997
Board of Directors
Western Reserve Life Assurance
Co. of Ohio
WRL Series Annuity Account
201 Highland Avenue
Largo, Florida 33770
Gentlemen:
In my capacity as Vice President and Associate General Counsel of Western
Reserve Life Assurance Co. of Ohio ("WRL"), I have participated in the
preparation and review of a Pre-Effective Amendment to the Registration
Statement on Form N-4 to be filed with the Securities and Exchange Commission
(Reg. No. 333-24959) under the Securities Act of 1933 for the registration of
flexible payment variable accumulation deferred annuity contracts (the
"Contracts") to be issued with respect to the WRL Series Annuity Account (the
"Account"). The Account was established on April 12, 1988, by the Board of
Directors of WRL as a separate account for assets applicable to the Contracts,
pursuant to the provisions of Section 3907.15 of the Ohio Revised Code.
I am of the following opinion:
1. WRL has been duly organized under the laws of Ohio and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Ohio law.
3. Section 3907.15 of the Ohio Revised Code provides that the portion of
the assets of the Account equal to the reserves and other liabilities
for variable benefits under the Contracts is not chargeable with
liabilities arising out of any other business WRL may conduct. Assets
allocated to the Fixed Account under the Contracts, however, are part
of WRL's general account and are subject to WRL's general liabilities
from business operations.
<PAGE>
Western Reserve Life Assurance
Co. of Ohio
June 26, 1997
Page Two
4. The Contracts, when issued as contemplated by the Registration
Statement, will be legal and binding obligations of WRL in accordance
with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ THOMAS E. PIERPAN
- - - --------------------------
Thomas E. Pierpan
Vice President and
Associate General Counsel
EXHIBIT 10(a)
Written Consent of Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
S.A.&B. letterhead
June 26, 1997
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
201 Highland Avenue
Largo, FL 34640
RE: WRL Series Annuity Account
FILE NO. 333-24959
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information contained in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-24959)
of the WRL Series Annuity Account filed by Western Reserve Life Assurance Co. of
Ohio with the Securities and Exchange Commission. In giving this consent, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ STEPHEN E. ROTH
-------------------------
Stephen E. Roth
EXHIBIT 10(b)
Written Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Accountants" and to the use of our report dated February 21, 1997, with respect
to the statutory-basis financial statements and schedules of Western Reserve
Life Assurance Co. of Ohio included in Pre-Effective Amendment No. 1 to the
Registration Statement (Form N-4 No. 333-24959) and related Prospectus of WRL
Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
June 24, 1997
EXHIBIT 10(c)
Written Consent of Price Waterhouse LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of the WRL Freedom Wealth Creator Pre-Effective Amendment No.
1 to the Registration Statement on Form N-4 of our report dated January 31,
1997, relating to the financial statements in the December 31, 1996 Annual
Report of the sub-accounts constituting the WRL Freedom Bellwether and WRL
Freedom Conqueror Contracts of the WRL Series Annuity Account, which appears in
the Statement of Additional Information. We also consent to the reference to us
under the heading "Independent Accountants" in the Statement of Additional
Information.
Price Waterhouse LLP
Kansas City, Missouri
June 26, 1997
