As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 33-49556
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 53 [X]
(Check appropriate box or boxes)
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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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
-----------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on DECEMBER 31, 1997, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on DATE, pursuant to paragraph (a) of Rule 485
<PAGE>
WRL SERIES ANNUITY ACCOUNT
POST-EFFECTIVE AMENDMENT NO. 10 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
(See Appendix A
to the Prospectus)
5. General Description of
Registrant, Depositor,
and Portfolio Companies..................Western Reserve, the Series
Account, and the Fund; 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 Fund; 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
WRL FREEDOM ATTAINER PROSPECTUS
<PAGE>
<TABLE>
<S> <C>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
WRL
201 HIGHLAND AVENUE
LARGO, FLORIDA 33770
FREEDOM (800) 851-9777
(813) 585-6565
ATTAINER/registered trademark/
This Prospectus describes the WRL Freedom Attainer/registered trademark/ Variable Annuity (the
Flexible Payment "Contract"), a tax deferred variable annuity contract issued by Western Reserve
Variable Accumulation Life Assurance Co. of Ohio ("Western Reserve").
Deferred Annuity
Contract 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 sixteen 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 sixteen
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, U.S. Equity Portfolio
and Third Avenue Value 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 January 1, 1998, which is incorporated
PROSPECTUS DATED herein by reference. The Statement of Additional Information is available upon
January 1, 1998 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.
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.
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
DEFINITIONS OF SPECIAL TERMS .......................................... 1
SUMMARY ............................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS .............................. 7
OTHER PERFORMANCE DATA ................................................ 7
/bullet/ Sub-Adviser Performance .................................... 8
/bullet/ Other Information .......................................... 8
PUBLISHED RATINGS ...................................................... 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ..................... 9
/bullet/ Western Reserve Life Assurance Co. of Ohio .................. 9
/bullet/ WRL Series Annuity Account ................................. 9
/bullet/ WRL Series Fund, Inc ....................................... 10
CHARGES AND DEDUCTIONS ................................................ 11
/bullet/ Withdrawal Charge .......................................... 11
/bullet/ Transfer Charge ............................................. 12
/bullet/ Mortality and Expense Risk Charge ........................... 12
/bullet/ Annual Contract Charge .................................... 12
/bullet/ Administrative Charge ....................................... 12
/bullet/ Premium Taxes ............................................. 12
/bullet/ Deductions for Other Taxes ................................. 12
/bullet/ Expenses of the Fund ....................................... 13
THE CONTRACT
ACCUMULATION PROVISIONS ............................................. 13
/bullet/ Purchase Payments .......................................... 13
/bullet/ Net Purchase Payments ....................................... 13
/bullet/ Accumulation Unit Value .................................... 14
/bullet/ Computing Sub-Account Value ................................. 14
/bullet/ Transfers to and from, and among Allocation Options ......... 14
/bullet/ Dollar Cost Averaging ....................................... 15
/bullet/ Asset Rebalancing Program ................................. 16
/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 ................................................... 20
/bullet/ Maturity Date and Selection of Annuity Options ............ 20
/bullet/ Fixed Account Annuity Options .............................. 21
/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 ................................................... 22
/bullet/ Annuitant ................................................... 22
/bullet/ Beneficiary ................................................ 22
/bullet/ Modification or Waiver .................................... 22
FEDERAL TAX MATTERS ................................................... 22
/bullet/ Introduction ................................................ 22
/bullet/ Company Tax Status .......................................... 23
/bullet/ Taxation of Annuities ....................................... 23
/bullet/ Qualified Plans ............................................. 24
/bullet/ Additional Considerations ................................. 25
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 ......................................................... 28
LEGAL PROCEEDINGS ...................................................... 28
STATEMENT OF ADDITIONAL INFORMATION .................................... 28
APPENDIX A - Condensed Financial Information ........................... A-1
</TABLE>
<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 34618-9051. Telephone
number: 1-800-851-9777; Fax number: 1-800-572-0159.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive an-
nuity payments. The Annuitant may be changed as provided in the Contract's
death benefit provisions and annuity provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the
Annuity Value on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain
Sub-Accounts after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the
Contract remains In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and any Withdrawal
Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT
BENEFICIARY The person named in the application, or subsequently designated, to become the
new Beneficiary upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the
date that the properly completed application is received at Western Reserve's
Administrative Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any
Anniversary thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that
provides for accumulation of Net Purchase Payments, and options for annuity
payments on a fixed basis. For Contracts issued in the States of New Jersey and
Washington, the Fixed Account is used solely for Contract loans, and is not avail-
able for allocation of Net Purchase Payments or transfers of Annuity Value from
the Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Ac-
count.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise
all rights under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to
commence.
NET PURCHASE
PAYMENT The Purchase Payment less any applicable premium taxes.
</TABLE>
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
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.
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
SEPARATE ACCOUNT) several Sub-Accounts established to receive and invest Net Purchase Payments
not allocated to the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a
Contract, which value is equal to the total of the values allocable to a Contract in
each of the Sub-Accounts during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a
specified Portfolio and supports the Contracts. Sub-Accounts corresponding to
each applicable Portfolio hold assets under the Contract during the Accumulation
Period. Other Sub-Accounts corresponding to each applicable Portfolio will hold
assets after the Maturity Date if a Series Account annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The period commencing at the end of one Valuation Date and continuing to the
end of the next succeeding Valuation Date.
</TABLE>
2
<PAGE>
SUMMARY
This summary provides you with an overview of the tax deferred variable annuity
contract offered by Western Reserve and funded by the Series Account and the
Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be purchased
by submitting a completed application to Western Reserve for its approval. The
Contract provides for accumulation of Annuity Values on a variable basis, a
fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. (See
"THE CONTRACT -- ACCUMULATION PROVISIONS" on page 13 and "--ANNUITY PROVISIONS"
on page 20.) (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 sixteen
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, U.S. Equity Portfolio and Third Avenue Value Portfolio.
Western Reserve reserves the right to offer additional investment portfolios or
other mutual funds with differing investment objectives. (See "WESTERN RESERVE,
THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 10.)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects. The
initial Purchase Payment generally must accompany the application, and for
Non-Qualified Contracts must be at least $5,000; however, a minimum initial
Purchase Payment of $1,000 is allowed provided the application reflects
anticipated additional monthly periodic Purchase Payments of at least $100, via
electronic funds transfer from the Owner's bank account. For Individual
Retirement Annuities ("IRAs"), the minimum initial Purchase Payment is $1,000.
For Qualified Contracts other than IRAs, the minimum initial Purchase Payment
is $50. For all Contracts, subsequent Purchase Payments must be at least $50,
unless Western Reserve consents to a smaller amount. The maximum amount of
Purchase Payments that may be made in any Contract Year is $1,000,000, unless
Western Reserve consents to a larger amount. Western Reserve reserves the right
to reject any Purchase Payment for any reason permitted by law. (See
"ACCUMULATION PROVISIONS--Purchase Payments" on page 13.)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $10,000. (See "THE
CONTRACT -- ACCUMULATION PROVISIONS -- 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
page 24.)
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A Withdrawal
Charge, which is a contingent deferred sales charge, may, however, be assessed
against Annuity Value when partially withdrawn or surrendered.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or Surrender of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of the amount of
each Purchase Payment partially withdrawn or surrendered within five years of
its payment. In determining which amounts withdrawn are subject to the
Withdrawal Charge, partial withdrawals and Surrenders will be deemed made first
from Purchase Payments on a first-in, first-out basis and then from any
Contract earnings. The charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- ------ ---------------------
<S> <C>
6% 0-2
4% 3
3% 4
2% 5
Over 5
0%
</TABLE>
For the first withdrawal or series of Systematic Partial Withdrawals during
each Contract Year, the Withdrawal Charge is waived for the first 10% of the
Annuity Value that otherwise would be subject to the Withdrawal Charge. No
Withdrawal Charge will be assessed if Annuity Values are applied to any annuity
option under the Contract. (See "CHARGES AND DEDUCTIONS--Withdrawal Charge" on
page 11.) Additionally, a 10% penalty tax under Code Section 72(q) is currently
imposed on partial withdrawals or Surrenders from Non-Qualified Contracts if
such partial withdrawals or Surrenders are made
3
<PAGE>
prior to age 591/2 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, during the
Accumulation Period, Western Reserve imposes a 1.10% per annum charge against
all Annuity Value held in the Series Account. After the Maturity Date, the
charge will equal 1.25% per annum of all Annuity Value held in the Series
Account. (See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on
page 12.)
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $30 is deducted annually on each Contract
Anniversary. (See "CHARGES AND DEDUCTIONS--Annual Contract Charge", page 12.)
ADMINISTRATIVE CHARGE
Western Reserve imposes a daily Administrative Charge equal to an annual rate
of 0.15% against all Annuity Value held in the Series Account. (See "CHARGES
AND DEDUCTIONS--Administrative Charge" on page 12.)
PREMIUM TAXES
No deduction is made for premium taxes unless Western Reserve incurs a premium
tax under state law. Certain states impose premium taxes ranging up to 3.5% of
Purchase Payments, (See "CHARGES AND DEDUCTIONS--Premium Taxes" on page 12.)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 10
and
the Prospectus for the Fund.) TOTAL FUND ANNUAL EXPENSES FOR THE GLOBAL SECTOR
PORTFOLIO EXCEED 2.00%.
OTHER CONTRACTS
Western Reserve offers other variable annuity contracts which also invest in
the same Portfolios of the Fund. These contracts may have different charges
that could affect Sub-Account performance, and may offer different benefits
more suitable to your needs. To obtain more information about these contracts,
contact your agent, or call (800) 851-9777.
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract during
the Accumulation Period, as well as the fees and expenses of the Fund.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases ............ None
Maximum Withdrawal Charge
(as a % of each Purchase Payment
surrendered or partially withdrawn within
5 years of receipt) ..................... 6%
Transfer Charge
On first 12 transfers each year ............ None
On each transfer thereafter ............... $10.00
ANNUAL CONTRACT CHARGE ..................... $30.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average account value)
DURING ACCUMULATION PERIOD
Mortality and Expense Risk Charge ......... 1.10%
Administrative Charge ..................... 0.15%
Total Separate Account Annual Expenses ...... 0.25%
AFTER ACCUMULATION PERIOD
Mortality and Expense Risk Charge ......... 1.25%
Administrative Charge ..................... 0.15%
Total Separate Account Annual Expenses ...... 1.40%
</TABLE>
- --------------------------------------------------------------------------------
Fund Annual Expenses* (as a % of Fund average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Management Fees ........................... 0.80% 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ...... 0.18% 0.14% 0.08% 0.19%
Total Fund Annual Expenses ............... 0.98% 0.94% 0.88% 0.99%
<CAPTION>
GLOBAL C.A.S.E.
BALANCED SECTOR VALUE EQUITY GROWTH
PORTFOLIO PORTFOLIO** PORTFOLIO** PORTFOLIO
----------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Management Fees ........................... 0.80% 1.10% 0.80% 0.80%
Other Expenses (after reimbursement) ...... 0.17% 1.27% 0.20% 0.20%
Total Fund Annual Expenses ............... 0.97% 2.37% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC GROWTH & MONEY
BOND TOTAL RETURN INCOME MARKET
PORTFOLIO*** PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
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%
<CAPTION>
TACTICAL THIRD
ASSET INTERNATIONAL AVENUE
ALLOCATION EQUITY U.S. EQUITY VALUE
PORTFOLIO PORTFOLIO** PORTFOLIO** PORTFOLIO**
------------ --------------- ------------- ------------
<S> <C> <C> <C> <C>
Management Fees .................. 0.80% 1.00% 0.80% 0.80%
Other Expenses (after
reimbursement) .................. 0.10% 0.30% 0.25% 0.13%
Total Fund Annual Expenses ...... 0.90% 1.30% 1.05% 0.93%
</TABLE>
- --------------
* 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, 1998. Prior to ISI seeking
reimbursement, Policyowners will be notified in advance.
** Because the Value Equity and Global Sector Portfolios commenced operations
on May 1, 1996 the "Other Expenses" and "Total Fund Annual Expenses" are
annualized. Because the International Equity and U.S. Equity Portfolios
commenced operations on January 2, 1997 and the Third Avenue Value
Portfolio commenced operations on January 2, 1998, the percentages set
forth as "Other Expenses" and "Total Fund Annual Expenses" are estimates.
*** Effective January 1, 1998, the management fees for the Bond Portfolio will
be reduced from 0.50% to 0.45% of the Portfolio's average daily net
assets. On December 16, 1997, Western Reserve received an Order from the
Securities and Exchange Commission ("SEC") approving the substitution of
shares of the Bond Portfolio for shares of the Short-to-Intermediate
Government Portfolio. On December 16, 1997, the substitution was effected
in accordance with the SEC Order. As a result of the substitution,
investments in the former Short-to-Intermediate Government Sub-Account
were automatically transferred to the Bond Sub-Account on that date and
the Short-to-Intermediate Government Sub-Account ceased to exist.
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, U.S. Equity and Third
Avenue Value Portfolios are estimates. Expenses of the Fund may be higher or
lower in the future. Certain states and other governmental entities may impose
a premium tax, which the Table does not include. For more information on the
charges described in this Table, see "CHARGES AND DEDUCTIONS" on page 11 and
the Fund Prospectus which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30, 1998,
to pay Fund expenses on behalf of the Portfolios to the extent normal operating
expenses of a Portfolio exceed the following percentage of a Portfolio's
average daily net assets: 0.70% for the Bond and Money Market Portfolios; 0.93%
for the Third Avenue Value Portfolio; 1.00% for the Aggressive Growth, Emerging
Growth, Growth, Global, Balanced, Strategic Total Return, Growth & Income,
Tactical Asset Allocation, Value Equity and 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 ............... $84 $112 $144 $266
Emerging Growth Sub-Account ............... 83 111 142 262
Growth Sub-Account ........................ 83 109 139 255
Global Sub-Account ........................ 84 113 145 267
Balanced Sub-Account ........................ 83 112 144 265
Strategic Total Return Sub-Account ......... 83 110 141 259
Bond Sub-Account ........................... 80 102 127 231
Growth & Income Sub-Account ............... 84 113 145 268
Money Market Sub-Account .................. 79 98 121 218
Tactical Asset Allocation Sub-Account ...... 83 110 140 258
Value Equity Sub-Account .................. 84 113 145 268
C.A.S.E. Growth Sub-Account ............... 84 113 145 268
Global Sector Sub-Account .................. 97 153 212 396
International Equity Sub-Account ............ 87 122 N/A N/A
U.S. Equity Sub-Account ..................... 84 115 N/A N/A
Third Avenue Value Sub-Account ............ 85 118 N/A N/A
</TABLE>
5
<PAGE>
2. If you annuitize or do not surrender at the end of the applicable time
period (note that annuitization is not available prior to a Contract's
fifth Anniversary):
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- ------------------- ----------------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ............... $24 $ 72 $124 $266
Emerging Growth Sub-Account ............... 23 71 122 262
Growth Sub-Account ........................ 23 69 119 255
Global Sub-Account ........................ 24 73 125 267
Balanced Sub-Account ........................ 23 72 124 265
Strategic Total Return Sub-Account ......... 23 70 121 259
Bond Sub-Account ........................... 20 62 107 231
Growth & Income Sub-Account ............... 24 73 125 268
Money Market Sub-Account .................. 19 58 101 218
Tactical Asset Allocation Sub-Account ...... 23 70 120 258
Value Equity Sub-Account .................. 24 73 125 268
C.A.S.E. Growth Sub-Account ............... 24 73 125 268
Global Sector Sub-Account .................. 37 113 192 396
International Equity Sub-Account ............ 27 82 N/A N/A
U.S. Equity Sub-Account ..................... 24 75 N/A N/A
Third Avenue Value Sub-Account ............ 25 78 N/A N/A
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $30 ANNUAL CONTRACT CHARGE BASED ON AN
AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $33,136, WHICH CONVERTS THAT
CHARGE TO AN ANNUAL RATE OF 0.09% OF THE SERIES ACCOUNT VALUE.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
DEATH BENEFIT
If the Annuitant is also the Owner or if the Owner is not a natural person, and
the Annuitant dies at any time before the Maturity Date, a death benefit will
be provided, unless certain elections have been made that would keep the
Contract In Force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 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 20.)
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 States of New Jersey and 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.) Twelve transfers are permitted without charge
in a Contract Year. Each additional transfer will be subject to a transfer
charge of $10. This charge will not be increased. Certain restrictions apply to
transfers from the Fixed Account. Western Reserve may, at any time, revoke or
modify the transfer privilege. (See "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 history of the Sub-Accounts is
presented in Appendix A - Condensed Financial Information.
6
<PAGE>
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 = 3.79%
Effective Yield = 3.86%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Account"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Account over a specified thirty day period expressed as
a percentage rate of return for that period. The yield is calculated by
assuming that the income produced by the investment during that thirty day
period is produced each thirty day period over a twelve month period and is
shown as a percentage of the Series Account Value. Based on the method of
calculation described in the Statement of Additional Information, for the
thirty day period ended December 31, 1996, the yield for the Bond Sub-Account
was 4.12%.
TOTAL RETURN
The 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 1.10%, the Administrative Charge of 0.15%
and the $30 Annual Contract Charge based on an average Series Account Value of
$33,136, which translates into an annual charge of 0.09%. 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 ..................... 10.29% 14.13% 9.32% 16.44% 2/24/89
Bond ........................ -7.26% 1.94% 5.00% 7.78% 2/24/89
Money Market ............... -2.31% 2.01% 2.14% 3.60% 2/24/89
Global ..................... 19.98% 13.80% N/A 18.80% 12/3/92
Emerging Growth ............ 11.24% 14.81% N/A 17.88% 3/1/93
Strategic Total Return** . 7.44% 9.97% N/A 11.16% 3/1/93
Aggressive Growth ............ 2.95% N/A N/A 12.37% 3/1/94
Balanced ..................... 3.24% N/A N/A 4.94% 3/1/94
Growth & Income*** ......... 4.14% N/A N/A 7.49% 3/1/94
Tactical Asset Allocation . 6.88% N/A N/A 13.12% 1/3/95
C.A.S.E. Growth ............ N/A N/A N/A 1.76% 5/1/96
Value Equity ............... N/A N/A N/A 6.18% 5/1/96
Global Sector ............... N/A N/A N/A -0.87% 5/1/96
</TABLE>
- -----------------------------
* 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.
Because the International Equity, U.S. Equity and Third Avenue Value
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 present the total return data shown above on a non-standard
basis. This means that the data will not be reduced by all the fees and charges
under the Contract and that the data may be presented for different time
periods and for different Purchase Payment amounts. NON-STANDARD PERFORMANCE
DATA WILL ONLY BE DISCLOSED IF STANDARD PERFORMANCE DATA FOR THE REQUIRED
PERIODS IS ALSO DISCLOSED.
Western Reserve may also disclose cumulative total returns and yields for the
Sub-Accounts based on the inception date of the Sub-Accounts. These
calculations will be determined according to the formulas presented in the
Statement of Additional Information.
In addition, Western Reserve may present historic performance data for the
Portfolios since their inception reduced by some or all of the fees and charges
under the Contract. Such adjusted historic performance includes data that
precedes the inception dates of the Sub-Accounts. This data is designed to show
the performance that would have resulted if the Contract had been in existence
during that time.
7
<PAGE>
For instance, as shown in the table below, Western Reserve may disclose average
annual total returns 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 1.10%, the Administrative
Charge of 0.15% and the $30 Annual Contract Charge (based on an average Series
Account Value of $33,136, the Annual Contract Charge is translated into an
annual charge of 0.09%), and Withdrawal Charges. Such data assumes a complete
surrender of the Contract at the end of the period; THEREFORE THE WITHDRAWAL
CHARGE IS DEDUCTED.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL THE FEES AND CHARGES UNDER THE CONTRACT ARE:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEAR YEARS YEARS INCEPTION DATE
- ------------------- ----------- ----------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Growth*** ......... 10.29% 14.13% 9.32% 16.40% 16.08% 10/2/86*
Bond*** ......... -7.26% 1.94% 5.00% 5.96% 6.19% 10/2/86*
Money
Market*** ...... -2.31% 2.01% 2.14% 3.58% 3.57% 10/2/86*
Global ............ 19.98% 13.80% N/A N/A 18.80% 12/3/92**
Emerging
Growth ......... 11.24% 14.81% N/A N/A 17.88% 3/1/93**
Strategic Total
Return**** ...... 7.44% 9.97% N/A N/A 11.16% 3/1/93**
Aggressive
Growth ......... 2.95% N/A N/A N/A 12.37% 3/1/94**
Balanced ......... 3.24% N/A N/A N/A 4.94% 3/1/94**
Growth &
Income***** . 4.14% N/A N/A N/A 7.49% 3/1/94**
Tactical Asset
Allocation ...... 6.88% N/A N/A N/A 13.12% 1/3/95**
C.A.S.E.
Growth ......... 9.92% N/A N/A N/A 15.57% 5/1/95*
Value Equity ...... N/A N/A N/A N/A 6.18% 5/1/96**
Global Sector . N/A N/A N/A N/A -0.87% 5/1/96**
<FN>
- -----------------------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of the Sub-Account.
*** 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.
**** 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>
In addition, as shown in the next table, Western Reserve may present average
annual total returns for the Portfolios reduced by all fees and charges under
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 1.10%, the Administrative Charge of 0.15% and the
$30 Annual Contract Charge based on an average Series Account Value of $33,136,
the Annual Contract Charge is translated into an annual charge of 0.09%.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIO SINCE THEIR INCEPTION REDUCED
BY ALL FEES AND CHARGES UNDER THE CONTRACT EXCEPT THE WITHDRAWAL CHARGE ARE:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
SUB-ACCOUNT YEAR YEAR YEARS YEARS INCEPTION DATE
- ------------------ ----------- ----------- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Growth ......... 16.29% 15.14% 9.59% 16.40% 16.08% 10/2/86*
Bond ............ -1.26% 3.21% 5.32% 5.96% 6.19% 10/2/86*
Money Market ... 3.69% 3.27% 2.51% 3.58% 3.57% 10/2/86*
Global ......... 25.98% 14.82% N/A N/A 19.23% 12/3/92**
Emerging
Growth ......... 17.24% 15.81% N/A N/A 18.53% 3/1/93**
Strategic Total
Return*** ...... 13.44% 11.06% N/A N/A 11.93% 3/1/93**
Aggressive
Growth ......... 8.95% N/A N/A N/A 14.05% 3/1/94**
Balanced ......... 9.24% N/A N/A N/A 6.84% 3/1/94**
Growth &
Income**** ... 10.14% N/A N/A N/A 9.31% 3/1/94**
Tactical Asset
Allocation ... 12.88% N/A N/A N/A 15.76% 1/3/95**
C.A.S.E. Growth 15.92% N/A N/A N/A 21.57% 5/1/95*
Value Equity ... N/A N/A N/A N/A 12.18% 5/1/96**
Global Sector ... N/A N/A N/A N/A 5.11% 5/1/96**
</TABLE>
- -----------------------------
* Commencement of operations of the Fund's Portfolio.
** 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.
Because the International Equity, U.S. Equity and Third Avenue Value
Sub-Accounts had not yet 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"). 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 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
8
<PAGE>
Investment Technologies, Inc. ("CDA") and Morningstar, Inc. ("Morningstar"), or
other services, companies, individuals or other industry or financial
publications of general interest, such as FORBES, MONEY, THE WALL STREET
JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE and FORTUNE.
Lipper, VARDS, 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, Lehman Hutton Bond Index, Russell 3000, Morgan Stanley Capital
International World Index, FT World Index, Lehman Brothers Government/Corporate
Bond Index, Donoghue's Taxable Money Fund Average and others. Unmanaged indices
may assume the reinvestment of dividends, but usually do not reflect any
"deduction" for the expense of operating or managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate
indices measuring the performance of a defined group of securities widely
recognized by investors as representing a particular segment of the securities
markets. For example, Sub-Account performance may be compared with Donoghue
Money Market Institutional Averages (money market rates), Lehman Brothers
Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
PUBLISHED RATINGS
Western Reserve may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc.("Moody's"), Standard & Poor's
Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps Credit
Rating Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings reflect their
current opinion on the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. Standard & Poor's and Duff & Phelps provide ratings which measure the
claims-paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(i.e., debt/ commercial paper).
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on October
1, 1957. Western Reserve is engaged in the business of writing life insurance
policies and annuity contracts. Western Reserve is admitted to do business in
49 states and the District of Columbia. The Administrative Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
9051, Clearwater, FL 34618-9051. Western Reserve is wholly-owned by First AUSA
Life Insurance Company ("First AUSA"), a stock life insurance company which is
wholly-owned by AEGON USA, Inc. ("AEGON USA"). AEGON USA is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON USA is a wholly-owned indirect
subsidiary of AEGON nv, a Netherlands corporation, which is a publicly traded
international insurance group.
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
9
<PAGE>
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 seventeen Sub-Accounts, sixteen 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 SEC under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management investment company.
The Fund currently has seventeen Portfolios, sixteen 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, U.S. Equity
Portfolio and Third Avenue Value 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.
On December 16, 1997, after receiving an Order from the SEC, Western Reserve
redeemed shares of the Short-to-Intermediate Government Portfolio held by the
Short-to-Intermediate Government Sub-Account and purchased shares of the Bond
Portfolio with the proceeds. Immediately following the substitution of shares,
the assets of the Short-to-Intermediate Government Sub-Account were transferred
to the Bond Sub-Account, thereby consolidating the Short-to-Intermediate
Government Sub-Account into the Bond Sub-Account. The Portfolio substitutions
and Sub-Account consolidation took place at net asset value with no change in
the amount of any Owner's death benefit or dollar value of his or her
investment in the Series Account. Western Reserve and its affiliates did not
receive any compensation or remuneration as a result of this transaction.
The name and sub-adviser for each Portfolio is stated below. THERE IS NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT OBJECTIVE. More
detailed information, including a description of risks and the investment
objective of each Portfolio, can be found in the Prospectus for the Fund, which
should be read carefully before investing.
AGGRESSIVE GROWTH PORTFOLIO: Sub-Adviser - Fred Alger Management, Inc.
EMERGING GROWTH PORTFOLIO: Sub-Adviser - Van Kampen American Capital Asset
Management, Inc.
GROWTH PORTFOLIO: Sub-Adviser - Janus Capital Corporation.
GLOBAL PORTFOLIO: Sub-Adviser - Janus Capital Corporation.
BALANCED PORTFOLIO: Sub-Adviser - AEGON USA Investment Management, Inc.
STRATEGIC TOTAL RETURN PORTFOLIO: (Prior to May 1, 1997, this Portfolio was
known as Equity-Income.) Sub-Adviser - Luther King Capital Management
Corporation.
BOND PORTFOLIO: Sub-Adviser - AEGON USA Investment Management, Inc.
GROWTH & INCOME PORTFOLIO: (Prior to May 1, 1997, this Portfolio was known as
Utility.) 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.
THIRD AVENUE VALUE PORTFOLIO: Sub-Adviser - EQSF Advisers, Inc.
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 quidelines estabished by the
Board of Directors of the Fund.
Shares of Portfolios of the Fund are also 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,
PFL Endeavor Platinum Variable Annuity Account and PFL
10
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Variable Annuity Account A, separate accounts of PFL Life Insurance Company,
the AUSA Endeavor Variable Annuity Account and to 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 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 the amount of each Purchase Payment
partially withdrawn or surrendered within five years of its payment. The charge
is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- -------------- ---------------------
<S> <C>
6% ......... 0-2
4% ......... 3
3% ......... 4
2% ......... 5
0% ......... Over 5
</TABLE>
For Contracts issued with an appropriate endorsement, if the 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 the states of Pennsylvania and Texas.
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 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 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
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<PAGE>
Owner would receive $100, the total Annuity Value partially withdrawn would be
$106.38, and the Withdrawal Charge would be $6.38 (which is 6% of $106.38). 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
page 23 and "--Qualified Plans" on page 24.)
The Withdrawal Charge may be reduced when sales of Contracts are made to a
group of directors, officers and employees of the same employer (including
directors, officers and employees of Western Reserve and its affiliates), as
outlined in the following paragraph. The amount of reduction will depend on
factors such as the size of the group, total Purchase Payments, and other
relevant factors that might tend to reduce expenses incurred in connection with
such sales.
TRANSFER CHARGE
After twelve free transfers of Annuity Value among the Sub-Accounts during any
one Contract Year, each additional transfer will be subject to a Transfer
Charge of $10, which 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, with any transfer charge allocated
equally. The Transfer Charge will not be increased. Western Reserve may, at any
time, revoke or modify this transfer privilege.
MORTALITY AND EXPENSE RISK CHARGE
During the Accumulation Period, Western Reserve will deduct a daily Mortality
and Expense Risk Charge from the Series Account at an annual rate of 1.10% of
the average daily net assets of the Series Account. After the Maturity Date,
Western Reserve will deduct a daily Mortality and Expense Risk Charge from the
Series Account at an annual rate of 1.25% of the average daily net assets of
the Series Account. Western Reserve assumes two mortality risks: (1) that the
annuity rates under the Contracts cannot be changed to the detriment of Owners
even if Annuitants live longer than projected; and (2) Western Reserve may be
obligated to pay a death benefit claim in excess of a Contract's Cash Value.
(See "ANNUITY PROVISIONS--Improved Annuity Rates" on page 21 and "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 18.) Western
Reserve also assumes an expense risk through its guarantee not to increase the
charges for issuing and administering the Contracts and the Series Account,
regardless of its actual expenses.
This charge is deducted from the Series Account both during the Accumulation
Period and after the Maturity Date. The Mortality and Expense Risk Charge will
not be assessed against either the Fixed Account Value or monies that have been
applied to purchase a Fixed Account annuity option.
ANNUAL CONTRACT CHARGE
On each Anniversary through the Maturity Date, Western Reserve will deduct an
Annual Contract Charge of $30 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 $30 fee will be deducted.
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 party, under an arrangement which results in a savings in
administrative service expenses. Even if administrative expenses of the Account
increase, Western Reserve guarantees that it will not increase the amount of
the Annual Contract Charge.
ADMINISTRATIVE CHARGE
Western Reserve deducts a daily Administrative Charge from values remaining in
the Series Account at an annual rate of 0.15% of the average daily net assets
of the Series Account for the cost of providing administrative services under
the Contracts and the Account. This charge is deducted from the Series Account
both during the Accumulation Period and after the Maturity Date. Even if
administrative expenses of the Contract and the Account increase, Western
Reserve guarantees that it will not increase the amount of the Administrative
Charge.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax,
ranging up to 3.5% of Purchase Payments. If applicable, and if Western Reserve
has incurred or reasonably expects to incur expenses in respect of premium
taxes, the tax will be deducted, either from the Purchase Payment when
received, from amounts partially withdrawn or surrendered, from death benefit
proceeds, or from the amount applied to effect an annuity at the time annuity
payments commence. Western Reserve will deduct any applicable premium taxes
when it incurs them, but reserves the right to defer deduction to a later date
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
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<PAGE>
made. (See "FEDERAL TAX MATTERS--Company Tax Status" on page 23.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Portfolios of the Fund, the
net assets of the Series Account will reflect the investment management fee and
other expenses incurred by the Portfolios of the Fund, as described in the
Prospectus for the Fund.
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-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, 1998. Prior to ISI seeking
reimbursement, Policyowners will be notified in advance.
THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase
Payments after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany
the application, and for Non-Qualified Contracts must be at least $5,000;
however, a minimum initial Purchase Payment of $1,000 is allowed provided the
application reflects anticipated additional monthly periodic Purchase Payments
of at least $100, via electronic funds transfer from the Owner's bank account.
For IRAs the minimum initial Purchase Payment is $1,000 and for Qualified
Contracts other than IRAs the minimum initial Purchase Payment is $50. For all
Contracts, subsequent Purchase Payments are not required but may be made at any
time and in any amount provided that each payment is for a minimum of $50,
unless Western Reserve consents to a smaller amount and further provided that
total Purchase Payments in any Contract Year do not exceed $1,000,000, unless
Western Reserve consents to a larger amount.
As an accommodation to Owners, Western Reserve will accept transmittal of both
initial and subsequent Purchase Payments of at least $1,000 by wire transfer.
For initial Purchase Payments, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission of an application ("FAXED
Application"). Initial Purchase Payments accepted via wire transfer with FAXED
Application will be invested at the value next determined following receipt.
Initial Purchase Payments made by wire transfer not accompanied by simultaneous
FAXED Application, or accompanied by an incomplete FAXED application, will be
retained for a period up to five business days while Western Reserve attempts
to obtain the FAXED Application or complete the essential information required
to establish the Contract and allocate the initial Purchase Payment at the
Accumulation Unit Value which will be determined after receipt of the FAXED
Application or information necessary to complete the application. If Western
Reserve cannot obtain the FAXED Application or essential information within
five business days, Western Reserve will return the initial Purchase Payment to
the applicant, unless the applicant consents to allow Western Reserve to retain
the initial Purchase Payment until the required FAXED Application or essential
information is received. When the FAXED Application contains all information
necessary to issue the Contract and allocate the Net Purchase Payment, but the
FAXED Application has not been signed by the Owner, Western Reserve will issue
the Contract and allocate the Net Purchase Payment as indicated in the FAXED
Application. At the same time, Western Reserve will also electronically prepare
a new application form, containing the same information received on the FAXED
Application, for delivery with the Contract to the Owner. Upon delivery, the
Owner will sign the electronically prepared application, which will be retained
by Western Reserve.
In the event the original application with original signature is later received
and the allocation instructions in that application are, for any reason,
inconsistent with those previously designated on the FAXED Application, the
initial Purchase Payment will be reallocated in accordance with the allocation
instructions in the application with original signature at the Accumulation
Unit Value next determined after receipt of such application.
Owners wishing to make payments via bank wire should instruct their banks to
wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention:Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any reason
permitted by law.
NET PURCHASE PAYMENTS
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "Premium Taxes," page 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 does not currently require that allocation of Net
Purchase
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<PAGE>
Payments to an Account meet a minimum percentage. Western Reserve does reserve
the right to limit allocation of Net Purchase Payments to any Account to no
less than 10% of each Net Purchase Payment. No fractional percentages are
permitted. (For Contracts issued in the States of New Jersey and 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" on this page.) If the Contract application and other
information necessary for processing the request to apply the Purchase Payment
(collectively "application") are complete upon receipt, Western Reserve will
accept the application and apply the initial Net Purchase Payment within two
business days of receipt. If it is incomplete, Western Reserve will attempt to
have it properly completed within five business days of receipt, and if unable
to do so, Western Reserve will inform the prospective purchaser of the reasons
that the application is incomplete and request that the prospective purchaser
consent to Western Reserve retaining the Purchase Payment until the application
is properly completed. If such consent is not obtained, Western Reserve will
immediately return the entire Purchase Payment. Once the application is
complete, Western Reserve will accept it and apply the initial Net Purchase
Payment within two business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund
Portfolio owned by the Sub-Account times the Portfolio's net asset value
per share; minus
2. The accrued daily percentage for the Administrative Charge and 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 1.10% of
net assets for each day in the Valuation Period and compensates Western Reserve
for certain mortality and expense risks. The Administrative Charge is deducted
at an annual rate of 0.15% of net assets for each day in the Valuation Period
and compensates Western Reserve for certain administrative expenses. (See
"CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on page 12 and "--
Administrative Charge" on page 12.) The Accumulation Unit Value may increase,
decrease, or remain the same from Valuation Period to Valuation Period.
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated
to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account or
the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any transfer charges.
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 States of New Jersey and 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.
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<PAGE>
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 the close of the regular business session, 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 the close of
the regular business session, 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. 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. Written requests must be in a form acceptable to Western
Reserve. 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 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 $10 charge for each transfer after the
first twelve transfers during any 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 automatically transfer specified
amounts from the Money Market Sub-Account, the Bond Sub-Account, the Fixed
Account or any combination of these Accounts on a monthly basis to any other
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss.
To qualify for Dollar Cost Averaging, a minimum of $10,000 must be in 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 other certain
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
15
<PAGE>
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.
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 $10,000 for an
existing Contract, or a minimum initial purchase payment of $10,000 for a new
Contract, is required, unless Western Reserve consents to a smaller amount. To
participate in the Asset Rebalancing Program, a properly completed Asset
Rebalancing Request Form must be received by Western Reserve at its
Administrative Office. An Asset Rebalancing Request Form is available upon
request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or annual
anniversary of the Contract Date. Following receipt of the Asset Rebalancing
Request Form, Western Reserve will effect the initial rebalancing of Annuity
Value on the next such anniversary, in accordance with the Contract's current
Net Purchase Payment allocation schedule. The amounts transferred will be
credited at the Accumulation Unit Value as of the end of the Valuation Dates on
which the transfers are made. If a day on which rebalancing would ordinarily
occur falls on a day on which the New York Stock 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 verbal 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.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
PARTIAL WITHDRAWALS AND SURRENDERS
1. PARTIAL WITHDRAWALS. Prior to the earlier of the Maturity Date or the death
of the Annuitant (when no contingent Annuitant has been named), the Owner may
partially withdraw a portion of the Series Account Value upon written request,
complete with all necessary information, to Western Reserve's Administrative
Office. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $10,000. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page 27.) All
requests for partial withdrawals are processed at the Accumulation Unit Value
for each Sub-Account next computed after receipt and acceptance of the request
by Western Reserve at its Administrative Office. Western Reserve will cancel
units equal to the amount requested from each Sub-Account, and an amount equal
to the Withdrawal Charge and any premium tax will also be withdrawn in order
for the Owner to receive the full amount requested. (See "CHARGES AND
DEDUCTIONS--Withdrawal Charge" on page 11 and "--Premium Taxes" on page 12.)
The Sub-Accounts for a partial withdrawal may be specified and the amount
requested to be withdrawn from each specified Sub-Account may not exceed the
value of that Sub-Account. If not specified, the amount requested will be
withdrawn on a pro rata basis from each Sub-Account.
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,
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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 $10,000.
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 Systematic
Partial Withdrawal made prior to the Owner's age 591/2, unless certain
exceptions apply. The Owner should, therefore, consult with his or her tax
advisor before requesting any Systematic Partial Withdrawals. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 23-24.)
Systematic Partial Withdrawals are not available if the Owner has elected
Dollar Cost Averaging or the Asset Rebalancing Program. 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.
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 from the Surrender proceeds the $30 Annual
Contract Charge, any applicable premium taxes, and any applicable Withdrawal
Charge.
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 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 overnight mail
expenses, for expediting delivery of a partial withdrawal or Surrender payment
to a Contract Owner, Western Reserve will deduct such charges from the payment.
The current charge for overnight delivery is $20. For the protection of Owners,
all requests for partial withdrawals or Surrenders of more than $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, Policyowners may call Western Reserve at (800) 851-9777. Partial
withdrawals and Surrenders may be subject to tax including a penalty
tax. (See "FEDERAL TAX MATTERS--Taxation of Annuities" on pages 23-24.) For
certain Qualified Contracts, a partial withdrawal may require the consent of
the Owner's spouse under the Code and the regulations promulgated thereunder by
the Treasury Department (the "Treasury Regulations"). (See "FEDERAL TAX
MATTERS--Oualified Plans" on pages 24-25.) For Qualified Contracts issued under
Code Section 403(b) and Contracts issued under the Texas Optional Retirement
Program, certain restrictions will apply. (See "FEDERAL TAX MATTERS--Qualified
Plans" on pages 24-25.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the Accumulation
Period, (1) Owners of Contracts used in connection with a Tax Sheltered Annuity
Plan ("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not
subject to the Employee Retirement Income Security Act of 1974, and (2) Owners
of Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a Section
401(k) plan, where a plan trustee is the Owner, may elect a Contract loan
endorsement under which the Owner can receive Contract loans. The availability
of Contract loans will also be governed by the provisions of the TSA Plans or
401 Plans involved. An Owner of a Contract used in connection with a TSA Plan
or 401 Plan may be subject to income tax or tax penalties if loans from the
plan are not repaid in accordance with applicable provisions of the Code. In
addition, Internal Revenue Service authorities suggest that a Contract loan
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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
1-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 value each bears to the Annuity Value. Amounts
transferred to the loan reserve do not participate in the investment experience
of the Sub-Accounts 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 to one per 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
701/2. If a loan installment repayment is not received within 31 days from the
installment's original due date, a deemed distribution of the entire amount of
the outstanding loan principal, 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
If the Annuitant dies during the Accumulation Period and the Owner is a natural
person other than the Annuitant, the Owner will automatically become the new
Annuitant, the Contract will continue In Force and no death benefit will be
payable to the Beneficiary. If the Annuitant dies during the Accumulation
Period and an Owner is either the same individual as the Annuitant or other
than a natural person, Western Reserve will pay the death benefit proceeds to
the Beneficiary in a lump sum upon receipt of due proof of death, unless a
written Alternative Election, as described below, is made.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND PRIOR TO THE SIXTH
CONTRACT YEAR and an 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
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from the Contract to pay for partial withdrawals, increased by 5% on each
Contract Anniversary prior to the Owner's age 80 (Annuitant's age 80 if the
Owner is not a natural person), up to an amount not to exceed 200% of the
Purchase Payments less partial withdrawals.
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND AFTER THE FIFTH
CONTRACT YEAR and an 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 partially withdrawn from the Contract to pay for partial
withdrawals, increased by 5% on each Contract Anniversary prior to the Owner's
age 80 (Annuitant's age 80 if the Owner is not a natural person), up to an
amount not to exceed 200% of the Purchase Payments less partial withdrawals; or
(iii) the Annuity Value as of the fifth Contract Anniversary, less any amounts
partially withdrawn from the Contract after the fifth Contract Year to pay for
partial withdrawals. In certain states, the calculation of death benefit
proceeds under item (iii) may vary. The Contract should be consulted for
details.
The Insurance Departments of Missouri, New Jersey, Pennsylvania, South Carolina
and Washington have disapproved for Contracts issued in these States that
portion of item (ii) of the death benefit provision described in the two
preceding paragraphs, which increases the death benefit payable by 5% on each
Contract Anniversary. Therefore, for Contracts issued in these States, when the
amount of death benefit payable under the Contract is the excess of (a) the
amount of Purchase Payments paid less (b) any amounts partially withdrawn from
the Contract to pay for partial withdrawals, such amount of death benefit will
not be increased by 5% on each Contract Anniversary.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit proceeds 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.
Under 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 a
partial withdrawal. Further partial withdraw- als 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 Contract values among Sub-Accounts and to the
Fixed Account, and trans- fers from the Fixed Account to the
Sub-Accounts;
/bullet/ 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 Con- tract value, according to its
value at the time of payment, to the Beneficiary's estate, unless a
Con- tingent Beneficiary has been named by the Owner, in which event
payment will be made to the Contin- gent 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 20.)
4. DEATH OF AN OWNER WHO IS NOT AN ANNUITANT
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Successor Owner 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 Successor Owner 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 Successor Owner has been named, is alive and is not the Owner's
spouse, the Successor Owner will become the new Owner. The Cash Value must be
distributed either:
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(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person, with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new Owner,
if a natural person, with payments beginning within one year of the former
Owner's death.
5. QUALIFIED CONTRACTS
If a Qualified Contract is issued to a retirement plan, similar provisions will
apply upon the death of the plan participant. However, the required
distribution rules are more complex in the case of a Qualified Contract held by
a plan. Plan participants should consult a qualified pension or tax advisor
concerning the operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-Qualified Contracts and Qualified
Contracts, the Anniversary nearest the Annuitant's Attained Age 90. However,
the Owner may change the Maturity Date at any time prior to the Maturity Date
by written request. Any new Maturity Date must be at least five years after the
Contract Date, and the Attained Age of the Annuitant as of the new Maturity
Date cannot be greater than 90. After the Maturity Date, no additional purchase
payments, partial withdrawals, transfers, full Surrenders, or change of
Annuitants or annuity options may be made under the Contract. The Qualified
Contract is designed for use with several types of qualified plans. A tax
advisor should be consulted about the use of a Qualified Contract with
qualified plans, including the specified minimum distribution rules applicable
to such plans.
Annuity Payments will be paid under Option D (described on page 21), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
Thirty days prior to the Maturity Date, Western Reserve will mail to the Owner
a notice and a form upon which the Owner can select Allocation Options for the
Annuity Proceeds as of the Maturity Date, which cannot be changed thereafter
and will remain in effect until the Contract terminates. If a Series Account
annuity option is chosen, the Owner must include in the written notice the
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 sixteen Sub-Accounts
designated to support annuity payments by purchasing units issued in connection
with one or more of these Sub-Accounts. The number of units purchased is equal
to the amount of the first annuity payment allocated to a particular
Sub-Account divided by the Annuity Unit Value for that Sub-Account on the
Maturity Date. The number of units of a particular Sub-Account supporting
payments to an Annuitant never changes, but the second and subsequent payments
will vary with the Annuity Unit Value because each payment will equal the
number of units in each selected Sub-Account multiplied by the Annuity Unit
Value of that Sub-Account on the date the payment is processed. Annuity
Proceeds allocated to Series Account annuity options are subject to a daily
Mortality and Expense Risk Charge of 1.25% per annum and a daily Administrative
Charge of 0.15% per annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity payments,
is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Fund Portfolio would be calculated (see "THE
CONTRACT--ACCUMULATION PROVISIONS," page 13) (except that the Mortality and
Expense Risk Charge is at an annual rate of 1.25% of the average daily net
assets
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of the Series Account), and then is adjusted to reflect a 5% assumed investment
return. The adjustment results in the Annuity Unit Value increasing to the
extent that the net investment factor increases at greater than an annual rate
of 6.4%. It results in the Annuity Unit Value decreasing to the extent that the
net investment factor decreases or increases at less than an annual rate of
6.4%. Consequently, if, for a monthly periodic payment, the net investment
experience of a Sub-Account for a given month exceeds an annual rate of 6.4%,
the monthly payment from that Sub-Account will be greater than the previous
payment. Likewise, if the net investment experience for that month is less than
an annual rate of 6.4%, the payment will be less than the previous payment.
FIXED ACCOUNT ANNUITY OPTIONS
The following options are available for payment of fixed account monthly
annuity payments.
OPTION A--FIXED INSTALLMENTS. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
OPTION B--LIFE INCOME. The Annuity Proceeds will be paid in equal installments:
(1) during the lifetime of the Annuitant only ("Life Annuity"); (2) during a 10
year fixed period certain and for the remaining lifetime of the Annuitant
("Certain Period"); or (3) until the sum of installments paid equals the
Annuity Proceeds applied and for the remaining life of the Annuitant
("Installment Refund").
OPTION C--JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be paid
during the joint lifetimes of the Annuitant and a designated Co-Annuitant and
will continue upon the death of the first payee for the remaining lifetime of
the survivor.
SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds will
be used to purchase 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
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reasonably practicable. Transfers may also be postponed under these
circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule Page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of the
Owner prior to the death of the Annuitant. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period - 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 pages 23-24.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and shall not be responsible for the validity or effect of
any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior
designation of Successor Owner, but it does not change the Beneficiary or
Annuitant.
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 the person or persons named in the application or as
subsequently changed. The Beneficiary may be changed during the lifetime of the
Annuitant, subject to the rights of any irrevocable Beneficiary. Any change
must be made in writing and received at Western Reserve's Administrative Office
and, if accepted, will be effective as of the date on which signed by the
Owner. Western Reserve assumes no liability for any payments made or actions
taken before the change is received and shall not be responsible for the
validity or effect of the change. Prior to the Maturity Date, if no Beneficiary
survives the Annuitant, the Owner, if living, or the Owner's estate will be the
Beneficiary. The interest of any Beneficiary is subject to that of any
assignee. In the case of certain Qualified Contracts, the Treasury Regulations
prescribe certain limitations on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the contrary,
no Beneficiary may assign any payments under the Contract before such payments
are due. To the extent permitted by law, no payments under the Contract will be
subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. Only
statements in the application can be used to void the Contract or defend a
claim. The statements are considered representations and not warranties. No
Contract provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provision of the Contract.
The Contract may not be modified by Western Reserve without the consent of the
Owner, except as may be required to make it conform to any law or regulation or
ruling issued by a governmental agency or to improve the rights and/or benefits
under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans, 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
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Federal income taxes as they relate to the Fund, please see the accompanying
Prospectus for the Portfolios.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Because the Series Account is not an entity separate from
Western Reserve and its operations form a part of Western Reserve, it will not
be taxed separately as a "regulated investment company" under Subchapter M of
the Code. Investment income and realized capital gains on the assets of the
Series Account are reinvested and taken into account in determining the Annuity
Value. Western Reserve believes that under existing Federal income tax law, the
Series Account's investment income, including realized net capital gains, will
not be taxed to Western Reserve. Based upon this belief, it is anticipated that
no charges will be made against the Series Account for Federal income tax. If
any such charge is made, a Contract's Annuity Value will reflect a deduction
for the charge. Western Reserve reserves the right to make a deduction from the
assets of the Series Account should any tax or other economic burden resulting
from the application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. IN GENERAL. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is 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 age 591/2, (2) made as a result of death of the
Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
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distributed in a lump sum, they are taxed in the same manner as a full
Surrender of the Contract, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as Annuity Payments, as
described above. For these purposes, the investment in the Contract is not
affected by the Owner's or Annuitant's death. That is, the investment in the
Contract remains the amount of any Purchase Payments paid which were not
excluded from gross income.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts entered
into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, an Owner should consult a
competent tax advisor before purchasing more than one Contract or other annuity
contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership or
assignment of a Contract, the designation of an Annuitant or other Beneficiary
who is not also the Owner, the selection of certain Maturity Dates, or a change
of Annuitant, may result in certain income or gift tax consequences to the
Owner that are beyond the scope of this discussion. An Owner contemplating any
such transfer, assignment, selection, or change should contact a competent tax
advisor in respect to the potential tax effects of such a transaction.
8. POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
that would have adversely modified the Federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
Prospectus Congress is not considering any legislation regarding the taxation
of annuities, there is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as the IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be effective prior to the date of the change.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions (including special rules
for certain lump sum distributions). Adverse tax consequences may result from
contributions in excess of specified limits, distributions prior to age 591/2
(subject to certain exceptions), distributions that do not conform to specified
minimum distribution rules, aggregate distributions in excess of a specified
annual amount, and in certain other circumstances. Therefore, Western Reserve
makes no attempt to provide more than general information about use of the
Contract with the various types of qualified plans. Owners and participants
under qualified plans as well as Annuitants and Beneficiaries are cautioned
that the rights of any person to any benefits under qualified plans may be
subject to the terms and conditions of the plan themselves, regardless of the
terms and conditions of the Contract issued in connection therewith. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into our Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Purchasers of Contracts for use with any
qualified plan should seek competent legal and tax advice regarding the
suitability of the Contract therefor.
1. (A) SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be subject
to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions, and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
591/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
(B) RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAMS. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program (ORP) to withdraw their interest in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
2. INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA." Individual
Retirement Annuities are subject to limitation on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into an IRA on a tax deferred basis. The Service has not reviewed the
Contract for qualification as an IRA,
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and has not addressed in a ruling of general applicability whether a death
benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
3. CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and permit self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Contracts to provide benefits under the
plans. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments.
4. DEFERRED COMPENSATION PLANS. Section 457 of the Code, although not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with
such plans. Such plans may permit a participant to specify the form of
investment in which his or her participation will be made. In general, for
non-governmental plans, such investments, however, are owned by, and are
subject to, the claims of the general creditors of the sponsoring employer.
Depending on the terms of the particular plan, a non-governmental employer may
be entitled to draw on deferred amounts for purposes unrelated to its section
457 plan obligations. In general, all amounts received under a section 457 plan
are taxable and are subject to federal income tax withholding as wages.
5. DISTRIBUTIONS FROM QUALIFIED PLANS. Under the tax qualification rules for
Section 401(a), 403(b), 408 and 457 plans, distributions generally must
commence no later than the later of April 1 of the calendar year following the
calendar year in which the Owner (or plan participant) (i) reaches age 701/2,
or (ii) retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), distributions
generally must begin no later than the date described in (i). Special rules and
other restrictions may apply depending on the type of plan and the particular
circumstances. Each Owner is responsible for requesting distributions under the
Contract that satisfy applicable tax rules, and should consult a qualified tax
advisor.
6. RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
The above description of Federal income tax consequences pertaining to the
different types of qualified plans that may be funded by the Contracts is only
a brief summary and is not intended as tax advice. The rules governing the
provisions of qualified plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for qualified plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of a
Contract in connection with a qualified plan should first consult a qualified
and competent tax advisor with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the investments of
the Series Account must be "adequately diversified" in accordance with Treasury
Regulations in order for the Contracts to qualify as annuity contracts under
Section 72 of the Code. The Series Account, through the Fund, intends to comply
with the diversification requirements prescribed by the Treasury in Reg. Sec.
1.817.5, which affect how the Fund's assets may be invested. Western Reserve
believes the Series Account will, thus, meet the diversification requirements
of Section 817(h). If the Series Account does not meet those diversification
requirements, Owners would be taxed currently on any investment income under
the Contract.
In certain circumstances, owners of variable annuity con- tracts 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
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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 five years after the
Owner's date of death. These requirements will be considered satisfied if the
entire interest of the Contract is used to purchase an immediate annuity under
which payments will begin within one year of the Owner's death and will be made
for the life of the Beneficiary or for a period not extending beyond the life
expectancy of the Beneficiary. The Owner's Beneficiary is the person to whom
ownership of the Contract passes because of death and must be a natural person.
(In the Contract, the successor owner is the Owner's Beneficiary.) If the
Beneficiary is the Owner's surviving spouse, the Contract may be continued with
the surviving spouse as the new Owner. Non-Qualified Contracts will be reviewed
and modified if necessary to attempt to assure that they comply with the Code
requirements when clarified by regulation or otherwise. Other rules may apply
to Qualified Contracts.
3. WITHHOLDING. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring
withholding. Effective January 1, 1993, certain distributions from Section
401(a), 403(a) and 403(b) plans are subject to mandatory withholding.
4. SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered Contract was issued prior to August 14, 1982, the tax rules
that formerly provided that the Surrender was taxable only to the extent the
amount received exceeds the Owner's investment in the Contract will continue to
apply to amounts allocable to investment in the Contract before August 14,
1982. In contrast, Contracts issued on or after January 19, 1985 in a Code
Section 1035 exchange are treated as new Contracts for purposes of the penalty
and distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective purchasers wishing to take advantage of
Code Section 1035 should consult their tax advisors.
5. DIVERSIFICATION AND QUALIFIED PLANS. Code Section 817(h) applies to variable
annuity contracts other than pension plan contracts. The regulations reiterate
that the diversification requirements do not apply to pension plan contracts.
All of the qualified retirement plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (I.E., the Fund) will be structured
to comply with the diversification standards because it serves as the
investment vehicle for Non-Qualified Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the States of New Jersey and Washington have
disapproved, for Contracts issued in New Jersey and 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 nor any interests therein are generally subject to the provisions of
these acts, and Western Reserve has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
Disclosure regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 4%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. Western Reserve has no specific formula for determining
current interest rates. Some of the factors that Western Reserve may consider,
in its sole
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discretion, in determining whether to credit interest in excess of the 4%
guaranteed rate are: general economic trends, rates of return currently
available and anticipated on the company's investments, regulatory and tax
requirements, and competitive factors. The Fixed Account Value will not share
in the investment performance of the company's general account or any portion
thereof. Because Western Reserve, at its sole discretion, anticipates changing
the current interest rate from time to time, different allocations to and from
the Fixed Account Value will be credited with different current interest rates.
Western Reserve further guarantees that when a higher or lower current interest
rate is declared on an allocation to the Fixed Account Value, that new interest
rate will be guaranteed on such allocation for at least a one year period
measured from the date of each Purchase Payment or transfer (the "Guarantee
Period"). At the end of the Guarantee Period, Western Reserve reserves the
right to declare a new current interest rate on such allocation and accrued
interest thereon (which may be a different current interest rate than the
current interest rate on new allocations to the Fixed Account Value on that
date). The rate declared on such allocation and accrued interest thereon at the
end of each Guarantee Period will be guaranteed again for another Guarantee
Period. At the end of any Guarantee Period, any interest credited on the Fixed
Account Value in excess of the minimum guaranteed rate of 4% per year will be
determined in the sole discretion of Western Reserve. The Owner assumes the
risk that interest credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting interest
from time to time, provided that such changes will not have the effect of
reducing the guaranteed rate of interest below 4% per annum.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
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 ISI, 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
have been retained by ISI for acting as principal underwriter for the
Contracts. Western Reserve will generally pay broker-dealers first year sales
commissions in an amount no greater than 5% of Purchase Payments. In addition,
broker-dealers may receive renewal commissions at an annual rate equal to an
amount no greater than 0.20% (twenty one-hundredths of one percent) of the
Annuity Value as of each Contract Anniversary, beginning with the first
Contract Anniversary, providing the Policy has an Annuity Value of $25,000 or
more on each Anniversary. Certain production, persistency and managerial
bonuses may also 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.
27
<PAGE>
VOTING RIGHTS
To the extent required by law, Western Reserve will vote the Fund shares held
in the Series Account at shareholder meetings of the Fund in accordance with
instructions received from persons having voting interests in the corresponding
Sub-Accounts of the Series Account. Except as required by the 1940 Act, the
Fund does not hold regular or special shareholder meetings. If the 1940 Act or
any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result Western Reserve determines that it is
permitted to vote the Fund shares in its own right, it may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated
separately for each Sub-Account, and will be determined during the Accumulation
Period by dividing the portion of the Annuity Value in that Sub-Account by
$100. Fractional shares will be counted. After the Maturity Date, the number of
votes that an Annuitant has the right to instruct will be calculated based on
the liability for future variable annuity payments. This liability will be
calculated on the basis of the mortality assumptions used in determining the
number of units purchased by the Annuitant. Because this liability generally
declines as any Annuitant ages, the number of votes attributable to that
Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the right
to instruct will be determined as of the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions are
received and Fund shares that are not attributable to Owners in proportion to
the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain on any item to
be voted upon will reduce the votes eligible to be cast by Western Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Series Account is a
party or to which the assets of the Series Account are subject. Western Reserve
is not involved in any litigation that is of material importance in relation to
its total assets or that relates to the Series Account. ISI, the Series
Account's principal underwriter, is not presently a party to any legal
proceedings that are likely to have a material adverse effect upon its ability
to perform its contract with the Series Account.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 34618-9051; telephone number (800) 851-9777.
WRL05024-01/98
28
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED 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 ............ $ 20.848 $ 21.071 26,351,578
Bond ............ 13.894 14.650 3,565,475
Money Market ...... 11.681 11.888 3,459,934
</TABLE>
<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>
Global ............... 10.000 10.152 25,000
Short-to-
Intermediate
Government/dagger/ . 10.000 10.036 85,000
</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 .................. $ 21.071 $ 21.640 51,102,682
Bond .................. 14.650 16.400 10,252,041
Money Market ............ 11.888 12.030 6,109,073
Global .................. 10.152 13.540 16,946,574
Short-to-
Intermediate
Government/dagger/ . 10.036 10.360 4,497,755
</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 $ 12.370 12,707,276
Strategic Total
Return** ...... 10.000 11.250 11,975,467
</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 .................. $ 21.640 $ 19.595 3,115,147
Bond .................. 16.400 15.076 744,082
Money Market ............ 12.030 12.294 1,443,347
Global .................. 13.540 13.403 3,414,543
Short-to-
Intermediate
Government/dagger/ . 10.360 10.192 454,524
Emerging
Growth ............... 12.370 11.315 2,416,688
Strategic Total
Return** ............ 11.250 11.055 3,041,559
</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 $ 9.792 403,363
Balanced ......... 10.000 9.348 382,988
Growth &
Income*** ...... 10.000 9.463 243,051
</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 .................. $ 19.595 $ 28.471 3,502,872
Bond .................. 15.076 18.312 782,376
Money Market ............ 12.294 12.799 1,155,403
Global .................. 13.403 16.289 3,252,745
Short-to-
Intermediate
Government/dagger/ . 10.192 11.429 469,460
Emerging Growth. 11.315 16.403 2,705,009
Strategic Total
Return** ............ 11.055 13.610 3,629,843
Aggressive Growth 9.792 13.347 1,805,793
Balanced ............... 9.348 11.060 499,597
Growth &
Income*** ............ 9.463 11.705 547,514
</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 $11.861 1,261,509
</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 .................. $ 28.471 $ 33.168 4,146,053
Bond .................. 18.312 18.110 897,671
Money Market ............ 12.799 13.287 1,695,656
Global .................. 16.289 20.548 4,631,785
Short-to-
Intermediate
Government/dagger/ . 11.429 11.680 417,939
Emerging Growth. 16.403 19.258 3,400,959
Strategic Total
Return** ............ 13.610 15.457 4,433,972
Aggressive Growth 13.347 14.558 2,277,536
Balanced ............... 11.060 12.094 639,226
Growth &
Income*** ............ 11.705 12.905 553,607
Tactical Asset
Allocation ............ 11.861 13.403 2,708,476
</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 $ 11.225 728,916
Global Sector ...... 10.000 10.519 63,376
C.A.S.E. Growth . 12.874 13.883 150,091
</TABLE>
- -----------------------------
/dagger/ Prior to December 17, 1997, the Short-to-Intermediate Government
Sub-Account was offered for investment under the Contract, and,
therefore, is included in the Condensed Financial Information and
financial statements. However, the Short-to-Intermediate Government
Sub-Account is no longer available for investment.
* Commencement of operations for these Sub-Accounts.
** 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.
Because the International Equity and U.S. Equity Sub-Accounts did not commence
operations until January 2, 1997 and the Third Avenue Value Sub-Account did not
commence operations until January 2, 1998, 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
WRL FREEDOM ATTAINER STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
WRL SERIES ANNUITY ACCOUNT
WRL FREEDOM ATTAINER/registered trademark/
Flexible Payment Variable
Deferred Annuity Contract
Issued by
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
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 Attainer/registered trademark/ Prospectus,
dated January 1, 1998, which is available without charge by contacting Western
Reserve Life Assurance Co. of Ohio ("Western Reserve") at P. 0. Box 9051,
Clearwater, Florida 34618-9051 at the telephone number above.
January 1, 1998
WRL00027-01/98
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Custodian ................................................ 3
Independent Accountants ................................. 3
Legal Matters ............................................. 3
Calculation of Performance Related Information ............ 3
Addition, Deletion, and Substitution of Investments ...... 6
Calculation of Variable Annuity Payments .................. 6
Financial Statements .................................... 7
</TABLE>
2
<PAGE>
CUSTODIAN
The assets of WRL Series Annuity Account (the "Series Account") are held
by Western Reserve. The assets of the Series Account are kept physically
segregated and held apart from the general account and any other separate
accounts of Western Reserve. WRL Investment Services, Inc. maintains records of
all purchases and redemptions of shares of the WRL Series Fund, Inc. (the
"Fund"). Additional protection for the assets of the Series Account is provided
by a blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in
the amount of $5 million (subject to a $1 million deductible), covering all of
the employees of AEGON U.S. and its affiliates, including Western Reserve. A
Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc., provides
additional fidelity coverage to a limit of $12 million.
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 LLP, 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
preexisting 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
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
3
<PAGE>
base period. Such fees and charges include the $30 Annual Contract Charge,
calculated on the basis of an average Series Account Value per Contract of
$33,136, which converts that charge to an annual rate of 0.09% 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 6% 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 pages 11-12 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, C.A.S.E. Growth, Value Equity, Global
Sector, International Equity, U.S. Equity and Third Avenue Value 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, three, five, and ten-year periods (or, while a
Sub-Account has been in existence for a period of less than one, three, 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 these 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 $30 Annual Contract Charge, calculated on the basis of an
average Series Account Value per Contract of $33,136, which converts that
charge to an annual rate of 0.09% of the Series Account Value. The calculations
also assume a complete surrender as of the end of the particular period. The
calculations do not reflect any deductions for premium taxes or any transfer
charges that may be applicable to a particular Contract.
The yield quotations for all of these 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:
<TABLE>
<S> <C> <C>
a-b
YIELD = 2 [ ( -----+ 1)6 - 1]
cd
</TABLE>
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 Bond, Growth, and Global
Sub-Accounts, the calculations take into account all fees that are charged to
all Owner accounts during the Accumulation Period. Such fees
4
<PAGE>
include the $30 Annual Contract Charge, calculated on the basis of an average
Series Account Value per Contract of $33,136, which converts that charge to an
annual rate of 0.09% 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 surrender in an amount ranging
up to 6% 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 pages 11-12 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 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 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 approximately 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 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
5
<PAGE>
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 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 of 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
6
<PAGE>
Sub-Account determined as of the end of the current Valuation Period; plus (2)
the per share amount of any dividend or capital gain distributions made by the
Fund for shares held in that Sub-Account if the ex-dividend date occurs during
the Valuation Period; plus or minus (3) a per share charge or credit for any
taxes reserved for which Western Reserve determines to have resulted from the
investment operations of the Sub-Account; divided by (b) the net asset value of
a Fund share held in the Sub-Account determined as of the end of the
immediately preceding Valuation Period; minus (c) a factor representing the
mortality and expense risk charge and administrative charge. This factor is
equal, on an annual basis, to 1.40% of the daily net asset value of a Fund
share held in the Series Account for the Sub-Account.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first
variable payment is determined by multiplying the Annuity Proceeds times the
appropriate rate for the variable option selected. The rates are based on the
Society of Actuaries 1983 Individual Mortality Table A with projection and a 5%
effective annual assumed investment return and assuming a Maturity Date in the
year 2000. Gender based mortality tables will be used unless prohibited by law.
The amount of the first payment depends upon the adjusted age of the
Annuitant. The adjusted age is the Annuitant's actual age nearest birthday at
the Maturity Date adjusted as follows:
<TABLE>
<CAPTION>
MATURITY DATE ADJUSTED AGE
- --------------------------- -------------------
<S> <C>
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2030 - 2040 Actual Age minus 4
</TABLE>
After the year 2040 as determined by Western Reserve.
DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS. The amount of variable
annuity payments after the first will increase or decrease according to the
Annuity Unit Value which reflects the investment experience of the selected
Sub-Account(s). Each variable annuity payment after the first will be equal to
the number of units attributable to the Contract in each selected Sub-Account
multiplied by the Annuity Unit Value of that Sub-Account on the date the
payment is processed. The number of such units is determined by dividing the
first payment allocated to that Sub-Account by the Annuity Unit Value of that
Sub-Account on the date the first annuity payment is processed.
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").
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WRL SERIES ANNUITY ACCOUNT (FREEDOM AND ATTAINER 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 changes in capital and surplus for the years ended
December 31, 1996, 1995 and 1994
Statutory-Basis statements of cash flows for the years ended December 31, 1996,
1995 and 1994
Notes to Statutory-Basis financial statements
Statutory-Basis financial statement schedules
8
<PAGE>
WRL Series Annuity Account
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements for the WRL Series Annuity Account
and for 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. (6)
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract. (5)
(b) Contract Loan Endorsements. (7)
(c) (i) Other Endorsements. (7)
(ii) Form of Other Endorsements. (7)
(d) Tax Sheltered Annuity Endorsements. (8)
(e) Endorsement (Form END00117-04/95). (8)
(5) Form of Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract. (5)
(6) (a) Copy of Second Amended Articles of Incorporation of
Western Reserve. (3)
(b) Copy of A mended 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 LLP
(b) Written Consent of Ernst & Young LLP
(c) Written Consent of Price Waterhouse LLP
(11) Not Applicable.
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(12) Not Applicable.
(13) Schedules for Computation of Performance Quotations.
(7)
(14) Not Applicable.
(15) (a) Powers of Attorney. (8)
(b) Power of Attorney - James R. Walker.(9)
- -------------------------------------
(1) This exhibit was previously filed on Form N-4 dated October 11, 1988 (File
No. 33-24856) and is incorporated herein by reference.
(2) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement dated December 19, 1989 (File No. 33-31140)
and is incorporated herein by reference.
(3) This exhibit was previously filed on Post-Effective Amendment No. 1 to the
Form N-4 Registration Statement dated May 1, 1989 (File No. 33-24856) and
is incorporated herein by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 3 to the
Form N-4 Registration Statement dated March 1, 1991 (File No. 33-24856) and
is incorporated herein by reference.
(5) This exhibit was previously filed on the Form N-4 Registration Statement
dated July 10, 1992 (File No. 33-49556) and is incorporated herein by
reference.
(6) This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement dated October 2, 1992 (File No. 33-49556)
and is incorporated herein by reference.
(7) This exhibit was previously filed on Post-Effective Amendment No. 1 to the
Form N-4 Registration Statement dated April 28, 1993 (File No. 33-49556)
and is incorporated herein by reference.
(8) This exhibit was previously filed on Post-Effective Amendment No. 4 to the
Form N-4 Registration Statement dated April 25, 1995 (File No. 33-49556)
and is incorporated herein by reference.
(9) This exhibit was previously filed on Post-Effective Amendment No. 7 to the
Form N-4 Registration Statement dated December 23, 1996 (File No. 33-49556)
and is incorporated herein by reference.
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
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
- -------------------------
(1) 201 Highland Avenue, Largo, Florida 33770
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<PAGE>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
Lyman H. Treadway 30195 Chagrin Boulevard Director
Suite 210N
Cleveland, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
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%)
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 Co. of Ohio - Insurance (OH) (100%)
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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%)
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%)
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<PAGE>
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.
As of October 31, 1997, the WRL Freedom Attainer Variable Annuity had 6,999
non-qualified contracts and 11,634 qualified contracts In Force.
As of October 31, 1997, the C.A.S.E. Reserve Variable Annuity had 78
non-qualified contracts and 139 qualified contracts In Force.
Item 28. INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second Amended
Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify
certain persons against certain payments incurred by such persons. The
following excerpts contain the substance of these provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances
C-5
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of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with 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.
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<PAGE>
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' 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
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corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under sections (1) and (2) of this article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination 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
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who has ceased to be a director, trustee, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any proceeding
against any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such person may also
be an agent of this corporation. The corporation may indemnify such named
fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of any other corporation in which this
Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
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
C-9
<PAGE>
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., also 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
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 Treasure
- --------------------------
(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.
C-10
<PAGE>
Item 33. SECTION 403(b)(11) REPRESENTATION
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986,
Registrant is relying on the no-action letter issued by the Office of
Insurance Products and Legal Compliance, Division of Investment
Management, to the American Council of Life Insurance dated November
28, 1988 (Ref. No. IP-6-88), and that the provisions of paragraphs (1)
- (4) thereof have been complied with.
TEXAS ORP REPRESENTATION
The Registrant intends to offer Contracts to participants in the Texas
Optional Retirement Program. In connection with that offering, the
Registrant is relying on Rule 6c-7 under the Investment Company Act of
1940 and is complying with, or shall comply with, paragraphs (a) - (d)
of that Rule.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 10 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 22nd day of December, 1997.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ JOHN R. KENNEY
-------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President of Western Reserve
Life Assurance Co. of Ohio
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(Depositor)
By: /s/ JOHN R. KENNEY
-------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN R. KENNEY Chairman of the Board, December 22, 1997
- ---------------------
John R. Kenney Chief Executive Officer
and President
(Principal Executive
Officer)
/s/ ALAN M. YAEGER Executive Vice President, December 22, 1997
- --------------------- Actuary & Chief Financial
Alan M. Yaeger Officer
<PAGE>
/s/ ALLAN J. HAMILTON Vice President, Treasurer December 22, 1997
- --------------------- and Controller
Allan J. Hamilton
/s/ PATRICK S. BAIRD Director December 22, 1997
- ---------------------
Patrick S. Baird *
/s/ LYMAN H. TREADWAY Director December 22, 1997
- ---------------------
Lyman H. Treadway *
/s/JACK E. ZIMMERMAN Director December 22, 1997
- ---------------------
Jack E. Zimmerman *
/s/ JAMES R. WALKER Director December 22, 1997
- ---------------------
James R. Walker *
* /s/ THOMAS E. PIERPAN
- ------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
EXHIBIT (9)
Opinion and Consent of
Thomas E. Pierpan, Esq.
As to Legality of Securities Being Registered
<PAGE>
WRL Letterhead
December 23, 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 Post-Effective Amendment to the Registration
Statement on Form N-4 to be filed with the Securities and Exchange Commission
(Reg. No. 33-49556) 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
December 23, 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)
Consent of Sutherland, Asbill & Brennan LLP
<PAGE>
S.A.B. letterhead
December 23, 1997
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
201 Highland Avenue
Largo, Florida 33770
RE: WRL Series Annuity Account
FILE NO. 33-49556
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statements of Additional Information contained in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-4 (File No. 33-49556)
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 LLP
By: /s/ STEPHEN E.ROTH
----------------------
Stephen E. Roth
Exhibit 10(b)
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 Post-Effective Amendment No. 10 to the
Registration Statement (Form N-4 No. 33-49556) and related Prospectus of WRL
Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
December 23, 1997
Exhibit 10(c)
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 Attainer Post-Effective Amendment No. 10 to
the Registration Statement on Form N-4 (the "Registration Statement") of our
report dated January 31, 1997, relating to the financial statements and selected
per unit data and ratios of the sub-accounts comprising the WRL Series Annuity
Account - WRL Freedom Variable Annuity and WRL Freedom Attainer Contracts, which
appears in such Statement of Additional Information. We also consent to the
references to us under the heading "Independent Accountants" in the Statement of
Additional Information.
PRICE WATERHOUSE LLP
Kansas City, Missouri
December 23, 1997
