As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. 33-24856
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. 16 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 62 [X]
(Check appropriate box or boxes)
WRL SERIES ANNUITY ACCOUNT
(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 33770
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(813) 585-6565
------------------------------
Thomas E. Pierpan, Esq.
Vice President, Assistant 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 MAY 1, 1998 , 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. 16 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
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
- ------------- ------------------
<S> <C> <C>
1. Cover Page......................................... Cover Page
2. Definitions........................................ Definitions of Special Terms
3. Synopsis or Highlights............................. Summary
4. Condensed Financial
Information........................................ Condensed Financial Information
5. General Description of
Registrant, Depositor,
and Portfolio Companies............................ Western Reserve, the Series Account, and the
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 -
Twenty Day Free Look
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Legal Proceedings
14. Table of Contents of the
Statement of Additional
Information........................................ Statement of Additional
Information
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
15. Cover Page......................................... Cover Page
16. Table of Contents.................................. Table of Contents
17. General Information and
History............................................ Not Applicable
18. Services........................................... Custodian; Independent
Accountants
19. Purchase of Securities Being
Offered............................................ Addition, Deletion, and
Substitution of Investments
20. Underwriters...................................... Distribution of Contracts
21. Calculation of Performance
Data.............................................. Calculation of Performance
Related Information
22. Annuity Payments.................................. Not Applicable
23. Financial Statements.............................. Financial Statements
</TABLE>
(ii)
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM VARIABLE ANNUITY
Flexible Payment Variable Accumulation
Deferred Annuity Contract
Issued By
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
1-800 851-9777
(813) 585-6565
This Prospectus describes the WRL Freedom Variable Annuity (the
"Contract"), a tax deferred variable annuity issued by Western Reserve Life
Assurance Co. of Ohio ("Western Reserve").
The Contract provides for accumulation of Contract Values on a variable
basis, a guaranteed basis, or a combination of both. If the variable
accumulation 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 guaranteed 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 seventeen Sub-Accounts of the Series Account available
through this Contract (in addition to the Fixed Account) and Net Purchase
Payments will be allocated to one or more of these investment alternatives as
directed by the Owner. The seventeen investment portfolios of the Fund
available through this Contract 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, Third Avenue Value Portfolio and Real
Estate Securities Portfolio.
This Prospectus sets forth information about the Contract that a
prospective investor ought to know before investing. Additional information
about the Series Account has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated May 1, 1998, which
is incorporated herein by reference. The Statement of Additional Information is
available upon written or oral request and without charge from Western Reserve,
P.O. Box 9051, Clearwater, FL 33758-9051; telephone number 1-800 851-9777. The
table of contents for the Statement of Additional Information appears on page
38 of this Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED
BY, A BANK OR DEPOSITORY INSTITUTION, AND THE CONTRACT IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE WRL
SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
Prospectus Dated May 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS OF SPECIAL TERMS ...................................... 1
SUMMARY ........................................................... 3
CONDENSED FINANCIAL INFORMATION ................................... 8
CALCULATION OF YIELDS AND TOTAL RETURNS ........................... 11
OTHER PERFORMANCE DATA ............................................ 12
PUBLISHED RATINGS ................................................. 15
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ................. 15
Western Reserve Life Assurance Co. of Ohio ...................... 15
WRL Series Annuity Account ...................................... 15
WRL Series Fund, Inc ............................................ 16
CHARGES AND DEDUCTIONS ............................................ 17
Withdrawal Charge ............................................... 17
Transfer Charge ................................................. 19
Mortality and Expense Risk Charge ............................... 19
Administration Fee .............................................. 19
Premium Taxes ................................................... 19
Deductions for Income Taxes ..................................... 19
Expenses of the Fund ............................................ 20
THE CONTRACT ...................................................... 20
ACCUMULATION PROVISIONS ......................................... 20
Purchase Payments .............................................. 20
Net Purchase Payments .......................................... 21
Accumulation Units ............................................. 21
Transfers to and from, and among Sub-Accounts .................. 22
Dollar Cost Averaging .......................................... 22
Asset Rebalancing Program ...................................... 23
Partial Withdrawals and Surrenders ............................. 24
Partial Annuitization .......................................... 25
Contract Loans for 401(a), 401(k), and 403(b) Contracts ........ 26
Death Benefits during the Accumulation Period .................. 27
ANNUITY PROVISIONS .............................................. 27
Maturity Date and Selection of Annuity Options ................. 27
Annuity Options ................................................ 28
Minimum Guaranteed Interest Rates .............................. 28
Death Benefits after the Maturity Date ......................... 28
Improved Annuity Rates ......................................... 28
Proof of Age, Sex, and Survival ................................ 28
OTHER MATTERS RELATING TO THE CONTRACT ............................ 29
Changes in Purchase Payments .................................... 29
Twenty Day Free Look ............................................ 29
Contract Payments ............................................... 29
Ownership ....................................................... 29
Annuitant and Contingent Annuitant .............................. 29
Beneficiary ..................................................... 30
Modification or Waiver .......................................... 30
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
FEDERAL TAX MATTERS ..................................... 30
Introduction .......................................... 30
Company Tax Status .................................... 30
Taxation of Annuities ................................. 31
Qualified Plans ....................................... 32
Additional Considerations ............................. 34
THE FIXED ACCOUNT ....................................... 35
Minimum Guaranteed and Current Interest Rates ......... 36
Fixed Account Value ................................... 36
Allocations, Transfers and Withdrawals ................ 36
DISTRIBUTION OF THE CONTRACTS ........................... 37
VOTING RIGHTS ........................................... 37
LEGAL PROCEEDINGS ....................................... 37
YEAR 2000 MATTERS ....................................... 38
STATEMENT OF ADDITIONAL INFORMATION ..................... 38
</TABLE>
ii
<PAGE>
DEFINITIONS OF SPECIAL TERMS
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 Accumulation Period.
ANNUITANT -- The person named to receive annuity payments.
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 Contract Value less any applicable premium taxes and any
contingent deferred sales charge.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT -- The person named to become the new Annuitant upon
the current Annuitant's death during the Accumulation Period if the Owner is
then still alive.
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 VALUE -- The sum of the Series Account Value and the Fixed
Account Value.
CONTRACT YEAR -- A period of twelve consecutive months beginning on the
Contract Date and any Anniversary thereafter.
DEATH REPORT DAY -- The Valuation Date coincident with or next following
the day on which Western Reserve has received both: (1) due proof of death; and
(2) a Written Notice for an election of (a) a single sum payment or (b) an
alternative election as provided under the death benefit provision of the
Contract.
FIXED ACCOUNT -- An option under the Contract that provides for
accumulation of Contract Values on a guaranteed basis.
FIXED ACCOUNT VALUE -- The value in the Fixed Account allocable to a
Contract.
FUND -- WRL Series Fund, Inc.
ISSUE AGE -- The age on the birthday nearest the Contract Date.
MATURITY DATE -- The date on which the Accumulation Period ends and
annuity payments are to commence.
NET PURCHASE PAYMENT -- The Purchase Payment less any applicable premium
taxes.
NON-QUALIFIED CONTRACTS -- Contracts issued in connection with plans.
Non-Qualified Contracts do not qualify for special Federal income tax treatment
under the Code.
OWNER -- The person(s) entitled to exercise all rights under the Contract
during the lifetime of the Annuitant. 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.
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
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 plans that
qualify for special Federal income tax treatment under the Code.
SERIES ACCOUNT OR SEPARATE ACCOUNT -- WRL Series Annuity Account, a
separate investment account composed of several Sub-Accounts established to
receive and invest Net Purchase Payments not allocated to the Fixed Account.
SERIES ACCOUNT VALUE -- 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.
SUB-ACCOUNT -- A sub-division of the Series Account that invests
exclusively in the shares of a specified Portfolio.
SURRENDER -- The termination of a Contract at the option of the Owner(s).
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.
WRITTEN NOTICE -- Written Notice means a notice by the Owner to Western
Reserve requesting or exercising a right of the Owner as provided in the
Contract. In order for a notice to be considered a Written Notice, it must: be
in writing, signed by the Owner; be in a form acceptable to Western Reserve;
and contain the information and documentation, as determined in Western
Reserve's sole discretion, necessary for Western Reserve to take the action
requested or for the Owner to exercise the right specified. A Written Notice
will not be considered complete until all necessary supporting documentation
required or requested by Western Reserve has been received by Western Reserve.
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 Contract Values on a
variable basis, a guaranteed basis, or a combination of both, and for payment
of periodic annuity payments on a guaranteed basis. (For information about tax
status, see "FEDERAL TAX MATTERS" on pages 30-35.)
TWENTY DAY FREE LOOK
If an Owner is not satisfied with the Contract, it may be cancelled by
returning it within twenty 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 difference, if any, between the Purchase Payments
received and the amounts allocated to the Sub-Accounts and the Fixed Account
under the Contract; (ii) the amount allocated to the Fixed Account under the
Contract; and (iii) the Series Account Value on the date Western Reserve or its
agent receives the returned Contract. (In certain states, Western Reserve will
refund the Purchase Payments.) (See "OTHER MATTERS RELATING TO THE
CONTRACT--Twenty Day Free Look" on page 29.)
THE FUND
The underlying variable investments for the Contracts are shares of
seventeen Portfolios of the Fund: 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, Third Avenue Value Portfolio and Real
Estate Securities Portfolio. Western Reserve reserves the right to offer
additional investment portfolios or mutual funds with differing investment
objectives. (See "WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series
Fund, Inc." on page 16.)
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 Traditional or
Roth Individual Retirement Annuities ("IRAs"), the minimum initial Purchase
Payment is $1,000. For Qualified Contracts other than Traditional or Roth IRAs,
the minimum initial Purchase Payment is $100. For all Contracts, subsequent
Purchase Payments must be at least $100, 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 20.)
WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered at any time prior to the Maturity Date, or
portions of the Cash Value may be withdrawn after the first Anniversary. The
Cash Value may not, however, be reduced by any partial withdrawal to less than
$10,000. (See "THE CONTRACT--Partial Withdrawals and Surrenders" on pages
24-25.) For Qualified Contracts issued under Code Section 403(b), certain
restrictions will apply.
Moreover, a withdrawal or Surrender may have Federal income tax consequences.
(See "FEDERAL TAX MATTERS--Qualified Plans" on pages 32-34.)
3
<PAGE>
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A
Withdrawal Charge, which is a contingent deferred sales charge, will, however,
be assessed against Contract Values 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. Purchase Payments are considered withdrawn or surrendered on a
first-in, first-out basis and Contract Value in excess of aggregate Purchase
Payments is considered withdrawn or surrendered before any Purchase Payments.
The charge is as follows:
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- -------- ---------------------
5% 0-5
0% More than 5
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 Contract Value that otherwise would be subject to the Withdrawal Charge. No
Withdrawal Charge will be assessed if Contract Values are applied to any
annuity option under the Contract. (See "CHARGES AND DEDUCTIONS--Withdrawal
Charge" on page 17.) Additionally, Code Section 72(q) currently imposes a 10%
Federal income tax penalty on partial withdrawals or Surrenders from
Non-Qualified Contracts if such partial withdrawals or Surrenders are made
prior to age 59-1/2 and other exceptions do not apply. (See "FEDERAL TAX
MATTERS" on page 30.)
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western
Reserve imposes a 1.25% per annum charge against all Contract Values held in
the Series Account. (See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk
Charge" on page 19.) This charge is deducted from the Series Account both
during the Accumulation Period and after the Maturity Date.
ADMINISTRATION FEE
An Administration Fee of $30 is deducted annually on each Contract
Anniversary and upon any surrender during the Accumulation Period on other than
a Contract Anniversary. (See "CHARGES AND DEDUCTIONS--Administration Fee" on
page 19.)
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
19.)
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 16
and the Prospectus for the Fund.)
4
<PAGE>
SUMMARY OF CHARGES AND EXPENSES
The following table illustrates the charges and deductions under the
Contract, as well as the fees and expenses of the Fund.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Withdrawal Charge
(as a % of each Purchase Payment withdrawn
within 5 years of receipt) 5%
Other Surrender Fees None
Transfer Charge
On first 12 transfers during each Contract Year None
On each transfer thereafter during same Contract Year $10.00
ANNUAL ADMINISTRATION FEE $30.00 Per
Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a % of average Series Account Value)
Mortality and Expenses Risk Charges 1.25%
Other Account Fees and Expenses None
Total Separate Account Annual Expenses 1.25%
FUND ANNUAL EXPENSES* (as a % of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
Aggressive Emerging International
Growth Growth Growth Global Balanced U.S. Equity Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ----------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 1.00%
Other Expenses
(after reimbursement) 0.16% 0.13% 0.07% 0.20% 0.14% 0.50% 0.50%
Total Fund Annual
Expenses 0.96% 0.93% 0.87% 1.00% 0.94% 1.30% 1.50%
</TABLE>
<TABLE>
<CAPTION>
Strategic Tactical
Total Growth & Money Asset
Bond Return Income Market Allocation
Portfolio*** Portfolio Portfolio Portfolio Portfolio
-------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.45% 0.80% 0.75% 0.40% 0.80%
Other Expenses (after
reimbursement) 0.14% 0.08% 0.21% 0.08% 0.07%
Total Fund Annual Expenses 0.59% 0.88% 0.96% 0.48% 0.87%
<CAPTION>
Third Real
Value C.A.S.E. Avenue Estate
Equity Growth Global Sector Value Securities
Portfolio Portfolio Portfolio Portfolio** Portfolio**
----------- ----------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.80% 0.80% 0.80% 0.80% 0.80%
Other Expenses (after
reimbursement) 0.09% 0.20% 0.90% 0.20% 0.20%
Total Fund Annual Expenses 0.89% 1.00% 1.70% 1.00% 1.00%
</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, 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-hundreths of one percent) on an annualized basis
of the average daily net assets. This fee is measured and accrued daily and
paid monthly. ISI has determined that it will not seek payment by the Fund
of distribution expenses incurred with respect to any Portfolio during the
fiscal year ending December 31, 1998. Prior to ISI seeking reimbursement,
Policyowners will be notified in advance.
** Because the Third Avenue Value Portfolio commenced operations on January 2,
1998, and the Real Estate Securities Portfolio commenced operations on May
1, 1998, the percentages set forth as "Other Expenses" and "Total Fund
Annual Expenses" are estimates.
*** Effective January 1, 1998, the management fees for the Bond Portfolio were
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 and the
Short-to-Intermediate Government Sub-Account was liquidated.
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, 1997, except
5
<PAGE>
that the "Other Expenses" and "Total Fund Annual Expenses" for the Third Avenue
Value and Real Estate Securities Portfolios are estimates. Expenses of the Fund
may be higher or lower in the future. The Table does not reflect any premium
tax which may be applicable. For more information on the charges described in
this Table see "CHARGES AND DEDUCTIONS" on pages 17-20 and the Portfolios'
Prospectus which accompanies this Prospectus.
WRL Investment Management, Inc. ("WRL Management") has undertaken, until
at least April 30, 1999, to pay Fund expenses on behalf of the Portfolios to
the extent normal operating expenses of a Portfolio exceed the following
percentage of a Portfolio's average daily net assets: 0.70% for the Bond and
Money Market Portfolios; 1.00% for the Aggressive Growth, Emerging Growth,
Growth, Global, Balanced, Strategic Total Return, Growth & Income, Tactical
Asset Allocation, Value Equity, C.A.S.E. Growth, Third Avenue Value and Real
Estate Securities 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 1997, WRL Management, the Fund's Investment Adviser,
reimbursed the C.A.S.E. Growth Portfolio in the amount of $50,000, the
International Equity Portfolio in the amount of $179,000 and the U.S. Equity
Portfolio in the amount of $29,000. Without such reimbursement, the total
annual Fund expenses during 1997 for the C.A.S.E. Growth Portfolio, the
International Equity Portfolio and the U.S. Equity Portfolio would have been
1.13%, 3.12% and 1.49%, respectively. See the Fund's prospectus for a
description of the expense limitation applicable to each Portfolio.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If you surrender your Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account $73 $121 $172 $262
Emerging Growth Sub-Account 73 120 171 259
Growth Sub-Account 72 119 168 252
Global Sub-Account 74 122 174 266
Balanced Sub-Account 73 121 171 260
Strategic Total Return Sub-Account 72 119 168 253
Bond Sub-Account 69 110 153 223
Growth & Income Sub-Account 73 121 172 262
Money Market Sub-Account 68 107 148 212
Tactical Asset Allocation Sub-Account 72 119 168 252
Value Equity Sub-Account 72 119 169 255
C.A.S.E. Growth Sub-Account 74 122 174 266
Global Sector Sub-Account 81 143 209 334
International Equity Sub-Account 79 137 199 315
U.S. Equity Sub-Account 77 131 189 295
Third Avenue Value Sub-Account 74 122 174 266
Real Estate Securities Sub-Account 74 122 174 266
</TABLE>
6
<PAGE>
2. If you annuitize or do not surrender at the end of the applicable time
period (note annuitization is not available before the fifth anniversary):
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account $23 $71 $122 $262
Emerging Growth Sub-Account 23 70 121 259
Growth Sub-Account 22 69 118 252
Global Sub-Account 24 72 124 266
Balanced Sub-Account 23 71 121 260
Strategic Total Return Sub-Account 22 69 118 253
Bond Sub-Account 19 60 103 223
Growth & Income Sub-Account 23 71 122 262
Money Market Sub-Account 18 57 98 212
Tactical Asset Allocation Sub-Account 22 69 118 252
Value Equity Sub-Account 22 69 119 255
C.A.S.E. Growth Sub-Account 24 72 124 266
Global Sector Sub-Account 31 93 159 334
International Equity Sub-Account 29 87 149 315
U.S. Equity Sub-Account 27 81 139 295
Third Avenue Value Sub-Account 24 72 124 266
Real Estate Securities Sub-Account 24 72 124 266
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES INCLUDE THE $30 ANNUAL ADMINISTRATION FEE BASED ON AN
AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $42,232, WHICH CONVERTS THAT
CHARGE INTO AN ASSUMED CHARGE AT AN ANNUAL RATE OF 0.07% 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 Owner or the Annuitant dies before the Maturity Date, a death
benefit will be provided, unless certain elections or designations 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 27 and "ANNUITY PROVISIONS--Death Benefits after the Maturity Date" on
page 28.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution
of the Contract Value 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. (See "ANNUITY PROVISIONS--Maturity Date
and Selection of Annuity Options" on page 27.)
TRANSFERS
The Owner may transfer any or all of the Contract Value from the Series
Account to the Fixed Account, from the Fixed Account to the Series Account
(subject to certain restrictions), or among the Sub-Accounts. 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 Sub-Accounts" on page 22 and "THE
FIXED ACCOUNT--Allocations, Transfers and Withdrawals" on page 36.)
7
<PAGE>
FIXED ACCOUNT
Fixed Account Values will be held in the general account of Western
Reserve and earn interest at no less than the minimum guaranteed rate. The
Fixed Account is discussed in the section entitled "THE FIXED ACCOUNT"
beginning on page 35.
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Period From February 24, 1989* to December 31, 1989
------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- -------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth $10.000 $13.339 2,127,009
Bond 10.000 11.272 339,412
Money Market 10.000 10.579 279,180
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1990
------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- -------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth $13.399 $13.210 5,538,622
Bond 11.272 11.831 598,466
Money Market 10.579 11.235 1,774,514
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1991
------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- -------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth $13.210 $20.848 13,667,137
Bond 11.831 13.894 1,389,932
Money Market 11.235 11.681 2,482,842
</TABLE>
<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>
- ----------------
* Commencement of operations for these Sub-Accounts.
8
<PAGE>
<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** 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 24,211,618
Bond 14.650 16.400 3,427,903
Money Market 11.888 12.030 2,231,209
Global 10.152 13.540 3,894,402
Short-to-Intermediate Government** 10.036 10.360 531,827
</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 3,726,684
Strategic Total Return 10.000 11.250 3,311,227
</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 17,802,413
Bond 16.400 15.076 2,386,284
Money Market 12.030 12.294 3,056,431
Global 13.540 13.403 7,382,235
Short-to-intermediate Government** 10.360 10.192 314,292
Emerging Growth 12.370 11.315 4,961,450
Strategic Total Return 11.250 11.055 4,973,564
</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 1,491,572
Balanced 10.000 9.348 620,286
Growth & Income 10.000 9.463 338,817
</TABLE>
- ----------------
* Commencement of operations for these Sub-Accounts.
** Prior to December 16, 1997, the Short-to-Intermediate Government Sub-Account
was offered for investment under the Contract, and, therefore, is included
in the Contract's Condensed Financial Information and financial statements.
However, the Short-to-Intermediate Government Sub-Account is no longer
available for investment.
9
<PAGE>
<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 15,205,745
Bond 15.076 18.312 2,172,499
Money Market 12.294 12.799 2,094,309
Global 13.403 16.289 5,429,706
Short-to-Intermediate Government** 10.192 11.429 336,659
Emerging Growth 11.315 16.403 4,354,538
Strategic Total Return 11.055 13.610 4,920,854
Aggressive Growth 9.792 13.347 3,114,205
Balanced 9.348 11.060 505,952
Growth & Income 9.463 11.705 448,289
</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 $10.000 $11.861 1,681,747
Allocation
</TABLE>
<TABLE>
<CAPTION>
Period From May 1, 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>
C.A.S.E. Growth $10.000 $11.964 -0-
</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 $11.225 741,974
Global Sector 10.000 10.519 116,372
C.A.S.E. Growth 12.874 13.883 110,061
</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 13,223,722
Bond 18.312 18.110 1,615,671
Money Market 12.799 13.287 2,153,324
Global 16.289 20.548 6,132,441
Short-to-Intermediate Government** 11.429 11.680 320,522
Emerging Growth 16.403 19.258 4,039,103
Strategic Total Return 13.610 15.457 4,415,864
Aggressive Growth 13.347 14.558 2,107,879
Balanced 11.060 12.094 485,139
Growth & Income 11.705 12.905 407,045
Tactical Asset Allocation 11.861 13.403 1,932,032
</TABLE>
- ----------------
* Commencement of operations for these Sub-Accounts.
** Prior to December 16, 1997, the Short-to-Intermediate Government Sub-Account
was offered for investment under the Contract, and, therefore, is included
in the Contract's Condensed Financial Information and financial statements.
However, the Short-to-Intermediate Government Sub-Account is no longer
available for investment.
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------
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 $33.168 $38.503 10,278,649
Bond 18.110 19.522 1,249,374
Money Market 13.287 13.818 1,380,042
Global 20.548 24.098 5,328,123
Emerging Growth 19.258 23.099 3,356,059
Strategic Total Return 15.457 18.601 3,693,626
Aggressive Growth 14.558 17.864 1,774,217
Balanced 12.094 13.986 436,760
Growth & Income 12.905 15.887 328,555
Tactical Asset Allocation 13.403 15.432 1,620,895
Value Equity 11.225 13.861 1,301,314
Global Sector 10.519 10.745 142,056
C.A.S.E. Growth 13.883 15.771 175,277
</TABLE>
<TABLE>
<CAPTION>
Period from January 2, 1997* to December 31, 1997
------------------------------------------------------------
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>
International Equity 10.000 10.617 215,204
U.S. Equity 10.000 12.544 332,651
</TABLE>
- ----------------
* Commencement of operations of these Sub-Accounts.
Because the Third Avenue Value Sub-Account did not commence operations
until January 2, 1998 and the Real Estate Securities Sub-Account did not
commence operations until May 1, 1998, there is no condensed financial
information for these Sub-Accounts for the year ended December 31, 1997.
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 for a Contract 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 hypothetical 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, 1997, the current
yield and effective yield for the Money Market Sub-Account were as follows:
Current yield = 4.03%
Effective yield = 4.11%
11
<PAGE>
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Accounts"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Accounts 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, 1997, the yield for
the Bond Sub-Account(s) was 4.52%.
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 1.25% and the $30 Annual
Contract Charge based on an average Series Account Value of $42,232, which
translates into an annual charge of 0.07%. 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, 1997
-----------------------------------------------------------------
One Three Five From Inception
Sub-Account Year Years Years Inception Date*
- --------------------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth 10.83% 24.04% 12.07% 16.41% 2/24/89
Bond 2.67% 7.47% 5.00% 7.79% 2/24/89
Money Market** -1.08% 2.33% 2.07% 3.66% 2/24/89
Global 12.11% 20.37% 18.31% 18.36% 12/3/92
Emerging Growth 14.80% 25.73% N/A 18.29% 3/1/93
Strategic Total Return 15.22% 17.67% N/A 12.98% 3/1/93
Aggressive Growth 17.59% 20.99% N/A 15.39% 3/1/94
Balanced 10.55% 13.02% N/A 8.04% 3/1/94
Growth & Income 18.00% 17.60% N/A 11.82% 3/1/94
Tactical Asset Allocation 10.04% N/A N/A 14.28% 1/3/95
C.A.S.E. Growth 8.52% N/A N/A 10.01% 5/1/96
Value Equity 18.40% N/A N/A 18.89% 5/1/96
Global Sector -2.93% N/A N/A 1.39% 5/1/96
International Equity 1.10% N/A N/A 1.10% 1/2/97
U.S. Equity 20.59% N/A N/A 20.59% 1/2/97
</TABLE>
- ----------------
* Commencement of operations of these Sub-Accounts.
** Yield more closely reflects the current earnings of the Money Market
Sub-Account than its total return.
Because the Third Avenue Value and Real Estate Securities Sub-Accounts had
not yet commenced operations as of December 31, 1997, 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.
12
<PAGE>
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.
For instance, as shown in the next table, 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 1.25% and the $30
Annual Contract Charge (based on an average Series Account Value of $42,232,
the Annual Contract Charge is translated into an annual charge of 0.07%), and
Withdrawal Charges. Such data assumes a complete surrender of the Contract at
the end of the period; THEREFORE THE WITHRAWAL 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, 1997
------------------------------------------------------------------
One Three Five Ten From Inception
Portfolio Year Years Years Years Inception Date
- --------------------------- ---------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth 10.83% 24.04% 12.07% 17.09% 16.10% 10/2/86*
Bond 2.67% 7.47% 5.00% 7.54% 6.35% 10/2/86*
Money Market*** -1.08% 2.33% 2.07% 3.67% 3.61% 10/2/86*
Global 12.11% 20.37% 18.31% N/A 18.36% 12/3/92**
Emerging Growth 14.80% 25.73% N/A N/A 18.29% 3/1/93**
Strategic Total Return 15.22% 17.67% N/A N/A 12.98% 3/1/93**
Aggressive Growth 17.59% 20.99% N/A N/A 15.39% 3/1/94**
Balanced 10.55% 13.02% N/A N/A 8.04% 3/1/94**
Growth & Income 18.00% 17.60% N/A N/A 11.82% 3/1/94**
Tactical Asset Allocation 10.04% N/A N/A N/A 14.28% 1/3/95**
C.A.S.E. Growth 8.52% N/A N/A N/A 13.50% 5/1/95*
Value Equity 18.40% N/A N/A N/A 18.89% 5/1/96**
Global Sector -2.93% N/A N/A N/A 1.39% 5/1/96**
International Equity 1.10% N/A N/A N/A 1.10% 1/2/97**
U.S. Equity 20.59% N/A N/A N/A 20.59% 1/2/97**
</TABLE>
- ----------------
* Commencement of operations of the Fund's Portfolio's.
** Commencement of operations of these Sub-Accounts. The calculation of total
return performance for the Growth, Bond, and Money Market Sub-Accounts
prior to December 3, 1992 reflects deductions for the mortality and expense
risk charge on a monthly basis, rather than a daily basis. The monthly
deduction is made at the beginning of each month and generally approximates
the performance that would have resulted if the Sub-Accounts had actually
been in existence since the inception of the Portfolio.
*** Yield more closely reflects the current earnings of the Money Market
Portfolio than its total return.
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 1.25% and the $30 Annual Contract Charge
(based on an average Series Account
13
<PAGE>
Value of $42,232, the Annual Contract Charge is translated into an annual charge
of 0.07%.)
<TABLE>
<CAPTION>
Period Ended December 31, 1997
------------------------------------------------------------------
One Three Five Ten From Inception
Portfolio Year Years Years Years Inception Date
- --------------------------- ---------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth 15.83% 25.12% 12.70% 17.09% 16.10% 10/2/86*
Bond 7.67% 8.89% 5.81% 7.54% 6.35% 10/2/86*
Money Market*** 3.92% 3.89% 2.98% 3.67% 3.61% 10/2/86*
Global 17.11% 21.51% 18.82% N/A 18.85% 12/3/92**
Emerging Growth 19.80% 26.78% N/A N/A 18.83% 3/1/93**
Strategic Total Return 20.22% 18.86% N/A N/A 13.62% 3/1/93**
Aggressive Growth 22.59% 22.12% N/A N/A 16.25% 3/1/94**
Balanced 15.55% 14.31% N/A N/A 9.07% 3/1/94**
Growth & Income 23.00% 18.79% N/A N/A 12.75% 3/1/94**
Tactical Asset Allocation 15.04% N/A N/A N/A 15.55% 1/3/95**
C.A.S.E. Growth 13.52% N/A N/A N/A 18.50% 5/1/95*
Value Equity 23.40% N/A N/A N/A 21.54% 5/1/96**
Global Sector 2.07% N/A N/A N/A 4.33% 5/1/96**
International Equity 6.15% N/A N/A N/A 6.15% 1/2/97**
U.S. Equity 25.65% N/A N/A N/A 25.65% 1/2/97**
</TABLE>
- ----------------
* Commencement of operations of the Fund's Portfolio's.
** Commencement of operations of these Sub-Accounts.
*** Yield more closely reflects the current earnings of the Money Market
Portfolio than its total return.
Because the Third Avenue Value Portfolio did not commence operations until
January 2, 1998 and the Real Estate Securities Portfolio did not commence
operations until May 1, 1998, 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 Investment Technologies, Inc. ("CDA") and Morningstar,
Inc. ("Morningstar") or other services, companies, individuals or industry or
financial publications of general interest, such as FORBES, MONEY, THE WALL
STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE and
FORTUNE. Lipper, VARDS, CDA and Morningstar are independent services which
monitor and rank the performances of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life 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.
14
<PAGE>
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to widely used measures of stock market
performance, such as the Standard and Poor's Index of 500 Common Stocks, Dow
Jones Industrials Average, Value Line (Arithmetic) Index, CDA/Wiesenberger Long
Term Growth Average-VA, Wilshire 5000, Financial Times (FT) World Index Ex-USA,
Morgan Stanley Capital International World Index, FT World Index, Russell
MidCap Growth Index, Lehman Brothers Government/Corporate Bond Index, Dow Jones
Utilities Average, Donoghue's Taxable Money Fund Average and others. Unmanaged
indices may assume the reinvestment of dividends, but usually do not reflect
any "deduction" for the expense of operating or managing an investment
portfolio.
Western Reserve is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in its advertisements. Companies that belong to IMSA
subscribe to a set of ethical standards covering the various aspects of sales
and service for individually sold life insurance and annuities.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which is
published by the U.S. Department of Labor and measures the average change in
prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account performance may also be made with
appropriate indices measuring the performance of a defined group of securities
widely recognized by investors as representing a particular segment of the
securities markets. For example, Sub-Account performance may be compared with
Donoghue Money Market Institutional 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 of the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Standard & Poor's and Duff & Phelps provide ratings which measure the
claims-paying ability of insurance companies. These ratings are opinions of an
approved insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their claims. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(I.E., debt/commercial paper). These ratings do not apply to the Series
Account, its Sub-Accounts, the Fund, its Portfolios, or to their performance.
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 33758-9051. 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 on April 12, 1988. The Series Account meets the definition of a
"separate account" under the Federal securities laws. The Series
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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's. However, the assets of the Series
Account are available to cover the liabilities of the general asset account of
Western Reserve to the extent that the Series Account's assets exceed the
liabilities arising under variable annuity contracts supported by it.
The Series Account is currently divided into eighteen Sub-Accounts,
seventeen 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 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 eighteen Portfolios, seventeen 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, Third Avenue Value Portfolio and Real Estate
Securities Portfolio. The assets of each Portfolio are held separate from the
assets of the other Portfolios, and each Portfolio has different investment
objectives and policies. Thus, each Portfolio operates as a separate investment
vehicle, and the income or losses of one Portfolio is unrelated to that of any
other Portfolio.
On December 17, 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 substitution and Sub-Account consolidation took place at net asset
value with no change in the amount of any Owner's benefits or Contract Value.
Western Reserve and its affiliates did not receive any compensation or
remuneration as a result of this transaction.
WRL Investment Management, Inc. ("WRL Management"), a wholly-owned
subsidiary of Western Reserve, serves as investment adviser to the Fund and
manages its assets in accordance with policies, programs and guidelines
established by the Board of Directors of the Fund.
The name and sub-adviser of 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.
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STRATEGIC TOTAL RETURN PORTFOLIO: Sub-Adviser - Luther King Capital
Management Corporation.
BOND PORTFOLIO: Sub-Adviser - AEGON USA Investment Management, Inc.
GROWTH & INCOME PORTFOLIO: Sub-Adviser - Federated Investment Counseling.
MONEY MARKET PORTFOLIO: Sub-Adviser - J. P. Morgan Investment Management
Inc.
TACTICAL ASSET ALLOCATION PORTFOLIO: Sub-Adviser - Dean Investment
Associates.
VALUE EQUITY PORTFOLIO: Sub-Adviser - NWQ Investment Management Company,
Inc.
C.A.S.E. GROWTH PORTFOLIO: Sub-Adviser - C.A.S.E. Management, Inc.
GLOBAL SECTOR PORTFOLIO: Sub-Adviser - Meridian Investment Management
Corporation.
INTERNATIONAL EQUITY PORTFOLIO: Co-Sub-Advisers - Scottish Equitable
Investment Management Limited and GE Investment Management Incorporated.
U.S. EQUITY PORTFOLIO: Sub-Adviser - GE Investment Management
Incorporated.
THIRD AVENUE VALUE PORTFOLIO: Sub-Adviser - EQSF Advisers, Inc.
REAL ESTATE SECURITIES PORTFOLIO: Sub-Adviser - J.P. Morgan Investment
Management Inc.
Shares of other portfolios of the Fund are sold through different variable
annuity contracts offered through the Series Account. In addition to the Series
Account, shares of certain portfolios of the Fund are sold to the WRL Series
Life Account, a separate account established by Western Reserve for its
variable life insurance policies, the PFL Endeavor Variable Annuity Account,
PFL Endeavor Platinum Variable Annuity Account and PFL Life Variable Annuity
Account A, separate accounts of PFL Life Insurance Company, the AUSA Endeavor
Variable Annuity Account and the AUSA Series Life Account, separate accounts of
AUSA Life Insurance Company, Inc., all affiliates of Western Reserve. Shares of
the Fund may in the future be sold to other separate accounts, including
separate accounts established for variable life insurance policies or variable
annuity contracts issued by Western Reserve or its affiliates. It is
conceivable that, in the future, it may become disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund simultaneously. Although neither Western Reserve nor the
Fund currently foresees any such disadvantages, either to variable life
insurance policyowners or to variable annuity contract owners, the Fund's Board
of Directors intends to monitor events in order to identify any material
conflicts between the interests of such variable life insurance policyowners
and variable annuity contract owners and to determine what action, if any, it
should take. Such action could include the sale of Fund shares by one or more
of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in Federal income tax laws, or (3) differences in voting
instructions between those given by variable life insurance policyowners and
those given by variable annuity contract owners. If the Board of Directors were
to conclude that separate funds should be established for variable life and
variable annuity separate accounts, Western Reserve will bear the attendant
expenses, but variable life insurance policyowners and variable annuity
contract owners would no longer have the economies of scale resulting from a
larger combined fund.
CHARGES AND DEDUCTIONS
Certain charges will be deducted in connection with the Contracts to
compensate Western Reserve for (1) administering the Contracts; (2) assuming
certain risks in connection with the Contracts; and (3) incurring expenses in
distributing the Contracts. The nature and amount of these charges are
described more fully below.
WITHDRAWAL CHARGE
No deductions for sales expenses are made from Purchase Payments. A
Withdrawal Charge, which is a contingent deferred sales charge, may, however,
be assessed against Contract Values when partially withdrawn or surrendered.
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For the first partial withdrawal or Systematic Partial Withdrawal (see,
"THE CONTRACT--Accumulation Provisions--Partial Withdrawals and Surrenders",
p. 24), during each Contract Year, any applicable Withdrawal Charge is
currently waived on that portion of the amount withdrawn which equals 10% of
the Contract 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
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 of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of each
respective Purchase Payment made during the five years immediately preceding
the partial withdrawal or Surrender of each respective Purchase Payment. The
charge is as follows:
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- -------- ---------------------
5% 0-5
0% Over 5
For Contracts issued with an appropriate endorsement, if the Owner or a
joint Owner is confined to a nursing care facility (as defined in the
endorsement) for thirty (30) consecutive days or longer, Western Reserve will
also waive the Withdrawal Charge on Surrenders or partial withdrawals 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 withdrawals made during
such confinement or within two (2) months after the confinement ends. The
endorsement is not available in all states.
The Withdrawal Charge is deducted from the Contract Value by cancelling
the number of Accumulation Units equal to the Withdrawal Charge. The amount of
the Withdrawal Charge will be determined as of the date the partial withdrawal
or Surrender payment is processed. In the event of a partial withdrawal, the
Owner will receive, the full amount requested, and an amount equal to the
Withdrawal Charge will also be withdrawn in order for the Owner to receive the
full amount requested. For example, if the Owner requests a distribution in the
amount of $100 and the Withdrawal Charge is to be imposed on the full amount,
the Owner would receive $100, the total Contract Value withdrawn would be
$105.26, and the Withdrawal Charge would be $5.26 (which is 5% of $105.26). Any
Surrender or partial withdrawal may be subject to tax, and the Owner should,
therefore, consult with his or her tax adviser before requesting any Surrender
or partial withdrawal. (See "FEDERAL TAX MATTERS--Taxation of Annuities" on
pages 31-32 and "--Qualified Plans" on pages 32-34.)
The Withdrawal Charge is imposed to enable Western Reserve to recover
certain sales expenses it advances, including compensation to broker-dealers,
the cost of printing prospectuses and sales literature and any advertising
costs.
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),
employer group, or similar party pursuant to a retirement plan or similar
arrangement under which Contracts are sold to a group of individuals and such
program results in a savings of sales expenses. The amount of reduction will
depend on factors such as the size of the group, total Purchase Payments, and
other relevant factors that might tend to reduce expenses incurred in connection
with such sales.
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<PAGE>
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 the transfer privilege.
MORTALITY AND EXPENSE RISK CHARGE
Western Reserve will deduct a daily Mortality and Expense Risk Charge from
the Series Account at an annual rate of 1.25% of the average daily net assets
of the Series Account. Western Reserve assumes two mortality risks: (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 28 and
"ACCUMULATION PROVISIONS--Death Benefits during the Accumulation Period" on
page 27.) Western Reserve also assumes an expense risk through its guarantee
not to increase the charges for issuing and administering the Contracts,
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 an annuity option.
ADMINISTRATION FEE
On each Anniversary through the Maturity Date, Western Reserve will deduct
an Administration Fee of $30 as partial compensation for the cost of providing
administrative services under the Contracts. The Administration Fee is deducted
from each Sub-Account and the Fixed Account in proportion to the value each
bears to the Contract Value. If the Contract Value is surrendered other than on
an Anniversary, a full $30 fee will be deducted.
Even if administrative expenses increase, Western Reserve guarantees that
it will not increase the amount of the Administration Fee.
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 to premium
taxes, the tax will be deducted, either from the Purchase Payment when
received, from amounts surrendered or withdrawn, from death benefit proceeds,
or from the amount applied to effect an annuity at the time annuity payments
commence. Western Reserve will deduct any applicable premium taxes when it
incurs them, but reserves the right to defer deduction to a later date as long
as such deferral is equitable to Owners.
Premium tax rates are subject to change by the respective state
legislatures, administrative interpretations, or judicial acts. The amount of
any such tax will depend on, among other things, the Owner's state of
residence, the status of Western Reserve in that state, and the insurance tax
laws of such state.
DEDUCTIONS FOR OTHER TAXES
Currently, no charge is made to the Series Account for Federal income
taxes attributable to the Series Account. Western Reserve may, however, make
such a charge in the future subject to obtaining any necessary regulatory
approvals. Charges for any other applicable taxes, including any tax or other
economic burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Account, may also be made. (See
"FEDERAL TAX MATTERS--Company Tax Status" on page 30.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of
the Series Account will reflect the investment advisory fee and other expenses
incurred by the Fund, as described in the Portfolios' Prospectus.
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<PAGE>
Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to
the Plan, entered into a Distribution Agreement with ISI, principal underwriter
for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundreths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek
payment by the Fund of distribution expenses incurred with respect to any
Portfolio during the fiscal year ending December 31, 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 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 Traditional or
Roth IRAs the minimum initial Purchase Payment is $1,000 and for Qualified
Contracts other than Traditional or Roth IRAs the minimum initial Purchase
Payment is $100. 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 $100, 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:
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<PAGE>
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. 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 Payments to an Account meet a minimum
percentage. Western Reserve does reserve the right to limit allocation of Net
Purchase Payments to no less than 10% of each Net Purchase Payment. No
fractional percentages are permitted. 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 Accumulation Units of the appropriate Sub-Account based upon the
value of an Accumulation Unit 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 Units" below.) If the Contract
application and other information necessary for processing the request to apply
the Purchase Payment (collectively, the "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 UNITS
The value of Accumulation Units will vary from one Valuation Period to the
next depending on the investment results experienced by each Sub-Account. When
each Sub-Account was first established, the initial value of an Accumulation
Unit for the Sub-Account was arbitrarily set at $10. The value of an
Accumulation Unit for each Sub-Account at the close of a Valuation Period is
determined by multiplying the Accumulation Unit value for that Sub-Account at
the close of the immediately preceding Valuation Period by the experience factor
for that Sub-Account for the current Valuation Period. The Accumulation Unit
value may increase, decrease, or remain the same from Valuation Period to
Valuation Period.
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 SUB-ACCOUNTS
Before the Maturity Date, the Owner may, at any time, transfer amounts
among Sub-Accounts or from Sub-Accounts to the Fixed Account. Transfers may
also be made from the Fixed Account to the Sub-Accounts, subject to certain
restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers and
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<PAGE>
Withdrawals" on page 36.) Transfers are not available if the Owner has elected
Dollar Cost Averaging, the Asset Rebalancing Program or Systematic Partial
Withdrawals.
The amount available for transfer from any Sub-Account, or the Fixed
Account is determined at the end of the Valuation Period during which the
transfer request is received at Western Reserve's administrative office. As
explained in the previous paragraph, the net asset value for each share of the
corresponding Portfolio of any Sub-Account is determined, once daily, as of the
close of the regular business session of the Exchange (usually 4:00 p.m.,
Eastern time), which coincides with the end of each Valuation Period.
Therefore, any transfer request received after 4:00 p.m., Eastern time, on any
date the Exchange is open for business will be processed utilizing the net
asset value for each share of the applicable Portfolio determined as of 4:00
p.m., Eastern time, on the next day the Exchange is open for business.
The amount available for transfer from the Fixed Account will be
determined in the same manner. Owners may make transfer requests in writing, or
by telephone. Written requests must be in a form acceptable to Western Reserve.
The registered representative/agent of record for the Contract may, upon
instructions from the Owner, make telephone transfers upon request without the
necessity for the Owner to have previously authorized telephone transfers in
writing. If, for any reason, an Owner does not want the ability to make
transfers by telephone, the Owner should provide written notice to Western
Reserve at its administrative office. All telephone transfers should be made by
calling Western Reserve at the toll-free number: 1-800-851-9777.
Western Reserve will not be liable for complying with telephone
instructions it reasonably believes to be authentic, nor for any loss, damage,
cost or expense in acting on such telephone instructions, and 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. Under Western Reserve's current procedures, it will effect transfers
and determine all values in connection with transfers at the end of the
Valuation Period during which the transfer request is received at Western
Reserve's 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 19.)
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to automatically transfer specified
amounts from the Money Market Sub-Account, the Bond Sub-Account or 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 Withdrawals"
on page 36.)
A Written Notice requesting 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
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<PAGE>
Reserve in writing to cancel the monthly transfers. For example, if $15,000 was
allocated to the Money Market Sub-Account and $10,000 was allocated to the Bond
Sub-Account and transfers of $500 are made each month from each of these
Sub-Accounts to the Growth Sub-Account, transfers of $500 per month would
continue to be made from the Money Market Sub-Account even though transfers
from the Bond Sub-Account had ceased as a result of depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
twelve free transfers allowed during each Contract Year. 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 19.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by oral or written request to Western Reserve's Administrative Office.
Participation in the Asset Rebalancing Program will terminate automatically if
any transfer is made to, or from, any Sub-Account, other than on account of a
scheduled rebalancing. If an Owner wishes to resume the Asset Rebalancing
Program after it has been canceled, a new Asset Rebalancing Request Form must be
completed and sent to Western Reserve's Administrative Office. Owners may start
and stop participation in the Asset Rebalancing Program at any time; however,
Western Reserve reserves the right to restrict entry into the Asset Rebalancing
Program to once per Contract Year. The Asset Rebalancing Program is available
only during the Accumulation Period, and is not available if the Owner has
elected Dollar Cost Averaging or Systematic Partial Withdrawals.
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
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Value upon Written Notice, to Western Reserve's Administrative Office. Although
partial withdrawals are currently permitted at any time prior to the Maturity
Date, Western Reserve reserves the right to refuse to permit any partial
withdrawals prior to the first Anniversary and may prohibit more than one
partial withdrawal during any Contract Year. Western Reserve may also refuse to
accept a request for a partial withdrawal 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 Withdrawals" on page 36.) 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 pay the partial withdrawal amount requested and cancel
Accumulation Units equal to the amount withdrawn from each Sub-Account plus any
applicable premium taxes and any applicable Withdrawal Charge. (See "CHARGES AND
DEDUCTIONS--Withdrawal Charge" on pages 17-19 and "Premium Taxes" on page 19.)
The Sub-Accounts for a partial withdrawal must be specified. If not specified,
the amount requested will be withdrawn on a pro rata basis from each
Sub-Account. The amount requested to be withdrawn from each specified
Sub-Account may not exceed the value of that Sub-Account. Generally, the
properly completed request must contain the Owner's original signature for
processing of the withdrawal to begin. In certain emergency circumstances as
determined by Western Reserve, processing will begin upon receipt of a properly
faxed request.
2. SYSTEMATIC PARTIAL WITHDRAWALS. The Owner may, by Written Notice on a
form provided by Western Reserve, elect to partially withdraw from the Series
Account after the first Anniversary up to 10% of the Cash Value annually (10%
of the initial Purchase Payment if elected at time of application for a
Contract), in equal monthly payments ("Systematic Partial Withdrawals") of at
least $200 per month. The first withdrawal will occur during the month which
follows receipt of the form, providing the form is received by the 25th day of
the month. If Systematic Partial Withdrawals are elected at the time of
application for a Contract, a minimum initial Purchase Payment of at least
$25,000 must accompany the application, unless Western Reserve consents to a
smaller amount. A subsequent election is subject to the Contract then having a
minimum of $25,000 of Cash Value, unless Western Reserve consents to a smaller
amount. Western Reserve will pay the Systematic Partial Withdrawal amount
requested and cancel Accumulation 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 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.
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.
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%
Federal income tax penalty may be imposed on the taxable portion of a partial
withdrawal or a Systematic Partial Withdrawal made prior to the Owner's age
59-1/2, unless certain exceptions apply. The Owner should, therefore, consult
with his or her tax adviser before requesting any partial withdrawal or
Systematic Partial Withdrawals. (For a further discussion of taxation of, and
tax penalties on, withdrawals under Non-Qualified Contracts and Qualified
Contracts, see "FEDERAL TAX MATTERS--Taxation of Annuities" on pages 31-32.)
3. SURRENDERS. The Owner may completely surrender the Contract at any time
prior to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct the annual $30 annual Administration Fee,
any applicable premium taxes, and any applicable Withdrawal Charge from the
Surrender proceeds. A properly completed Surrender request must contain the
Owner's original signature. No exception will be made by Western Reserve for
faxed requests.
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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 Written Notice, complete with all necessary information at
Western Reserve's Administrative Office, except that Western Reserve reserves
the right to defer the right of a partial withdrawal under certain
circumstances. (See "OTHER MATTERS RELATING TO THE CONTRACT--Contract Payments"
on page 29.) 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, 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 the 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, satisfactory to Western Reserve, of the person
seeking redemption is required before the request for withdrawal is accepted,
including withdrawals under $100,000. For additional information, Owners may
call Western Reserve at 1-800-851-9777. Surrenders, partial withdrawals and
Systematic Partial Withdrawals may be subject to tax including a Federal income
tax penalty. (See "FEDERAL TAX MATTERS--Taxation of Annuities" on pages 31-32.)
For certain Qualified Contracts, a partial withdrawal may require the consent
of the Owner's spouse under the Code and the regulations promulgated thereunder
by the Treasury Department (the "Treasury Regulations"). (See "FEDERAL TAX
MATTERS--Qualified Plans" on pages 32-34.) For Qualified Contracts issued under
Code Section 403(b), certain restrictions will apply. (See "FEDERAL TAX
MATTERS--Qualified Plans" on pages 32-34.)
PARTIAL ANNUITIZATION
Prior to the Maturity Date, and without Surrender of the Contract, the
Owner may request that a portion of the Contract Value be applied to purchase a
periodic annuity under a supplemental contract with Western Reserve. No such
partial annuitization may take place until the first Anniversary, and any
subsequent partial annuitization must be at least five years after the
immediately preceding one. In addition, no partial annuitization amount will be
permitted if it will: (1) reduce the Cash Value below $10,000; (2) exceed 50%
of the Cash Value; or (3) purchase a monthly income of less than $100. No
amount from the Fixed Account may be partially annuitized without Western
Reserve's consent.
The Owner must specify the Sub-Accounts from which amounts are to be
partially withdrawn, and any applicable premium taxes will be deducted from the
amount partially withdrawn.
A partial annuitization may be subject to tax. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 31-32.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the twenty day Free Look Period and during the Accumulation Period,
(1) Owners of Contracts used in connection with a Tax Sheltered Annuity Plan
("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not subject
to the Employee Retirement Income Security Act of 1974, and (2) Owners of
Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a Section
401(k) plan, where a plan trustee is the Owner, may elect a Contract loan
endorsement under which the Owner can receive Contract loans. The availability
of Contract loans will also be governed by the provisions of the TSA plans or
401 Plans involved. An Owner of a Contract used in connection with a TSA Plan
or 401 Plan may be subject to income tax or tax penalties if loans from the
plan are not repaid in accordance with applicable provisions of the Code. In
addition, Internal Revenue Service authorities suggest that a Contract loan
may, at least in certain circumstances, result in adverse tax consequences for
the TSA Plan or 401 Plan. Accordingly, a competent tax advisor should be
consulted before a Contract loan is requested.
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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 Contract Value or (2) $50,000 reduced by the highest outstanding loan
balance during the one-year period ending on the day before the loan date
(determined below). However, if the Contract Value is less than $20,000, the
Owner may borrow against the Contract the lesser of (1) 80% of the Contract
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 and the Fixed Account, as 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-Account or the Fixed
Account is specified, the loan will be made from each Sub-Account and the Fixed
Account in accordance with the Owner's current purchase payment allocation.
Amounts transferred to the loan reserve do not participate in the investment
experience of the Sub-Account or the Fixed Account 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 request must contain the
Owner's original signature for loan processing to begin. In certain emergency
circumstances as determined by Western Reserve, processing will begin upon
receipt of a properly completed faxed request. The loan date is the date
Western Reserve processes the loan request. Under its current procedures,
Western Reserve does not charge a fee to cover loan processing and expenses
associated with establishment and administration of the loan reserve. However,
Western Reserve reserves the right to charge such a fee or change it from time
to time. The Contract will be the sole security for the loan. Western Reserve
reserves the right to limit the number of loans an Owner may make during a
Contract Year.
On each Contract Anniversary, Western Reserve will compare the amount of
the outstanding loan to the amount in the loan reserve. Western Reserve will
also make this comparison whenever the Owner repays all or part of the loan. At
each such time, if the amount of the outstanding loan (plus any unpaid
interest) exceeds the amount in the loan reserve, Western Reserve will withdraw
the difference from the Contract's Sub-Accounts and the Fixed Account 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 and the Fixed Account 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.
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LOAN INTEREST. Interest on any loan will be at the Contract loan annual
rate of 6% in arrears unless, under a 401 Plan, a higher rate is requested by
the Owner in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed
effective annual interest rate of 4% per year. Western Reserve may declare from
time to time higher current interest rates. Different current interest rates
may be applied to the Fixed Account attributable to the loan reserve than to
the rest of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in
substantially level quarterly or monthly payments over a 5-year period or, if
the loan is used to acquire the Owner's principal residence, a 10, 15 or
20-year period, but such an extended period cannot go beyond the year the Owner
attains age 70-1/2. If a loan installment repayment is not received within 31
days from the installments' 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 Federal
income tax and a penalty, and may cause the Contract to fail to qualify under
the Code. (See "FEDERAL TAX MATTERS--Qualified Plans," pages 32-34.)
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
If the Annuitant dies during the Accumulation Period and no Contingent
Annuitant is named, Western Reserve will pay the death benefit proceeds to the
Beneficiary upon receipt of due proof of death. If any Owner should die during
the Accumulation Period, and an alternative election by the Beneficiary is not
made as described below, Western Reserve will pay the death benefit proceeds to
the Beneficiary upon receipt of due proof of death.
The death benefit proceeds during the Accumulation Period will be the
greatest of (1) the Contract Value as of the Death Report Day; or (2) the
excess of (a) the amount of purchase payments paid, less (b) any partial
withdrawal and partial annuitization amounts withdrawn from the Contract.
If the Beneficiary is the spouse of the deceased Owner, then the
Beneficiary may elect to keep the Contract in force in lieu of receiving the
death benefit proceeds. If the Beneficiary is not the spouse, the Beneficiary
may elect one of the following options that provide for complete distribution
of the death benefit proceeds and termination of this Contract: (i) within five
years of the date of such Owner'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.
Subparagraphs (ii) and (iii) apply only to individuals. All such payments must
start within one year of the date of such Owner's death. (For a more detailed
explanation of these requirements, see "FEDERAL TAX MATTERS--Additional
Considerations" on pages 34-35.)
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 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. The Qualified Contract is designed for use with several
types of qualified plans. Consult your tax advisor 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 B (described below), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
The Owner may also select or change the frequency of annuity payments, which
may be monthly, quarterly, semi-annually or annually, subject to the
requirement that the annuity option and payment frequency provides for payments
of at least $100 per period. If this is not possible, a lump sum payment will
be made.
ANNUITY OPTIONS
The Owner may select one or more of the 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. The level of annuity payments
under the
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following options is based upon the option selected and, depending on
the option chosen, such factors as the Annuitant's age when payments begin and
the duration of guaranteed payments, if any.
OPTION A-FIXED INSTALLMENTS. The annuity proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, 20, 25 or 30 years.
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 fixed period certain and for the remaining lifetime of the
Annuitant ("Certain Periods"); or (3) until the sum of installments paid equals
the annuity proceeds applied and for the remaining life of the Annuitant
("Installment Refund"). Guaranteed payment periods may be elected for 5 and 10
years under the Certain Period option, or for the period in which the total
payments will be equal to the annuity proceeds on the Maturity Date under the
Installment Refund option.
OPTION C-JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid during
the joint lifetimes of the Annuitant and a designated Co-Annuitant and will (1)
continue upon the death of the first payee for the remaining lifetime of the
survivor or (2) be reduced by one-third upon the death of the first payee and
continue for the remaining lifetime of the survivor.
MINIMUM GUARANTEED INTEREST RATES
The annuity options discussed above provide for the determination of
annuity payments on a fixed basis, as opposed to a variable basis. That is,
Western Reserve guarantees that after the Maturity Date, monies held under an
annuity option will be credited with interest at a minimum guaranteed effective
annual rate of 4.0%. In addition to guaranteeing this minimum rate, Western
Reserve may from time to time and in its sole discretion credit higher interest
rates.
DEATH BENEFITS AFTER THE MATURITY DATE
Death benefits, if any, payable after the Maturity Date will be paid in
accordance with the annuity option then in effect. (For additional information
about death benefit payments under the Contract, see "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 27.)
IMPROVED ANNUITY RATES
Western Reserve guarantees that if, at the Maturity Date, it is offering
annuity contracts of the same type and class as the Contract with more
favorable rates contained in the income tables therein, the improved rates will
be made available to the Owner.
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.
TWENTY DAY FREE LOOK
An Owner may, at any time within twenty days of receipt of the Contract,
return it to the agent from whom it was purchased or to Western Reserve at its
Administrative Office. If the Contract is returned within
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this twenty day period, Western Reserve will pay to the Owner the sum of: (1)
the difference, if any, between the Purchase Payment received and the amounts
allocated to the Series Account and the Fixed Account under the Contract; plus
(2) the amount allocated to the Fixed Account under the Contract; and (3) the
Series Account Value on the date Western Reserve or its authorized agent
receives the returned Contract. The Owner bears the investment risk during the
twenty day 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 twenty day
period.)
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 withdrawal or postpone the date of payment for any period: (1) the
Exchange is closed, other than customary weekend and holiday closing, or
trading on the Exchange is restricted as determined by the SEC; (2) the SEC by
order permits postponement for the protection of Owners; or (3) an emergency
exists, as determined by the SEC, as a result of which valuation or disposal of
securities is not reasonably practicable. Transfers may also be postponed under
these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or
bank draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the
Contract. Prior to the Maturity Date, the Owner is the person designated in the
application or as subsequently named. If two Owners are named, the Contract
will be owned jointly and the consent of each Owner will be required to
exercise ownership rights under the Contract. These rights may be subject to
the consent of any assignee or irrevocable Beneficiary.
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 Contract Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 31-32.) 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.
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 AND CONTINGENT 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 annuity Option C has been selected, add a joint
annuitant. On the Maturity Date, the Annuitant(s) will become the payee(s) and
receive the annuity payments.
A Contingent Annuitant may also be named in the application. If a
Contingent Annuitant has been named and the Annuitant dies during the
Accumulation Period while the Owner is alive, the Contract will continue in
force and the Contingent Annuitant will become the new Annuitant. If no
Contingent Annuitant has been named and the Annuitant dies during the
Accumulation Period, the Contract will terminate and a death benefit will be
paid to the Beneficiary. (See "ACCUMULATION PROVISIONS--Death Benefits during
the Accumulation Period" on page 27.) At any time during the Accumulation
Period, and upon agreement with Western Reserve, the Owner may add or change
the Contingent Annuitant.
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
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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 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.
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 Contract
Values 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 adviser. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion is based upon Western Reserve's understanding of the Federal
income tax laws as they are currently interpreted. Western Reserve makes no
representations regarding the likelihood of continuation of the Federal income
tax laws, the Treasury Regulations, or the current interpretations by the
Internal Revenue Service (the "Service"). For a discussion of Federal income
taxes as they relate to the Fund, please see the accompanying Prospectus for
the Portfolios.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of
Subchapter L of the Code. Because the Series Account is not an entity separate
from Western Reserve and its operations form a part of Western Reserve, it will
not be taxed separately as a "regulated investment company" under Subchapter M
of the Code. Investment income and realized capital gains on the assets of the
Series Account are reinvested and taken into account in determining the Contract
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.
Western Reserve reserves the right to make a deduction for taxes from the assets
of the Series Account should they 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.
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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 Value
over the investment in the Contract during the taxable year with respect to
Purchase Payments made after February 28, 1986. 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
Contract 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 Contract 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 Contract 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 surrendered 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.
A partial annuitization may be treated as a partial withdrawal from the
Contract prior to the Maturity Date, which could generate taxable income to the
extent the amounts held under the Contract exceed the investment in the
Contract. Accordingly, an Owner should contact a competent tax adviser before
effecting a partial annuitization.
3. ANNUITY PAYMENTS. Although the tax consequences may vary depending on
the annuity option elected under the Contract, in general, only the portion of
the annuity payment that represents the amount by which the Contract 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 annuity payments on a fixed basis, in general, there is no tax
on the portion of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each annuity
payment is taxable until the recovery of the investment in the Contract, and
thereafter the full amount or each annuity payment is taxable. If death occurs
before full recovery of the investment in the Contract, the unrecovered amount
may be deducted on the Annuitant's final tax return.
4. PENALTY TAX ON CERTAIN DISTRIBUTIONS. In the case of a distribution
pursuant to a Non-Qualified Contract, a penalty tax may be imposed equal to 10%
of the amount treated as taxable income. The penalty tax is not imposed in
certain circumstances, including, generally, distributions: (1) made on or after
the date on which the Owner attains age 59-1/2, (2) made as a result of death of
the Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
Surrender of the Contract, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as annuity payments, as
described above. 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.
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6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts
entered into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one Contract or other annuity
contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of
ownership or assignment of a Contract, the designation of an Annuitant or other
Beneficiary who is not also the Owner, 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 adviser in respect to the potential tax effects of such a
transaction.
8. POSSIBLE CHANGES IN TAXATION. Although the likelihood of legislative
change is uncertain, there is always the possibility that the tax treatment of
the Contracts could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the Federal taxation of the Contracts. It is also
possible that any change could be retroactive (that is, effective prior to the
date of the change). A tax advisor should be consulted with respect to
legislative developments and their effect on the Contract.
QUALIFIED PLANS
The Qualified Contract is designed for use with several types of qualified
retirement plans. The tax rules applicable to participants and beneficiaries in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions (including special rules
for certain lump sum distributions). Adverse tax consequences may result from
contributions in excess of specified limits, distributions prior to age 59-1/2
(subject to certain exceptions), distributions that do not conform to specified
minimum distribution rules, 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 therefore.
1. (a) SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments
made by public school systems and certain tax exempt organizations to purchase
annuity policies for their employees are excludable from the gross income of the
employee, subject to certain limitations, However, such payments may be subject
to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59-1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship. The Contract includes an Enhanced Death Benefit that in some cases
may exceed the greater of Purchase Payments (less amounts partially withdrawn)
or the Contract Value. The Enhanced Death Benefit could be characterized as an
incidental benefit, the amount of which is limited in any tax-sheltered annuity
under section 403(b). Because the Enhanced Death Benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax advisor.
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(b) RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM. 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
policy 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 Internal Revenue Service has
not reviewed the Contract for qualification as an IRA, and has not addressed in
a ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
3. ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRA). The Roth IRA, under
Section 408A of the Code, contains many of the same provisions as a Traditional
IRA. However, there are some differences. First, the contributions are not
deductible. The Roth IRA is available to individuals depending on their level
of income. The annual amount per individual that may be contributed to all IRAs
(Roth and Traditional) is $2,000. In addition, the Roth IRA offers tax-free
distributions when made from assets which have been held in the account for 5
tax years and are made after attaining age 59-1/2, to pay for qualified first
time homebuyer expenses (lifetime maximum of $10,000) or due to death or
disability. All other distributions are subject to income tax when made from
earnings and may be subject to a premature withdrawal penalty tax unless an
exception applies. Unlike the Traditional IRA, there are no minimum required
distributions during the Owner's lifteime; however, required distributions at
death are generally the same.
4. 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 self-employed individuals to
establish qualified plans for themselves and their employees. 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. The Contract includes
an Enhanced Death Benefit that in some cases may exceed the greater of Purchase
Payments (less amounts partially withdrawn) or the Contract Value. The Enhanced
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in any pension or profit-sharing plan. Because the Enhanced
Death Benefit may exceed this limitation, employers using the Contract in
connection with such plans should consult their tax advisor.
5. 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.
6. DISTRIBUTION FROM QUALIFIED PLANS. Under the tax qualification rules
for Section 401(a), 403(a), 403(b) and 457 plans, distributions generally must
commence no later than the later of April 1 of the calendar year following the
calendar year in which the Owner (or plan participant) (i) reaches age 70-1/2 or
(ii) retires, and must be made in specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), or if the plan
is a Traditional IRA, 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
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particular circumstances. Each Owner is responsible for requesting distributions
under the Contract that satisfy applicable tax rules, and should consult a
qualified tax adviser.
7. 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 adviser with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the
investments of the Series Account must be "adequately diversified" in
accordance with Treasury regulations in order for the Contracts to qualify as
annuity contracts under Section 72 of the Code. The Series Account, through the
Fund, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817.5, which affect how the Fund's assets may be
invested. Western Reserve believes the Series Account will, thus, meet the
diversification requirements of Section 817(h). If the Series Account does not
meet those diversification requirements, Owners would be taxed currently on any
investment income under the Contract.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. The Treasury Department has
stated in published rulings that a variable annuity contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also announced,
in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor (I.E., the contract owner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement further states that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular subaccounts without being treated as owners of
the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of more sub-accounts in which to
allocate net purchase payments and Contract values, and may be able to transfer
among sub-accounts more frequently than in such rulings. These differences could
result in an Owner being treated as the owner of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Contract as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Series Account.
2. DISTRIBUTION-AT-DEATH RULES. The Code also requires non-qualified
annuity contracts to contain specific provision for distribution of the
Contract proceeds upon the death of the Owner. In order to be treated as an
Annuity Contract for Federal income tax purposes, the Code requires that such
Contracts provide that (a) if any Owner dies on or after the Maturity Date and
before the entire interest in the Contract has been distributed, the remaining
portion must be distributed at least as rapidly as under the method in effect
on the Owner's death; and (b) if any Owner dies before the Maturity Date, the
entire interest in the Contract must generally be distributed within 5 years
after the Owner's date of death. These requirements
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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 by reasons of
death and must be a natural person. 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 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 Contract Values
to the Fixed Account, which is part of Western Reserve's general account.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 and neither
the Fixed Account nor the general account has been registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account, the general
account nor any interests therein are generally subject to the provisions of
these Acts and Western Reserve has been advised that the staff of the 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 Contract 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 discretion, in determining
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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) partial annuitization amounts, c) transfers to the Series Account,
or d) 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 partial annuitizations from the Fixed Account; minus
5. Any partial withdrawals or Surrenders from the Fixed Account; minus
6. Any amounts transferred to a Sub-Account from the Fixed Account; minus
7. Any amounts charged to the Fixed Account to pay the Administration Fee.
ALLOCATIONS, TRANSFERS AND 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. 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
annuitizations, 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 (but not partial annuitizations) from the Fixed
Account for up to six months. In addition, Contract provisions relating to
transfers, partial annuitizations, 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--Transfer to and from, and among Sub-Accounts" on page 22.)
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
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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. Broker-dealers will generally receive
first year sales commissions of up to 0.75% (seventy-five one hundredths of one
percent) of Purchase Payments. In addition, broker-dealers may receive renewal
commissions of up to 0.75% of the Annuity Value as of each Contract Anniversary,
beginning in the second Contract year and each year thereafter, providing the
Contract 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.
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 by dividing
the portion of the Contract Value in that Sub-Account by $100. Fractional
shares will be counted. The number of votes of the Portfolio that the Owner 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
Western Reserve, like other insurance companies, is involved in lawsuits.
Western Reserve is not aware of any class action lawsuits naming it as a
Defendant or involving the Series Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, Western Reserve believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have
a material adverse impact on the Series Account or Western Reserve.
YEAR 2000 MATTERS
In October 1996 Western Reserve adopted and presently has in place a Year
2000 Assessment and Planning Project (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data
communications systems, to determine if they are Year 2000 compatible. Western
Reserve has also engaged the services of a third-party provider that is
specialized in Year 2000 issues to work on the Plan.
As of the date of this Prospectus, Western Reserve has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent
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that the systems or equipment addresses Year 2000 data prior to the Year 2000).
Even with the appropriate and diligent pursuit of a well-conceived response
plan, including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results,
Western Reserve's ability to function unaffected to and through the Year 2000
may be adversely affected by actions (or failure to act) of third parties beyond
our knowledge or control.
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. Distribution of Contracts
5. Calculation of Performance Related Information
6. Addition, Deletion, and Substitution of Investments
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 34758-9051; telephone number
1-800-851-9777.
WRL00006-05/98
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PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
WRL SERIES ANNUITY ACCOUNT
WRL FREEDOM VARIABLE ANNUITY
Flexible Payment Variable Accumulation
Deferred Annuity Contract
Issued by
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
Telephone: 1-800 851-9777
(813) 585-6565
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus, dated May 1, 1998, which is available
without charge by contacting Western Reserve Life Assurance Co. of Ohio
("Western Reserve") at P.O. Box 9051, Clearwater, Florida 33758-9051 or at the
above telephone number.
May 1, 1998
WRL00007-05/98
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Custodian .................................................... 3
Independent Accountants ...................................... 3
Legal Matters ................................................ 3
Distribution of Contracts .................................... 3
Calculation of Performance Related Information ............... 3
Addition, Deletion, and Substitution of Investments .......... 6
Financial Statements ......................................... 6
</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 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,
1997. 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, 1997. 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, Assistant Secretary and Associate General Counsel of Western
Reserve.
DISTRIBUTION OF CONTRACTS
The offering of Contracts will be made on a continuous basis.
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 and
income other than investment income, in the value of a hypothetical
pre-existing account having a balance of one Accumulation 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 (36-5/7) with the
resulting figure carried to at least the nearest hundredth of one percent.
Effective Yield - The effective 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. The effective yield is computed by determining the net
change, exclusive of capital changes and income other than investment income,
in the value of a hypothetical pre-existing Sub-Account having a balance of one
Accumulation 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
account at the beginning of the base period to
3
<PAGE>
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} 36-5/7 ) - 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 base period.
Such fees and charges include the $30 Administration Fee, calculated on the
basis of an average Series Account Value per Contract of $42,232, which
converts that charge to an assumed charge at an annual rate of 0.07% 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 5% of the
requested redemption amount. The specific Withdrawal Charge fees 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 18-19 of the Prospectus.) No fees or
sales charges are assessed upon annuitization under the Contracts except
premium taxes. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of assets held by the Money Market
Sub-Account and the Fund are excluded from the calculation of yield.
B. TOTAL RETURN AND YIELD QUOTATIONS FOR THE AGGRESSIVE GROWTH, EMERGING
GROWTH, GROWTH, GLOBAL, BALANCED, STRATEGIC TOTAL RETURN, BOND, GROWTH &
INCOME, TACTICAL ASSET ALLOCATION, VALUE EQUITY, C.A.S.E. GROWTH, GLOBAL
SECTOR, INTERNATIONAL EQUITY, U.S. EQUITY, THIRD AVENUE VALUE AND REAL
ESTATE SECURITIES 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 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 finding the average annual
compounded rates of return over the relevant periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
<TABLE>
<S> <C> <C>
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.
</TABLE>
For purposes of the total return quotations for all these Sub-Accounts,
except the Money Market Sub-Account, the calculations take into effect all fees
that are charged to all Owner accounts. Such fees include the $30
Administration Fee, calculated on the basis of an average Series Account Value
per Contract of $42,232, which translates that charge into an assumed charge at
an annual rate of 0.07% of the Series Account value. The calculations also
assume a complete redemption as of the end of the particular period. The
calculations do not reflect the effect of any premium taxes or transfer charges
that may be applicable to a particular Contract.
The yield quotations, if any, for all of the Sub-Accounts, except the
Money Market Sub-Account, set forth in the Prospectus are based on the
thirty-day period ended on the date of the most recent balance sheet of the
Series Account and is computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
unit on the last date of the period, according to the following formula:
4
<PAGE>
<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 Accumulation Units outstanding during
the period.
d = the maximum offering price per Accumulation Unit on the last day
of the period.
For purposes of the yield quotations for all of these Sub-Accounts the
calculations take into effect all fees that are charged to all Owner accounts.
Such fees include the $30 Administration Fee, calculated on the basis of an
average Series Account Value per Contract of $42,232, which translates that
charge into an assumed charge at an annual rate of 0.07% of the Series Account
value. The calculations do not take into account any premium taxes, the
Withdrawal Charge or any transfer charges.
Premium taxes currently range from 0% to 3.5% of Purchase Payments
depending upon the jurisdiction in which the Contract is delivered. A
Withdrawal Charge may be assessed at the time of redemption in an amount
ranging up to 5% 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 18-19 of the Prospectus.)
C. OTHER PERFORMANCE DATA
Western Reserve may present the total return data stated in the Prospectus
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 this
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.
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 may 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
5
<PAGE>
volatility including the range of returns for different asset classes and over
different time horizons, and the correlation between the returns of different
asset classes. Western Reserve may also discuss the basis of portfolio
optimization including the required inputs and the construction of efficient
portfolios using sophisticated computer-based techniques. Finally, Western
Reserve may describe various investment strategies and methods of
implementation, the periodic rebalancing of diversified portfolios, the use of
dollar cost averaging techniques, a comparison of the tax impact of purchase
payments made on a "before tax" basis through a tax-qualified plan with those
made on an "after tax" basis outside of a tax-qualified plan, and a comparison
of tax-deferred versus non tax-deferred accumulation of purchase payments.
As described in the Prospectus, "Federal Tax Matters - Taxation of
Annuities," in general, a Contractowner is not taxed on increases in value
under a Contract until some form of distribution is made under the Contract. As
a result, the Contract Value may grow more rapidly than under a comparable
investment where certain increases in value are taxed on a current basis. From
time to time, Western Reserve may use narrative, numerical, or graphic examples
to show hypothetical benefits of its tax deferral.
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.
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,
1997, 1996 and 1995 have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WRL SERIES ANNUITY ACCOUNT (FREEDOM AND ATTAINER VARIABLE ANNUITIES):
Report of Independent Accountants dated January 30, 1998
Statements of assets, liabilities and equity accounts and statements of
operations for the year ended December 31, 1997
Statements of changes in equity accounts for the years ended December 31,
1997 and 1996
Selected per unit data and ratios for the years ended December 31, 1997,
1996, 1995, 1994 and 1993
Notes to Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Report of Independent Auditors dated February 27, 1998
Statutory-Basis Balance sheets at December 31, 1997 and 1996
Statutory-Basis Statements of operations for the years ended December 31,
1997, 1996 and 1995
Statutory-Basis Statements of changes in capital and surplus for the years
ended December 31, 1997, 1996 and 1995
Statutory-Basis Statements of cash flows for the years ended December 31,
1997, 1996 and 1995
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
7
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
----------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Contract Owners of the WRL Series Annuity Account--WRL Freedom Variable Annuity
and WRL Freedom Attainer Contracts
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of each of the Sub-Accounts
constituting the WRL Freedom Variable Annuity and WRL Freedom Attainer Contracts
of the WRL Series Annuity Account (a separate account of Western Reserve Life
Assurance Co. of Ohio, hereafter referred to as the "Annuity Account") at
December 31, 1997, the results of each of their operations, the changes in each
of their equity accounts and the selected per unit data and ratios for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and selected per unit data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Annuity Account's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 30, 1998
9
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1997
All amounts (except unit value, units and shares) in thousands
----------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................ 39,405,597 4,137,165 15,514,940
=========== ========== ===========
Cost .................................. $ 39,406 $ 45,465 $ 450,230
================= ================= ==================
Investments at net asset value ......... $ 39,406 $ 46,097 $ 571,636
Accrued transfers from depositor ....... 125 0 0
----------------- ----------------- ------------------
Total assets .......................... 39,531 46,097 571,636
----------------- ----------------- ------------------
LIABILITIES:
Accrued transfers to depositor ......... 0 15 180
----------------- ----------------- ------------------
Net assets ............................ $ 39,531 $ 46,082 $ 571,456
================= ================= ==================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................. 2,860,806.230777 2,360,470.224753 14,841,891.071521
================= ================= ==================
Unit value ............................ $ 13.818196 $ 19.522492 $ 38.502879
================= ================= ==================
Contract Owners' equity ............... $ 39,531 $ 46,082 $ 571,456
----------------- ----------------- ------------------
Depositor's equity:
Units ................................. N/A N/A N/A
================= ================= ==================
Unit value ............................ $ N/A $ N/A $ N/A
================= ================= ==================
Depositor's equity .................... $ N/A $ N/A $ N/A
----------------- ----------------- ------------------
Total equity .......................... $ 39,531 $ 46,082 $ 571,456
================= ================= ==================
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
GLOBAL TOTAL RETURN EMERGING GROWTH AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................ 13,746,466 10,495,823 8,127,101 4,650,806
=========== =========== ========== ==========
Cost .................................. $ 222,361 $ 130,138 $ 126,606 $ 68,273
================== ================= ================= =================
Investments at net asset value ......... $ 261,778 $ 163,993 $ 165,529 $ 74,621
Accrued transfers from depositor ....... 0 266 319 0
------------------ ----------------- ----------------- -----------------
Total assets .......................... 261,778 164,259 165,848 74,621
------------------ ----------------- ----------------- -----------------
LIABILITIES:
Accrued transfers to depositor ......... 461 0 0 77
------------------ ----------------- ----------------- -----------------
Net assets ............................ $ 261,317 $ 164,259 $ 165,848 $ 74,544
================== ================= ================= =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................. 10,843,759.264963 8,830,826.575966 7,179,789.683171 4,172,912.462699
================== ================= ================= =================
Unit value ............................ $ 24.098423 $ 18.600662 $ 23.099337 $ 17.863734
================== ================= ================= =================
Contract Owners' equity ............... $ 261,317 $ 164,259 $ 165,848 $ 74,544
------------------ ----------------- ----------------- -----------------
Depositor's equity:
Units ................................. N/A N/A N/A N/A
================== ================= ================= =================
Unit value ............................ $ N/A $ N/A $ N/A $ N/A
================== ================= ================= =================
Depositor's equity .................... $ N/A $ N/A $ N/A $ N/A
------------------ ----------------- ----------------- -----------------
Total equity .......................... $ 261,317 $ 164,259 $ 165,848 $ 74,544
================== ================= ================= =================
</TABLE>
The notes to the financial statements are an integral part of this report.
10
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1997
All amounts (except unit value, units and shares) in thousands
----------------------------------
<TABLE>
<CAPTION>
GROWTH & TACTICAL ASSET
BALANCED INCOME ALLOCATION C.A.S.E. GROWTH
SUB-ACCOUNT SUB-ACCOUNT (B) SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................ 1,446,665 1,103,879 5,717,078 1,239,030
========== ========== ========== ==========
Cost .................................. $ 15,867 $ 13,190 $ 69,277 $ 18,396
================= =============== ================= =================
Investments at net asset value ......... $ 17,373 $ 13,862 $ 77,827 $ 17,359
Accrued transfers from depositor ....... 0 194 96 318
----------------- --------------- ----------------- -----------------
Total assets .......................... 17,373 14,056 77,923 17,677
----------------- --------------- ----------------- -----------------
LIABILITIES:
Accrued transfers to depositor .......... 49 0 0 0
----------------- --------------- ----------------- -----------------
Net assets ............................ $ 17,324 $ 14,056 $ 77,923 $ 17,677
================= =============== ================= =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................. 1,238,709.131717 884,769.379950 5,049,374.089329 1,120,895.670619
================= =============== ================= =================
Unit value ............................ $ 13.985778 $ 15.886539 $ 15.432237 $ 15.770687
================= =============== ================= =================
Contract Owners' equity ............... $ 17,324 $ 14,056 $ 77,923 $ 17,677
----------------- --------------- ----------------- -----------------
Depositor's equity:
Units ................................. N/A N/A N/A N/A
================= =============== ================= =================
Unit value ............................ $ N/A $ N/A $ N/A $ N/A
================= =============== ================= =================
Depositor's equity .................... $ N/A $ N/A $ N/A $ N/A
----------------- --------------- ----------------- -----------------
Total equity .......................... $ 17,324 $ 14,056 $ 77,923 $ 17,677
================= =============== ================= =================
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL U.S.
GLOBAL SECTOR VALUE EQUITY EQUITY EQUITY
SUB-ACCOUNT (C) SUB-ACCOUNT SUB-ACCOUNT (D) SUB-ACCOUNT (D)
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares .................................. 227,753 3,551,418 595,288 1,026,410
======== ========== ======== ==========
Cost .................................... $ 2,427 $ 43,068 $ 6,474 $ 12,600
=============== ================= =============== ===============
Investments at net asset value ........... $ 2,361 $ 49,382 $ 6,372 $ 12,558
Accrued transfers from depositor ......... 0 0 5 0
--------------- ----------------- --------------- ---------------
Total assets ............................ 2,361 49,382 6,377 12,558
--------------- ----------------- --------------- ---------------
LIABILITIES:
Accrued transfers to depositor ........... 0 6 0 181
--------------- ----------------- --------------- ---------------
Net assets .............................. $ 2,361 $ 49,376 $ 6,377 $ 12,377
=============== ================= =============== ===============
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................... 169,725.641082 3,562,149.020767 570,632.722441 971,655.344974
=============== ================= =============== ===============
Unit value .............................. $ 10.745418 $ 13.861249 $ 10.616583 $ 12.544316
=============== ================= =============== ===============
Contract Owners' equity ................. $ 1,824 $ 49,376 $ 6,058 $ 12,189
--------------- ----------------- --------------- ---------------
Depositor's equity:
Units ................................... 49,997.602730 N/A 30,000.000000 15,000.000000
=============== ================= =============== ===============
Unit value .............................. $ 10.745418 $ N/A $ 10.616583 $ 12.544316
=============== ================= =============== ===============
Depositor's equity ...................... $ 537 $ N/A $ 319 $ 188
--------------- ----------------- --------------- ---------------
Total equity ............................ $ 2,361 $ 49,376 $ 6,377 $ 12,377
=============== ================= =============== ===============
</TABLE>
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) Prior to March 1, 1997, this sub-account was known as Meridian/INVESCO
Global Sector.
(d) The inception date of this sub-account was January 2, 1997.
The notes to the financial statements are an integral part of this report.
11
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
All amounts in thousands
----------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ............................................................ $2,524 $2,098 $3,949
Capital gain distributions ................................................. 0 0 57,909
-------- -------- --------
2,524 2,098 61,858
EXPENSES:
Mortality and expense risk ................................................. 610 504 7,280
-------- -------- --------
Net investment income (loss) .............................................. 1,914 1,594 54,578
-------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 0 (1,439) 40,068
Change in unrealized appreciation (depreciation) ........................... 0 2,760 (8,813)
-------- -------- --------
Net gain (loss) on investments ............................................ 0 1,321 31,255
-------- -------- --------
Net increase (decrease) in equity accounts resulting from operations ..... $ 1,914 $ 2,915 $ 85,833
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
SUB-ACCOUNT
<S> <C>
INVESTMENT INCOME:
Dividend income ............................................................. $14,850
Capital gain distributions .................................................. 16,769
---------
31,619
EXPENSES:
Mortality and expense risk .................................................. 3,219
---------
Net investment income (loss) ............................................... 28,400
---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 11,173
Change in unrealized appreciation (depreciation) ........................... 147
---------
Net gain (loss) on investments ............................................ 11,320
---------
Net increase (decrease) in equity accounts resulting from operations ..... $ 39,720
=========
<CAPTION>
STRATEGIC EMERGING AGGRESSIVE
TOTAL RETURN GROWTH GROWTH
SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ............................................................. $3,871 $0 $1,918
Capital gain distributions .................................................. 9,977 15,287 4,915
-------- -------- --------
13,848 15,287 6,833
EXPENSES:
Mortality and expense risk .................................................. 1,905 1,912 874
-------- -------- --------
Net investment income (loss) ............................................... 11,943 13,375 5,959
-------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 3,798 10,326 2,785
Change in unrealized appreciation (depreciation) ........................... 12,227 3,660 4,753
-------- -------- --------
Net gain (loss) on investments ............................................ 16,025 13,986 7,538
-------- -------- --------
Net increase (decrease) in equity accounts resulting from operations ..... $ 27,968 $ 27,361 $ 13,497
======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
12
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF OPERATIONS
For the year or period ended December 31, 1997
All amounts in thousands
----------------------------------
<TABLE>
<CAPTION>
GROWTH &
BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT (B)
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ............................................................. $899 $1,039
Capital gain distributions .................................................. 861 961
------- --------
1,760 2,000
EXPENSES:
Mortality and expense risk .................................................. 195 155
------- --------
Net investment income (loss) ............................................... 1,565 1,845
------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 570 802
Change in unrealized appreciation (depreciation) ........................... 91 (83)
------- --------
Net gain (loss) on investments ............................................ 661 719
------- --------
Net increase (decrease) in equity accounts resulting from operations ..... $ 2,226 $ 2,564
======= ========
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ............................................................. $2,846 $1,427
Capital gain distributions .................................................. 2,948 70
-------- --------
5,794 1,497
EXPENSES:
Mortality and expense risk .................................................. 878 85
-------- --------
Net investment income (loss) ............................................... 4,916 1,412
-------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 1,965 545
Change in unrealized appreciation (depreciation) ........................... 2,950 (1,258)
-------- --------
Net gain (loss) on investments ............................................ 4,915 (713)
-------- --------
Net increase (decrease) in equity accounts resulting from operations ..... $ 9,831 $ 699
======== ========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT (C) SUB-ACCOUNT
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $111 $544
Capital gain distributions ............................................. 9 85
------ -------
120 629
EXPENSES:
Mortality and expense risk ............................................. 31 437
------ -------
Net investment income (loss) .......................................... 89 192
------ -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 124 1,235
Change in unrealized appreciation (depreciation) ...................... (149) 5,135
------ -------
Net gain (loss) on investments ....................................... (25) 6,370
------ -------
Net increase (decrease) in equity accounts resulting from operations $ 64 $ 6,562
====== =======
<CAPTION>
INTERNATIONAL
EQUITY U.S. EQUITY
SUB-ACCOUNT (D) SUB-ACCOUNT (D)
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 27 $419
Capital gain distributions ............................................. 0 40
------ ------
27 459
EXPENSES:
Mortality and expense risk ............................................. 47 75
------ ------
Net investment income (loss) .......................................... (20) 384
------ ------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 48 640
Change in unrealized appreciation (depreciation) ...................... (102) (42)
------ ------
Net gain (loss) on investments ....................................... (54) 598
------ ------
Net increase (decrease) in equity accounts resulting from operations $ (74) $ 982
====== ======
</TABLE>
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) Prior to March 1, 1997, this sub-account was known as Meridian/INVESCO
Global Sector.
(d) The inception date of this sub-account was January 2, 1997.
The notes to the financial statements are an integral part of this report.
13
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year ended
All amounts in thousands
----------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------ -----------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 1,914 $ 1,736 $ 1,594 $ 2,117
Net gain (loss) on investments ........................... 0 0 1,321 (2,954)
---------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 1,914 1,736 2,915 (837)
---------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 11,544 20,116 7,028 (1,164)
---------- -------- -------- --------
Less cost of units redeemed:
Administrative charges. ................................. 27 27 30 37
Policy loans ............................................ 16 9 22 8
Surrender benefits ...................................... 24,076 12,020 8,533 5,574
Death benefits .......................................... 949 251 792 973
---------- -------- -------- --------
25,068 12,307 9,377 6,592
---------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... (13,524) 7,809 (2,349) (7,756)
---------- -------- -------- --------
Net increase (decrease) in equity accounts .............. (11,610) 9,545 566 (8,593)
Depositor's equity contribution (net redemption) ......... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 51,141 41,596 45,516 54,109
---------- -------- -------- --------
End of period ............................................ $ 39,531 $ 51,141 $ 46,082 $ 45,516
========== ======== ======== ========
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 54,578 $ 29,596
Net gain (loss) on investments ........................... 31,255 55,089
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 85,833 84,685
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 10,315 20,058
--------- ---------
Less cost of units redeemed:
Administrative charges. ................................. 468 489
Policy loans ............................................ 126 223
Surrender benefits ...................................... 97,322 57,168
Death benefits .......................................... 2,891 3,394
--------- ---------
100,807 61,274
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... (90,492) (41,216)
--------- ---------
Net increase (decrease) in equity accounts .............. (4,659) 43,469
Depositor's equity contribution (net redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 576,115 532,646
--------- ---------
End of period ............................................ $ 571,456 $ 576,115
========= =========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
GLOBAL TOTAL RETURN
SUB-ACCOUNT SUB-ACCOUNT (A)
DECEMBER 31 DECEMBER 31
--------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 28,400 $ 16,551 $ 11,943 $ 6,042
Net gain (loss) on investments ........................... 11,320 25,769 16,025 10,207
--------- --------- --------- ---------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 39,720 42,320 27,968 16,249
--------- --------- --------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 32,684 52,565 16,145 14,095
--------- --------- --------- ---------
Less cost of units redeemed:
Administrative charges .................................. 168 138 90 81
Policy loans ............................................ 47 83 13 43
Surrender benefits ...................................... 31,301 14,293 15,892 9,352
Death benefits .......................................... 756 611 648 453
--------- --------- --------- ---------
32,272 15,125 16,643 9,929
--------- --------- --------- ---------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 412 37,440 (498) 4,166
--------- --------- --------- ---------
Net increase (decrease) in equity accounts .............. 40,132 79,760 27,470 20,415
Depositor's equity contribution (net redemption) ......... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 221,185 141,425 136,789 116,374
--------- --------- --------- ---------
End of period ............................................ $ 261,317 $ 221,185 $ 164,259 $ 136,789
========= ========= ========= =========
</TABLE>
The notes to the financial statements are an integral part of this report.
14
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year ended
All amounts in thousands
----------------------------------
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
DECEMBER 31
--------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 13,375 $4,618
Net gain (loss) on investments ....................... 13,986 15,399
--------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 27,361 20,017
--------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 11,051 17,337
--------- --------
Less cost of units redeemed:
Administrative charges .............................. 107 99
Policy loans ........................................ 34 90
Surrender benefits .................................. 15,348 9,349
Death benefits ...................................... 357 331
--------- --------
15,846 9,869
--------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. (4,795) 7,468
--------- --------
Net increase (decrease) in equity accounts .......... 22,566 27,485
Depositor's equity contribution (redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period .................................. 143,282 115,797
--------- --------
End of period ........................................ $ 165,848 $ 143,282
========= =========
<CAPTION>
AGGRESSIVE GROWTH BALANCED
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------- -----------------------
1997 1996 1997 1996
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 5,959 $ 1,122 $1,565 $ 281
Net gain (loss) on investments ....................... 7,538 3,924 661 814
-------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 13,497 5,046 2,226 1,095
-------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 5,867 (1,290) 3,185 2,216
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .............................. 54 47 11 9
Policy loans ........................................ 8 28 5 8
Surrender benefits .................................. 7,976 5,022 1,589 789
Death benefits ...................................... 625 482 80 31
-------- -------- -------- --------
8,663 5,579 1,685 837
-------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. (2,796) (6,869) 1,500 1,379
-------- -------- -------- --------
Net increase (decrease) in equity accounts .......... 10,701 (1,823) 3,726 2,474
Depositor's equity contribution (redemption) ......... 0 0 0 (219)
EQUITY ACCOUNTS:
Beginning of period .................................. 63,843 65,666 13,598 11,343
-------- -------- -------- --------
End of period ........................................ $ 74,544 $ 63,843 $ 17,324 $ 13,598
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
INCOME
SUB-ACCOUNT (B)
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 1,845 $ 511
Net gain (loss) on investments ....................... 719 593
-------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 2,564 1,104
-------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 795 1,291
-------- --------
Less cost of units redeemed:
Administrative charges. ............................. 8 7
Policy loans ........................................ 0 1
Surrender benefits .................................. 1,665 1,581
Death benefits ...................................... 27 68
-------- --------
1,700 1,657
-------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. (905) (366)
-------- --------
Net increase (decrease) in equity accounts .......... 1,659 738
Depositor's equity contribution (redemption) ......... 0 (231)
EQUITY ACCOUNTS:
Beginning of period .................................. 12,397 11,890
-------- --------
End of period ........................................ $ 14,056 $ 12,397
======== ========
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
----------------------- -----------------------
1997 1996 1997 1996 (C)
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 4,916 $ 1,857 $ 1,412 $ 58
Net gain (loss) on investments ....................... 4,915 4,480 (713) 228
-------- -------- -------- -------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 9,831 6,337 699 286
-------- -------- -------- -------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 12,079 24,484 14,277 3,388
-------- -------- -------- -------
Less cost of units redeemed:
Administrative charges. ............................. 37 25 3 0
Policy loans ........................................ 2 0 5 1
Surrender benefits .................................. 5,667 3,370 887 61
Death benefits ...................................... 476 141 16 0
-------- -------- -------- -------
6,182 3,536 911 62
-------- -------- -------- -------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 5,897 20,948 13,366 3,326
-------- -------- -------- -------
Net increase (decrease) in equity accounts .......... 15,728 27,285 14,065 3,612
Depositor's equity contribution (redemption) ......... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period .................................. 62,195 34,910 3,612 0
-------- -------- -------- -------
End of period ........................................ $ 77,923 $ 62,195 $ 17,677 $ 3,612
======== ======== ======== =======
</TABLE>
The notes to the financial statements are an integral part of this report.
15
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year or period ended
All amounts in thousands
----------------------------------
<TABLE>
<CAPTION>
GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT (D) SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
------------------------- -------------------------
1997 1996(C) 1997 1996(C)
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 89 $ (1) $ 192 $ 16
Net gain (loss) on investments ........................... (25) 138 6,370 1,196
------- ------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 64 137 6,562 1,212
------- ------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 161 2,132 29,438 15,673
------- ------- -------- --------
Less cost of units redeemed:
Administrative charges .................................. 1 0 15 2
Policy loans ............................................ 0 4 4 1
Surrender benefits ...................................... 275 348 3,045 264
Death benefits .......................................... 5 0 67 89
------- ------- -------- --------
281 352 3,131 356
------- ------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... (120) 1,780 26,307 15,317
------- ------- -------- --------
Net increase (decrease) in equity accounts .............. (56) 1,917 32,869 16,529
Depositor's equity contribution (net redemption) ......... 0 500 (172) 150
EQUITY ACCOUNTS:
Beginning of period ...................................... 2,417 0 16,679 0
------- ------- -------- --------
End of period ............................................ $ 2,361 $ 2,417 $ 49,376 $ 16,679
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL U.S.
EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
1997 (E) 1997 (E)
----------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ (20) $ 384
Net gain (loss) on investments ........................... (54) 598
------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... (74) 982
------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 6,413 11,930
------- --------
Less cost of units redeemed:
Administrative charges .................................. 1 3
Policy loans ............................................ 0 0
Surrender benefits ...................................... 256 682
Death benefits .......................................... 5 0
------- --------
262 685
------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 6,151 11,245
------- --------
Net increase (decrease) in equity accounts .............. 6,077 12,227
Depositor's equity contribution (net redemption) ......... 300 150
EQUITY ACCOUNTS:
Beginning of period ...................................... 0 0
------- --------
End of period ............................................ $ 6,377 $ 12,377
======= ========
</TABLE>
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) The inception date of this sub-account was May 1, 1996.
(d) Prior to March 1, 1997, this sub-account was known as Meridian/INVESCO
Global Sector.
(e) The inception date of this sub-account was January 2, 1997.
The notes to the financial statements are an integral part of this report.
16
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
----------------------------------
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 13.29 $ 12.80
Income from operations:
Net investment income (loss) ....................................... 0.53 0.49
Net realized and unrealized gain (loss) on investments ............. 0.00 0.00
-------- --------
Total income (loss) from operations ............................... 0.53 0.49
-------- --------
Accumulation unit value, end of period ............................... $ 13.82 $ 13.29
======== ========
Total return (a) ..................................................... 4.00% 3.81%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 39,531 $ 51,141
Ratios of net investment income (loss) to average net assets (b) .... 3.92% 3.72%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
DECEMBER 31
-------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 12.29 $ 12.03 $ 11.89
Income from operations:
Net investment income (loss) ....................................... 0.51 0.26 0.14
Net realized and unrealized gain (loss) on investments ............. 0.00 0.00 0.00
-------- -------- --------
Total income (loss) from operations ............................... 0.51 0.26 0.14
-------- -------- --------
Accumulation unit value, end of period ............................... $ 12.80 $ 12.29 $ 12.03
======== ======== ========
Total return (a) ..................................................... 4.12% 2.22% 1.16%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 41,596 $ 55,318 $ 32,943
Ratios of net investment income (loss) to average net assets (b) .... 4.03% 2.28% 1.15%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 18.11 $ 18.31
Income from operations:
Net investment income (loss) ....................................... 0.73 0.77
Net realized and unrealized gain (loss) on investments ............. 0.68 (0.97)
-------- -------
Total income (loss) from operations ............................... 1.41 (0.20)
-------- -------
Accumulation unit value, end of period ............................... $ 19.52 $ 18.11
======== =======
Total return (a) ..................................................... 7.80% (1.10%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 46,082 $45,516
Ratios of net investment income (loss) to average net assets (b) .... 3.95% 4.34%
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31
------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.08 $ 16.40 $ 14.65
Income from operations:
Net investment income (loss) ....................................... 0.83 0.72 1.67
Net realized and unrealized gain (loss) on investments ............. 2.40 (2.04) 0.08
------- ------- -------
Total income (loss) from operations ............................... 3.23 (1.32) 1.75
------- ------- -------
Accumulation unit value, end of period ............................... $ 18.31 $ 15.08 $ 16.40
======= ======= =======
Total return (a) ..................................................... 21.46% (8.10%) 11.97%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $54,109 $47,193 $66,483
Ratios of net investment income (loss) to average net assets (b) .... 4.94% 4.69% 10.94%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 33.17 $ 28.47
Income from operations:
Net investment income (loss) ....................................... 3.42 1.64
Net realized and unrealized gain (loss) on investments ............. 1.91 3.06
--------- ---------
Total income (loss) from operations ............................... 5.33 4.70
--------- ---------
Accumulation unit value, end of period ............................... $ 38.50 $ 33.17
========= =========
Total return (a) ..................................................... 16.09% 16.50%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 571,456 $ 576,115
Ratios of net investment income (loss) to average net assets (b) .... 9.36% 5.22%
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31
------------------------------------------
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 19.60 $ 21.64 $ 21.07
Income from operations:
Net investment income (loss) ....................................... 2.35 (0.06) 0.20
Net realized and unrealized gain (loss) on investments ............. 6.52 (1.98) 0.37
--------- -------- ---------
Total income (loss) from operations ............................... 8.87 (2.04) 0.57
--------- -------- ---------
Accumulation unit value, end of period ............................... $ 28.47 $ 19.60 $ 21.64
========= ======== =========
Total return (a) ..................................................... 45.29% (9.45%) 2.69%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 532,646 $ 409,881 $ 575,024
Ratios of net investment income (loss) to average net assets (b) .... 9.81% (0.28%) 0.99%
</TABLE>
The notes to the financial statements are an integral part of this report.
17
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
----------------------------------
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period .......................... $ 20.55 $ 16.29
Income from operations:
Net investment income (loss) ........................................ 2.55 1.62
Net realized and unrealized gain (loss) on investments .............. 1.00 2.64
--------- ---------
Total income (loss) from operations ................................ 3.55 4.26
--------- ---------
Accumulation unit value, end of period ................................ $ 24.10 $ 20.55
========= =========
Total return (a) ...................................................... 17.28% 26.15%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $ 261,317 $ 221,185
Ratios of net investment income (loss) to average net assets (b) ..... 11.01% 8.60%
<CAPTION>
GLOBAL SUB-ACCOUNT
DECEMBER 31
----------------------------------------
1995 1994 1993
------------- -------------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 13.40 $ 13.54 $ 10.15
Income from operations:
Net investment income (loss) ........................................ 0.42 0.45 0.16
Net realized and unrealized gain (loss) on investments .............. 2.47 (0.59) 3.23
--------- -------- -------
Total income (loss) from operations ................................ 2.89 (0.14) 3.39
--------- -------- -------
Accumulation unit value, end of period ................................ $ 16.29 $ 13.40 $ 13.54
========= ======== =======
Total return (a) ...................................................... 21.53% (0.99%) 33.34%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $ 141,425 $ 144,705 $69,665
Ratios of net investment income (loss) to average net assets (b) ..... 2.89% 3.40% 1.40%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT (H)
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.46 $ 13.61
Income from operations:
Net investment income (loss) ....................................... 1.34 0.68
Net realized and unrealized gain (loss) on investments ............. 1.80 1.17
--------- ---------
Total income (loss) from operations ............................... 3.14 1.85
--------- ---------
Accumulation unit value, end of period ............................... $ 18.60 $ 15.46
========= =========
Total return (a) ..................................................... 20.34% 13.57%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 164,259 $ 136,789
Ratios of net investment income (loss) to average net assets (b) .... 7.83% 4.75%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT (H)
DECEMBER 31
-------------------------------------
1995 1994 1993 (C)
------------- ------------ ----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.06 $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.59 0.16 0.16
Net realized and unrealized gain (loss) on investments ............. 1.96 (0.35) 1.09
--------- ------- -------
Total income (loss) from operations ............................... 2.55 (0.19) 1.25
--------- ------- -------
Accumulation unit value, end of period ............................... $ 13.61 $ 11.06 $ 11.25
========= ======= =======
Total return (a) ..................................................... 23.11% (1.77%) 12.54%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 116,374 $88,607 $49,240
Ratios of net investment income (loss) to average net assets (b) .... 4.74% 1.43% 1.84%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 19.26 $ 16.40
Income from operations:
Net investment income (loss) ....................................... 1.85 0.63
Net realized and unrealized gain (loss) on investments ............. 1.99 2.23
--------- ---------
Total income (loss) from operations ............................... 3.84 2.86
--------- ---------
Accumulation unit value, end of period ............................... $ 23.10 $ 19.26
========= =========
Total return (a) ..................................................... 19.95% 17.41%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 165,848 $ 143,282
Ratios of net investment income (loss) to average net assets (b) .... 8.73% 3.42%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
DECEMBER 31
---------------------------------------
1995 1994 1993 (C)
------------- ------------ ------------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.31 $ 12.37 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.51 (0.13) (0.12)
Net realized and unrealized gain (loss) on investments ............. 4.58 (0.93) 2.49
--------- ------- -------
Total income (loss) from operations ............................... 5.09 (1.06) 2.37
--------- ------- -------
Accumulation unit value, end of period ............................... $ 16.40 $ 11.31 $ 12.37
========= ======= =======
Total return (a) ..................................................... 44.97% (8.51%) 23.67%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 115,797 $83,480 $58,794
Ratios of net investment income (loss) to average net assets (b) .... 3.68% (1.21%) (1.30%)
</TABLE>
The notes to the financial statements are an integral part of this report.
18
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
----------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
DECEMBER 31
-------------------------------------------------------
1997 1996 1995 1994 (D)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 14.56 $ 13.35 $ 9.79 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.42 0.25 0.29 (0.08)
Net realized and unrealized gain (loss) on investments ............. 1.88 0.96 3.27 (0.13)
------- -------- ------- -------
Total income (loss) from operations ............................... 3.30 1.21 3.56 (0.21)
------- -------- ------- -------
Accumulation unit value, end of period ............................... $ 17.86 $ 14.56 $ 13.35 $ 9.79
======= ======== ======= =======
Total return (a) ..................................................... 22.71% 9.07% 36.31% (2.08%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $74,544 $ 63,843 $65,666 $18,555
Ratios of net investment income (loss) to average net assets (b) .... 8.51% 1.77% 2.28% (1.04%)
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
DECEMBER 31
------------------------------------------------------
1997 1996 1995 1994 (D)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 12.09 $ 11.06 $ 9.35 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.32 0.26 0.29 0.21
Net realized and unrealized gain (loss) on investments ............. 0.58 0.77 1.42 (0.86)
------- ------- ------- -------
Total income (loss) from operations ............................... 1.90 1.03 1.71 (0.65)
------- ------- ------- -------
Accumulation unit value, end of period ............................... $ 13.99 $ 12.09 $ 11.06 $ 9.35
======= ======= ======= =======
Total return (a) ..................................................... 15.65% 9.34% 18.31% (6.52%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $17,324 $13,598 $11,343 $ 9,379
Ratios of net investment income (loss) to average net assets (b) .... 10.01% 2.29% 2.85% 2.63%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT (I)
DECEMBER 31
------------------------------------------------------
1997 1996 1995 1994 (D)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 12.91 $ 11.71 $ 9.46 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 2.06 0.50 0.45 0.32
Net realized and unrealized gain (loss) on investments ............. 0.92 0.70 1.80 (0.86)
------- ------- ------- -------
Total income (loss) from operations ............................... 2.98 1.20 2.25 (0.54)
------- ------- ------- -------
Accumulation unit value, end of period ............................... $ 15.89 $ 12.91 $ 11.71 $ 9.46
======= ======= ======= =======
Total return (a) ..................................................... 23.10% 10.25% 23.70% (5.37%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $14,056 $12,397 $11,890 $ 5,506
Ratios of net investment income (loss) to average net assets (b) .... 14.87% 4.17% 4.26% 4.07%
</TABLE>
The notes to the financial statements are an integral part of this report.
19
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
----------------------------------
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
DECEMBER 31
--------------------------------------
1997 1996 1995 (E)
----------- ----------- ----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 13.40 $ 11.86 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.02 0.46 0.58
Net realized and unrealized gain (loss) on investments ............. 1.01 1.08 1.28
------- ------- -------
Total income (loss) from operations ............................... 2.03 1.54 1.86
------- ------- -------
Accumulation unit value, end of period ............................... $ 15.43 $ 13.40 $ 11.86
======= ======= =======
Total return (a) ..................................................... 15.14% 13.00% 18.61%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $77,923 $62,195 $34,910
Ratios of net investment income (loss) to average net assets (b) .... 6.99% 3.71% 5.25%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH
SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996 (F)
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 13.88 $ 12.87
Income from operations:
Net investment income (loss) ....................................... 3.15 0.39
Net realized and unrealized gain (loss) on investments ............. (1.26) 0.62
------- -------
Total income (loss) from operations ............................... 1.89 1.01
------- -------
Accumulation unit value, end of period ............................... $ 15.77 $ 13.88
======= =======
Total return (a) ..................................................... 13.60% 7.84%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $17,677 $ 3,612
Ratios of net investment income (loss) to average net assets (b) .... 20.61% 4.43%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR
SUB-ACCOUNT
(J)
DECEMBER 31
------------------------
1997 1996 (F)
---------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 10.52 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.39 (0.01)
Net realized and unrealized gain (loss) on investments ............. (0.16) 0.53
------- -------
Total income (loss) from operations ............................... 0.23 0.52
------- -------
Accumulation unit value, end of period ............................... $ 10.75 $ 10.52
======= =======
Total return (a) ..................................................... 2.15% 5.19%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 2,361 $ 2,417
Ratios of net investment income (loss) to average net assets (b) .... 3.54% (0.09%)
</TABLE>
The notes to the financial statements are an integral part of this report.
20
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
----------------------------------
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996 (F)
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.22 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.07 0.02
Net realized and unrealized gain (loss) on investments ............. 2.57 1.20
------- -------
Total income (loss) from operations ............................... 2.64 1.22
------- -------
Accumulation unit value, end of period ............................... $ 13.86 $ 11.22
======= =======
Total return (a) ..................................................... 23.49% 12.25%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $49,376 $16,679
Ratios of net investment income (loss) to average net assets (b) .... 0.55% 0.30%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL U.S.
EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31
1997 (G) 1997 (G)
---------------- ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ....................................... (0.05) 0.75
Net realized and unrealized gain (loss) on investments ............. 0.67 1.79
------- -------
Total income (loss) from operations ............................... 0.62 2.54
------- -------
Accumulation unit value, end of period ............................... $ 10.62 $ 12.54
======= =======
Total return (a) ..................................................... 6.17% 25.44%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 6,377 $12,377
Ratios of net investment income (loss) to average net assets (b) .... (0.52%) 6.37%
</TABLE>
* The above tables illustrate the change for a unit outstanding computed using
average units outstanding throughout each period. See Notes to Selected Per
Unit Data and Ratios below.
NOTES TO SELECTED PER UNIT DATA AND RATIOS:
(a) For periods less than one year, the total return is not annualized.
(b) For periods less than one year, the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was March 1, 1993.
(d) The inception date of this sub-account was March 1, 1994.
(e) The inception date of this sub-account was January 3, 1995.
(f) The inception date of this sub-account was May 1, 1996.
(g) The inception date of this sub-account was January 2, 1997.
(h) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(i) Prior to May 1, 1997, this sub-account was known as Utility.
(j) Prior to March 1, 1997, this sub-account was known as Meridian/INVESCO
Global Sector.
The notes to the financial statements are an integral part of this report.
21
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
-----------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
The WRL Series Annuity Account (the "Annuity Account"), was established as a
variable accumulation deferred annuity separate account of Western Reserve Life
Assurance Co. of Ohio ("WRL") and is registered as a unit investment trust
("Trust") under the Investment Company Act of 1940, as amended. The Annuity
Account encompasses various contract types: the WRL Freedom Variable Annuity
and the WRL Freedom Attainer ("Freedom and Attainer"); the WRL Freedom
Bellwether, the WRL Freedom Conqueror, and the WRL Freedom Wealth Creator
("Bellwether, Conqueror, and Creator"). Information presented in these
financial statements pertains only to the Freedom and Attainer contracts. The
financial statements for the Bellwether, Conqueror, and Creator contracts are
presented separately. Each contains fifteen investment options referred to as
sub-accounts. Each sub-account invests in the corresponding Portfolio of the
WRL Series Fund, Inc. (collectively referred to as the "Fund" and individually
as a "Portfolio"), a registered management investment company under the
Investment Company Act of 1940, as amended.
The Fund has entered into annually renewable investment advisory agreements
for each Portfolio with WRL Investment Management, Inc. (|P`WRL Management|P')
as investment adviser. Costs incurred in connection with the advisory services
rendered by WRL Management are paid by each Portfolio. WRL Management has
entered into sub-advisory agreements with various management companies, some of
which are affiliates of WRL. Each sub-adviser is compensated directly by WRL
Management.
Effective March 1, 1997, the name of the Meridian/ INVESCO Global Sector
Sub-Account was changed to Global Sector Sub-Account. Effective May 1, 1997, the
names of the Equity-Income and Utility Sub-Accounts were changed to the
Strategic Total Return and Growth & Income Sub-Accounts, respectively.
On December 16, 1997, pursuant to an exemptive order (Rel. No. IC-22944)
received from the Securities and Exchange Commission for the substitution of
securities issued by the WRL Series Fund and held by the Annuity Series Account
to support individual flexible premium deferred variable annuity contracts,
investments were transferred from the Short-to-Intermediate Government
Sub-Account to the Bond Sub-Account.
On January 2, 1997, WRL made an initial contribution of $ 450,000 to the
Freedom and Attainer Annuity Account. The amount of the contribution and units
received were as follows:
<TABLE>
<CAPTION>
SUB-ACCOUNT CONTRIBUTION UNITS
- ----------------------- -------------- --------------
<S> <C> <C>
International Equity $ 300,000 30,000.000000
U.S. Equity $ 150,000 15,000.000000
</TABLE>
Freedom and Attainer sub-accounts hold assets to support the benefits under
certain flexible payment variable accumulation deferred annuity contracts (the
"Contracts") issued by WRL. The Annuity Account equity transactions are
accounted for using the appropriate effective date at the corresponding
accumulation unit value.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently applied in the preparation of the Trust's financial statements.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset value
("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt of
sale or redemptions order without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Annuity Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under current law, the investment income of the Annuity
Account, including realized and unrealized capital gains, is not taxable to WRL.
Accordingly, no provision for Federal income taxes has been made.
C. ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
22
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(continued)
----------------------------------
NOTE 2 -- CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and
administration of the Contracts.
A. CONTRACT CHARGES
No deduction for sales expenses is made from purchase payments. A contingent
deferred sales charge may, however, be assessed against contract values when
withdrawn or surrendered.
On each anniversary through maturity date, WRL will deduct an annual contract
charge as partial compensation for providing administrative services under the
Contracts.
B. FREEDOM AND ATTAINER SUB-ACCOUNT CHARGES
A daily charge equal to an annual rate of 1.25% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks and
administrative services in connection with issuance and administration of the
Contracts. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 -- DIVIDENDS AND DISTRIBUTIONS
Dividends of the Money Market Portfolio are declared daily and reinvested
monthly. Dividends of the remaining Portfolios are typically declared and
reinvested semi-annually, while capital gains distributions are declared and
reinvested annually. Dividends and distributions of the Fund are recorded on
the ex-date and generally are paid to and reinvested by the Annuity Account on
the next business day after the ex-date. Dividends are not declared by the
Annuity Account, since the increase in the value of the underlying investment
in the Fund is reflected daily in the unit price used to calculate the equity
value within the Annuity Account. Consequently, a dividend distribution by the
underlying Fund does not change either the unit price or equity values within
the Annuity Account.
NOTE 4 -- SECURITIES TRANSACTIONS
Securities transactions are summarized as follows:
For the year or period ended December 31, 1997 (in thousands)
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
Purchase of long-term securities .................... $ 77,459 $ 13,440 $ 77,599
Proceeds from sales of long-term securities ......... 89,192 14,216 113,285
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 58,765 $ 24,235 $ 34,844
Proceeds from sales of long-term securities ......... 29,925 13,009 26,452
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 21,589 $ 5,947 $ 6,307
Proceeds from sales of long-term securities ......... 18,353 2,831 5,553
TACTICAL ASSET C.A.S.E. GLOBAL
ALLOCATION GROWTH SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 19,362 $ 17,376 $ 1,150
Proceeds from sales of long-term securities ......... 8,536 2,936 1,176
VALUE INTERNATIONAL U.S.
EQUITY EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Purchase of long-term securities .................... $ 31,913 $ 7,000 $ 18,799
Proceeds from sales of long-term securities ......... 5,559 575 6,838
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
23
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(continued)
-----------------------------
NOTE 5 -- EQUITY TRANSACTIONS
For the year or period ended December 31, 1997
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
Units balance - beginning of year ........... 3,848,980.206975 2,513,341.667873 17,369,774.620879
Units issued ................................ 11,575,147.233223 862,978.730209 2,279,098.834370
Units redeemed .............................. 12,563,321.209421 1,015,850.173329 4,806,982.383728
----------------- ---------------- -----------------
Units balance - end of year ................. 2,860,806.230777 2,360,470.224753 14,841,891.071521
================= ================ =================
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 10,764,226.518931 8,849,836.119981 7,440,062.350527
Units issued ................................ 3,749,061.891357 2,112,435.596505 2,546,826.204044
Units redeemed .............................. 3,669,529.145325 2,131,445.140520 2,807,098.871400
----------------- ---------------- -----------------
Units balance - end of year ................. 10,843,759.264963 8,830,826.575966 7,179,789.683171
================= ================ =================
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 4,385,415.675763 1,124,365.141725 960,651.569215
Units issued ................................ 1,850,632.936955 510,629.580596 478,200.816416
Units redeemed .............................. 2,063,136.150019 396,285.590604 554,083.005681
----------------- ---------------- -----------------
Units balance - end of year ................. 4,172,912.462699 1,238,709.131717 884,769.379950
================= ================ =================
TACTICAL ASSET C.A.S.E. GLOBAL
ALLOCATION GROWTH SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 4,640,508.914581 260,151.966141 229,745.728608
Units issued ................................ 1,855,596.907295 1,161,937.075802 113,395.988568
Units redeemed .............................. 1,446,731.732547 301,193.371324 123,418.473364
----------------- ---------------- -----------------
Units balance - end of year ................. 5,049,374.089329 1,120,895.670619 219,723.243812
================= ================ =================
VALUE INTERNATIONAL U.S.
EQUITY EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Units balance - beginning of period ......... 1,485,890.372880 N/A N/A
Units issued ................................ 3,435,914.288799 716,805.101676 1,741,590.992223
Units redeemed .............................. 1,359,655.640912 116,172.379235 754,935.647249
----------------- ---------------- -----------------
Units balance - end of period ............... 3,562,149.020767 600,632.722441 986,655.344974
================= ================ =================
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
24
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FREEDOM AND ATTAINER
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(continued)
-----------------------------
NOTE 6 -- OTHER MATTERS
At December 31, 1997, the equity accounts included net unrealized
appreciation (depreciation) on investments as follows (in thousands):
<TABLE>
<CAPTION>
SUB-ACCOUNT
- -----------
<S> <C>
Money Market ........................ $ N/A
Bond ................................ 632
Growth .............................. 121,406
Global .............................. 39,417
Strategic Total Return .............. 33,855
Emerging Growth ..................... 38,923
Aggressive Growth ................... 6,348
Balanced ............................ 1,506
Growth & Income ..................... 672
Tactical Asset Allocation ........... 8,550
C.A.S.E. Growth ..................... (1,037)
Global Sector ....................... (66)
Value Equity ........................ 6,314
International Equity ................ (102)
U.S. Equity ......................... (42)
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the statutory-basis financial
statement schedules required by Regulation S-X, Article 7. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the balance sheets of the Company. The Separate Account
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the data included
for the Separate Account, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1997 and 1996, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1997.
Also, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997 in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 27, 1998
26
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
1997 1996
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments ................... $ 13,896 $ 2,480
Bonds ............................................. 255,919 359,579
Common stocks:
Affiliated entities (cost: 1997 - $150) ......... 319 -
Other (cost: 1997 and 1996 - $302) .............. 428 597
Mortgage loans on real estate ..................... 4,824 6,049
Home office properties ............................ 19,964 7,962
Policy loans ...................................... 76,741 52,604
---------- ----------
Total cash and invested assets ..................... 372,091 429,271
Premiums deferred and uncollected .................. 1,928 1,943
Accrued investment income .......................... 4,088 5,940
Receivable from affiliates ......................... - 1,165
Transfers from separate accounts ................... 279,958 204,181
Other assets ....................................... 5,221 3,962
Separate account assets ............................ 4,814,594 3,527,145
---------- ----------
Total admitted assets .............................. $5,477,880 $4,173,607
========== ==========
SEE ACCOMPANYING NOTES.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
------------- ------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ................................................. $ 186,523 $ 155,166
Annuity .............................................. 296,290 332,230
Policy and contract claim reserves .................... 10,929 8,584
Other policyholders' funds ............................ 3,877 3,104
Remittances and items not allocated ................... 9,184 9,107
Federal income taxes payable .......................... 2,283 1,266
Asset valuation reserve ............................... 2,436 5,710
Interest maintenance reserve .......................... 9,134 7,451
Short-term note payable to affiliate .................. 8,200 -
Payable to affiliate .................................. 1,925 20,463
Other liabilities ..................................... 19,257 13,082
Separate account liabilities .......................... 4,812,979 3,521,888
---------- ----------
Total liabilities ...................................... 5,363,017 4,078,051
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares authorized,
issued and outstanding .............................. 1,500 1,500
Paid-in surplus ....................................... 88,015 68,015
Unassigned surplus .................................... 25,348 26,041
---------- ----------
Total capital and surplus .............................. 114,863 95,556
---------- ----------
Total liabilities and capital and surplus .............. $5,477,880 $4,173,607
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ............................................................................... $ 394,370 $ 293,590 $ 191,508
Annuity ............................................................................ 822,149 740,125 378,390
Net investment income ............................................................... 40,013 36,067 40,891
Amortization of interest maintenance reserve ........................................ 1,576 1,335 882
Commissions and expense allowances on reinsurance ceded ............................. 11 11 11
Other income ........................................................................ 3,016 13,398 8,237
---------- ---------- ----------
1,261,135 1,084,526 619,919
Benefits and expenses:
Benefits paid or provided for:
Life ............................................................................... 28,060 21,256 17,844
Surrender benefits ................................................................. 431,939 286,406 206,250
Other benefits ..................................................................... 28,112 23,270 19,530
Increase (decrease) in aggregate reserves for policies and contracts: ..............
Life .............................................................................. 29,485 80,139 (15,132)
Annuity ........................................................................... (35,940) 12,877 5,229
Other ............................................................................. 794 422 109
---------- ---------- ----------
482,450 424,370 233,830
Insurance expenses:
Commissions ........................................................................ 179,106 140,261 82,903
General insurance expenses ......................................................... 70,546 47,406 37,246
Taxes, licenses and fees ........................................................... 13,101 10,848 8,919
Transfer to separate accounts ...................................................... 519,214 452,471 242,427
Other expenses ..................................................................... 21 60 34
---------- ---------- ----------
781,988 651,046 371,529
---------- ---------- ----------
1,264,438 1,075,416 605,359
---------- ---------- ----------
Gain (loss) from operations before federal income taxes and realized capital gains
(losses) on investments ............................................................ (3,303) 9,110 14,560
Federal income tax expense ........................................................... 469 9,297 8,917
---------- ---------- ----------
Gain (loss) from operations before realized capital gains (losses)
on investments ..................................................................... (3,772) (187) 5,643
Net realized capital gains (losses) on investments (net of related
federal income taxes and amounts transferred to interest
maintenance reserve) ............................................................... 747 (811) (1,678)
---------- ---------- ----------
Net income (loss) .................................................................... $ (3,025) $ (998) $ 3,965
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN SURPLUS
-------------- -----------------
<S> <C> <C>
Balance at January 1, 1995 ........................... $1,500 $68,015
Net income for 1995 ................................. - -
Net unrealized capital losses ....................... - -
Decrease in non-admitted assets ..................... - -
Decrease in asset valuation reserve ................. - -
Increase in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
Other adjustments ................................... - -
------ -------
Balance at December 31, 1995 ......................... 1,500 68,015
Net loss for 1996 ................................... - -
Net unrealized capital gains ........................ - -
Decrease in non-admitted assets ..................... - -
Increase in asset valuation reserve ................. - -
Increase in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
------ -------
Balance at December 31, 1996 ......................... 1,500 68,015
Net loss for 1997 ................................... - -
Increase in non-admitted assets ..................... - -
Decrease in asset valuation reserve ................. - -
Decrease in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
Capital contribution ................................ - 20,000
Tax effect of capital loss carry-forward utilized
by affiliates ..................................... - -
------ -------
Balance at December 31, 1997 ......................... $1,500 $88,015
====== =======
</TABLE>
<TABLE>
<CAPTION>
UNASSIGNED SURPLUS TOTAL CAPITAL AND SURPLUS
-------------------- --------------------------
<S> <C> <C>
Balance at January 1, 1995 ........................... $ 25,505 $ 95,020
Net income for 1995 ................................. 3,965 3,965
Net unrealized capital losses ....................... (500) (500)
Decrease in non-admitted assets ..................... 903 903
Decrease in asset valuation reserve ................. 2,901 2,901
Increase in surplus in separate accounts ............ 541 541
Change in reserve valuation ......................... (3,496) (3,496)
Other adjustments ................................... (1,395) (1,395)
-------- --------
Balance at December 31, 1995 ......................... 28,424 97,939
Net loss for 1996 ................................... (998) (998)
Net unrealized capital gains ........................ 1,294 1,294
Decrease in non-admitted assets ..................... 199 199
Increase in asset valuation reserve ................. (120) (120)
Increase in surplus in separate accounts ............ 237 237
Change in reserve valuation ......................... (2,995) (2,995)
-------- --------
Balance at December 31, 1996 ......................... 26,041 95,556
Net loss for 1997 ................................... (3,025) (3,025)
Increase in non-admitted assets ..................... (702) (702)
Decrease in asset valuation reserve ................. 3,274 3,274
Decrease in surplus in separate accounts ............ (2,115) (2,115)
Change in reserve valuation ......................... (1,872) (1,872)
Capital contribution ................................ - 20,000
Tax effect of capital loss carry-forward utilized
by affiliates ..................................... 3,747 3,747
-------- --------
Balance at December 31, 1997 ......................... $ 25,348 $114,863
======== --------
</TABLE>
SEE ACCOMPANYING NOTES.
30
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ...... $1,224,228 $1,046,548 $ 577,986
Net investment income ...................................... 43,802 38,666 42,359
Life and accident and health claims ........................ (26,005) (20,655) (16,759)
Surrender benefits and other fund withdrawals .............. (431,939) (286,406) (206,250)
Other benefits to policyholders ............................ (28,147) (22,129) (19,041)
Commissions, other expenses and other taxes ................ (261,352) (196,373) (128,341)
Net transfers to separate accounts ......................... (596,347) (658,326) (242,427)
Federal income taxes paid .................................. (5,006) (9,449) (7,531)
Interest paid .............................................. (731) - -
Other, net ................................................. (6,768) 28,325 (4,284)
---------- ---------- ----------
Net cash used in operating activities ...................... (88,265) (79,799) (4,288)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks ................................ 146,963 122,820 108,554
Common stocks ............................................. - - 2,108
Mortgage loans on real estate ............................. 2,116 132 1,954
Real estate ............................................... - 4,304 -
Other ..................................................... - 175 -
---------- ---------- ----------
149,079 127,431 112,616
Cost of investments acquired ...............................
Bonds and preferred stocks ................................ (40,418) (26,826) (139,402)
Common stocks ............................................. (150) (4) (589)
Mortgage loans on real estate ............................. (891) - (6)
Real estate ............................................... (12,002) (7,837) (449)
Policy loans .............................................. (24,137) (15,479) (9,605)
Other ..................................................... - (5) -
---------- ----------- ----------
(77,598) (50,151) (150,051)
---------- ---------- ----------
Net cash provided by (used in) investing activities ........ 71,481 77,280 (37,435)
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate ........... 8,200 - -
Capital contribution ....................................... 20,000 - -
---------- ---------- ----------
Net cash provided by financing activities .................. 28,200 - -
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ..... 11,416 (2,519) (41,723)
Cash and short-term investments at beginning of year ....... 2,480 4,999 46,722
---------- ---------- ----------
Cash and short-term investments at end of year ............. $ 13,896 $ 2,480 $ 4,999
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
through financial planners, independent representatives, financial institutions
and stockbrokers. The majority of the Company's new life insurance written and
a substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (reported at amortized cost), available-for-sale (reported
at fair value), and trading (reported at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding asset or liability rather than shown as gross amounts
on the balance sheet; (f) deferred income taxes are not provided for the
difference between the financial statement amounts and income tax bases of
assets and liabilities; (g) net realized gains or losses attributed to changes
in the level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) declines
in the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in which
the employers provide service; and (l) the financial statements of wholly-owned
affiliates are not consolidated with those of the Company. The effects of these
variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1998, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements. The impact of
any such changes on the Company's statutory surplus cannot be determined at
this time and could be material.
32
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Common stocks of
unaffiliated companies are carried at market and include shares of mutual funds
(money market and other), and the related unrealized capital gains/ (losses)
are reported in unassigned surplus without any adjustment for federal income
taxes. Common stocks of the Company's wholly-owned affiliates are recorded at
the equity in net assets. Home office property is reported at cost less
allowances for depreciation. Depreciation is computed principally by the
straight-line method. Policy loans are reported at unpaid principal. Other
"admitted assets" are valued, principally at cost, as required or permitted by
Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1997, 1996 and 1995, net realized capital gains of $3,259, $2,394 and
$554, respectively, were credited to the IMR rather than being immediately
recognized in the statements of operations. Amortization of these net gains
aggregated $1,576, $1,335 and $882 for the years ended December 31, 1997, 1996
and 1995, respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. No investment income due and accrued has
been excluded for the years ended December 31, 1997, 1996 and 1995, with
respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using
interest rates ranging from 2.25 to 5.50 percent and are computed principally
on the Net Level Premium Valuation and the Commissioners' Reserve Valuation
Methods. Reserves for universal life policies are based on account balances
adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest.
33
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Reserves for immediate annuities and supplementary contracts with life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 5.75 to 8.75 percent and mortality rates, where
appropriate, from a variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any
minimum guarantees and the investment risks associated with market value
changes are borne entirely by the policyholders. The Company received variable
contract premiums of $1,164,013, $997,513 and $466,822 in 1997, 1996 and 1995,
respectively. All variable account contracts are subject to discretionary
withdrawal by the policyholder at the market value of the underlying assets
less the current surrender charge. Separate account contractholders have no
claim against the assets of the general account.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
NOTE 2 -- FAIR VALUES OF FINANCIAL
INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparisons to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values for equity securities are based on
quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
34
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- FAIR VALUES OF FINANCIAL
INSTRUMENTS--(CONTINUED)
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------------- ---------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds ................ $ 255,919 $ 267,763 $ 359,579 $ 372,319
Common stocks ........ 747 747 597 597
Mortgage loans
on real estate ..... 4,824 5,143 6,049 6,134
Policy loans ......... 76,741 76,741 52,604 52,604
Cash and
short-term
investments ........ 13,896 13,896 2,480 2,480
Separate account
assets ............. 4,814,594 4,814,594 3,527,145 3,527,145
LIABILITIES
Investment
contract
liabilities ........ 280,121 276,113 321,293 314,748
Separate account
annuities .......... 3,615,255 3,565,557 2,692,614 2,647,266
</TABLE>
NOTE 3 -- INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States
Government
and agencies ...... $ 3,675 $ 9 $ 30 $ 3,654
State, municipal
and other
government ........ 3,855 360 - 4,215
Public utilities ..... 15,794 904 403 16,295
Industrial and
miscellaneous ..... 121,513 7,700 710 128,503
Mortgage-backed
securities ........ 111,082 4,198 184 115,096
-------- ------- ------ --------
Total bonds .......... $255,919 $13,171 $1,327 $267,763
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States
Government and
agencies .............. $ 11,422 $ 13 $ 292 $ 11,143
State, municipal
and other
government ............ 5,504 274 - 5,778
Public utilities ......... 14,808 848 80 15,576
Industrial and
miscellaneous ......... 173,097 8,889 910 181,076
Mortgage-backed
securities ............ 154,748 4,617 619 158,746
-------- ------- ------ --------
Total bonds .............. $359,579 $14,641 $1,901 $372,319
======== ======= ====== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1997 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
35
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 18,310 $ 18,467
Due one through five years ......................... 67,005 70,952
Due five through ten years ......................... 29,508 30,621
Due after ten years ................................ 30,014 32,627
-------- --------
144,837 152,667
Mortgage and other asset backed securities ......... 111,082 115,096
-------- --------
$255,919 $267,763
======== ========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds ....................... $25,723 $33,969 $38,624
Dividends on equity investments ......... 10,855 - 30
Interest on mortgage loans .............. 478 559 573
Rental income on real estate ............ 1,371 919 1,014
Interest on policy loans ................ 4,656 3,339 2,353
Other investment income ................. 26 9 328
------- ------- -------
Gross investment income ................. 43,109 38,795 42,922
Investment expenses ..................... (3,096) (2,728) (2,031)
------- ------- -------
Net investment income ................... $40,013 $36,067 $40,891
======= ======= =======
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $146,963 $122,820 $108,554
======== ======== ========
Gross realized gains .......... $ 3,921 $ 2,984 $ 1,631
Gross realized losses ......... 626 791 1,346
-------- -------- --------
Net realized gains ............ $ 3,295 $ 2,193 $ 285
======== ======== ========
</TABLE>
At December 31, 1997, bonds with an aggregate carrying value of $5,474 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
Realized
---------------------------------------
Year ended December 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Debt securities .................................. $3,295 $2,193 $ 285
Mortgage loans ................................... - - (1,409)
Real estate ...................................... - (606) -
Other invested assets ............................ - (4) -
------ ------- -------
3,295 1,583 (1,124)
Tax benefit ...................................... (711) - -
Transfer to interest maintenance reserve ......... (3,259) (2,394) (554)
------ ------ -------
Net realized gains (losses) ...................... $ 747 $ (811) $(1,678)
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------------------
Year ended December 31
---------------------------------------
1997 1996 1995
---------- ------------- ----------
<S> <C> <C> <C>
Debt securities ................. $ (896) $(14,442) $36,399
Common stock .................... - (66) (236)
------ -------- -------
Change in unrealized appreciation
(depreciation) ................ $ (896) $(14,508) $36,163
====== ======== =======
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
Unrealized
-------------------------
Year ended December 31
-------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Unrealized gains ............. $295 $295 $361
Unrealized losses ............ - - -
---- ---- ----
Net unrealized gains ......... $295 $295 $361
==== ==== ====
</TABLE>
During 1997, the Company issued one mortgage loan with an interest rate of
8.07%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 69%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
36
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- INVESTMENTS--(CONTINUED)
During 1997, 1996 and 1995, no mortgage loans were foreclosed and transferred
to real estate. During 1997 and 1996, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $54 and $138, respectively.
At December 31, 1997, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
NOTE 4 -- REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Direct premiums ............. $1,219,271 $1,034,757 $570,413
Reinsurance assumed ......... 2,389 2,063 1,569
Reinsurance ceded ........... (5,141) (3,105) (2,084)
---------- ---------- --------
Net premiums earned ......... $1,216,519 $1,033,715 $569,898
========== ========== ========
</TABLE>
The Company received reinsurance recoveries in the amount of $2,288, $2,156 and
$512 during 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2,721 and $974, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1997 and 1996 of $1,369 and $1,140,
respectively.
NOTE 5 -- INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Computed tax at federal statutory rate
(35%) ........................................ $ (1,156) $3,189 $5,096
Deferred acquisition costs - tax basis ......... 9,164 7,172 4,241
Tax reserve valuation .......................... (194) (696) (34)
Excess tax depreciation ........................ (127) (65) (49)
Amortization of IMR ............................ (552) (467) (309)
Dividend received deduction .................... (5,326) - -
Other, net ..................................... (1,340) 164 (28)
-------- ------ ------
Federal income tax expense ..................... $ 469 $9,297 $8,917
======== ====== ======
</TABLE>
For the year ended December 31, 1997, federal income tax benefit differs from
the amount computed by applying the statutory federal income tax rate to
realized gains due to the recognition for tax purposes of a deferred loss
previously incurred on a transfer of bonds from the Company to an affiliate.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation, but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($293 at December 31, 1997). To the extent dividends are paid
from the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect).
37
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- INCOME TAXES--(CONTINUED)
The assessment was charged to surplus as a prior period adjustment. An
examination is currently underway for years 1994 through 1995.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
NOTE 6 -- POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies,
provided that a dividend distribution, which is determined annually based on
mortality and persistency experience of the participating policies, is
authorized by the Company. Participating insurance constituted approximately
.03% and .04% of life insurance in force at December 31, 1997 and 1996,
respectively.
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996
------------------------- -------------------------
PERCENT Percent
AMOUNT OF TOTAL Amount of Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market
value adjustment .............. $ 13,812 1% $ 14,881 1%
Subject to discretionary
withdrawal at book value
less surrender charge ......... 68,376 2 63,619 2
Subject to discretionary
withdrawal at market value 3,615,255 91 2,692,614 89
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996
------------------------- -------------------------
PERCENT Percent
AMOUNT OF TOTAL Amount of Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal at book value
(minimal or no charges or
adjustments) .................. 201,457 5 239,204 7
Not subject to discretionary
withdrawal provision .......... 16,572 1 17,603 1
---------- -- ---------- --
3,915,472 100% 3,027,921 100%
===== =====
Less reinsurance ceded .......... - -
---------- ----------
Total policy reserves on
annuities and deposit fund
liabilities ................... $3,915,472 $3,027,921
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Transfers as reported in the
summary of operations of the
separate accounts statement:
Transfers to separate accounts ......... $1,164,013 $997,513 $466,882
Transfers from separate
accounts ............................. 646,477 339,523 224,416
---------- -------- ---------
Net transfers to separate
accounts ............................. 517,536 657,990 242,466
Reconciling adjustments - change
in accruals for investment
management, administration
fees and contract guarantees,
and separate account surplus ......... 1,678 (205,519) (39)
---------- -------- ---------
Transfers as reported in the
summary of operations of the
life, accident and health annual
statement ............................ $ 519,214 $452,471 $242,427
========== ======== =========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1997 and 1996, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
38
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- --------- --------
<S> <C> <C> <C>
DECEMBER 31, 1997
Ordinary direct first year business ......... $ 2 $ 1 $ 1
Ordinary direct renewal business ............ 1,350 140 1,210
Group life direct business .................. 717 - 717
------ ---- ------
$2,069 $141 $1,928
====== ==== ======
DECEMBER 31, 1996
Ordinary direct first year business ......... $ 40 $ 9 $ 31
Ordinary direct renewal business ............ 1,431 225 1,206
Group life direct business .................. 622 - 622
Annuity renewal business .................... 94 10 84
------ ---- ------
$2,187 $244 $1,943
====== ==== ======
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$1,710 and $1,904, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $26 and $27 to cover these deficiencies at December 31, 1997 and
1996, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $1,872, $2,995 and
$3,496 was made for the years ended December 31, 1997, 1996 and 1995,
respectively, related to the change in reserve methodology.
NOTE 7 -- DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
NOTE 8 -- RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $659, $581 and $505 for the years ended
December 31, 1997, 1996 and 1995, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974.
Pension expense related to this plan was $448, $184 and $305 for the years
ended December 31, 1997, 1996 and 1995, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
39
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits
to employees meeting certain eligibility requirements. Portions of the medical
and dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $99, $98
and $86 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1997,
1996 and 1995, the Company paid $10,040, $10,038 and $8,825, respectively, for
such services, which approximates their costs to the affiliates. Company
provides office space, marketing and administrative services to certain
affiliates. During 1997, 1996 and 1995, the Company received $4,395, $3,271 and
$4,545, respectively, for such services, which approximates their cost. The
Company had a net payable with affiliates of $1,925 and $19,298 at December 31,
1997 and 1996, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.33% at December 31, 1997. During 1997,
1996 and 1995, the Company paid (received) net interest of $364, $138 and
$(294), respectively, to (from) affiliates.
The Company received capital contributions of $20,000 from its parent in 1997.
At December 31, 1997, the Company has a $8,200 short-term note payable to an
affiliate. Interest on this note accrues at 5.60 %.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most
recent information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
nsolvencies are not determinable by the Company. The Company has established a
reserve of $4,007 and $4,344 and an offsetting premium tax benefit of $1,070
and $1,218 at December 31, 1997 and 1996, respectively, for its estimated share
of future guaranty fund assessments related to several major insurer
insolvencies. The guaranty fund expense was $0, $212 and $1,950 at December 31,
1997, 1996 and 1995, respectively.
NOTE 11 -- YEAR 2000 (UNAUDITED)
AEGON has adopted and has in place a Year 2000 Assessment and Planning Project
(the "Project") to review and analyze its information technology and systems to
determine if they are Year 2000 compatible. The Company has begun to convert or
modify, where necessary, critical data processing systems. It is contemplated
that the plan will be substantially completed by early 1999. The Company does
not expect this project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the project, the
Company has undertaken communications with its significant customers, suppliers
and other third parties to determine their Year 2000 compatibility and
readiness. Management believes that the issues associated with the Year 2000
will be resolved with no material financial impact on the Company.
40
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Since the Year 2000 computer problem, and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of the Company, its ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
41
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -------------------------------------------------------------------- ---------- ---------- ----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government agencies and authorities .. $ 65,611 $ 68,452 $ 65,611
States, municipalities and political subdivisions ................. 1,840 1,974 1,840
Foreign governments ............................................... 2,015 2,241 2,015
Public utilities .................................................. 15,794 16,295 15,794
All other corporate bonds ......................................... 170,659 178,801 170,659
-------- -------- --------
Total fixed maturities ............................................. 255,919 267,763 255,919
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other ........................... 452 747 747
-------- -------- --------
Total equity securities ............................................ 452 747 747
Mortgage loans on real estate ...................................... 4,824 4,824
Real estate ........................................................ 19,964 19,964
Policy loans ....................................................... 76,741 76,741
Cash and short-term investments .................................... 13,896 13,896
-------- --------
Total investments .................................................. $371,796 $372,091
======== ========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accruals of discounts.
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
BENEFITS,
CLAIMS,
FUTURE POLICY POLICY AND NET LOSSES AND OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
--------------- ------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Individual life ............... $177,088 $ 9,533 $ 390,452 $13,742 $ 88,738 $176,303
Group life .................... 9,435 805 3,918 810 3,986 3,292
Annuity ....................... 296,290 591 822,149 25,461 389,726 83,179
-------- ------- ---------- ------- -------- --------
$482,813 $10,929 $1,216,519 $40,013 $482,450 $262,774
======== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31, 1996
Individual life ............... $145,964 $ 7,017 $ 289,375 $ 8,228 $125,861 $124,181
Group life and health ......... 9,202 713 4,215 3,940 3,828 2,818
Annuity ....................... 332,230 854 740,125 23,899 294,681 71,576
-------- ------- ---------- ------- -------- --------
$487,396 $ 8,584 $1,033,715 $36,067 $424,370 $198,575
======== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31, 1995
Individual life ............... $ 64,128 $ 5,811 $ 188,143 $ 9,470 $ 20,048 $ 83,709
Group life .................... 7,904 701 3,365 1,054 2,774 946
Annuity ....................... 319,353 100 378,390 30,367 211,008 44,447
-------- ------- ---------- ------- -------- --------
$391,385 $ 6,612 $ 569,898 $40,891 $233,830 $129,102
======== ======= ========== ======= ======== ========
</TABLE>
*Allocations of net investment income and other operating expenses are based on
a number of assumptions and estimates, and the results would change if
different methods were applied.
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
OTHER FROM OTHER NET AMOUNT ASSUMED
GROSS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ......... $40,221,361 $6,776,447 $2,692,822 $36,137,736 7.5%
=========== ========== ========== =========== ===
Premiums:
Individual life ................ $ 395,361 $ 4,910 $ - $ 390,452 0.0%
Group life and health .......... 1,761 231 2,389 3,918 61.0
Annuity ........................ 822,149 - - 822,149 0.0
----------- ---------- ---------- ----------- ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
=========== ========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1996
Life insurance in force ......... $28,168,880 $4,463,986 $2,210,601 $25,915,495 8.5%
=========== ========== ========== =========== ====
Premiums:
Individual life ................ $ 292,239 $ 2,863 $ - $ 289,376 0.0%
Group life and health .......... 2,393 242 2,063 4,214 49.0
Annuity ........................ 740,125 - - 740,125 0.0
----------- ---------- ---------- ----------- ----
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
=========== ========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1995
Life insurance in force ......... $19,438,203 $1,365,119 $1,619,378 $19,692,462 8.2%
=========== ========== ========== =========== ====
Premiums:
Individual life ................ $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life ..................... 2,153 357 1,569 3,365 46.6
Annuity ........................ 378,390 - - 378,390 0.0
----------- ---------- ---------- ----------- ----
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=========== ========== ========== =========== ====
</TABLE>
44
<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 which is incorporated by
reference herein.
(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. (1)
(b) Form of Broker/Dealer Supervisory and Service
Agreement. (1)
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract.
(b) Contract Loan Endorsements.
(c) Other Endorsements.
(5) Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract. (1)
(6) (a) Copy of Second Amended Articles of Incorporation
of Western Reserve. (1)
(b) Copy of Amended Code of Regulations of
Western Reserve. 1/
(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.
(12) Not Applicable.
(13) Schedules for Computation of Performance Quotations.
(2)
C-1
<PAGE>
(14) Not Applicable.
(15) (a) Powers of Attorney. (1)
(b) Power of Attorney - James R. Walker. (3)
- ------------------------
(1) This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 dated April 20, 1988 (File No. 33-49556) and is incorporated
herein by reference.
(2) This exhibit was previously filed on Post-Effective Amendment No. 28 to
Form N-1A Registration Statement dated April 24, 1998 (File No. 33-507)
and is incorporated herein by reference.
(3) This exhibit was filed on Post-Effective Amendment No. 7 to 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
Lyman H. Treadway 30195 Chagrin Boulevard Director
Suite 210N
Cleveland, OH 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
Alan M. Yaeger (1) Executive Vice
President, Actuary
and Chief Financial Officer
G. John Hurley (1) Executive Vice
President
William H. Geiger (1) Senior Vice President,
Secretary and
General Counsel
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
- -------------------------
(1) 201 Highland Avenue, Largo, Florida 33770
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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 Company of Ohio - Insurance (OH)
(100%)
WRL Series Fund, Inc. - Mutual fund (MD)
Monumental Life Insurance Company - Insurance (MD) (100%)
Monumental General Casualty Company - Insurance (MD) (100%)
United Financial Services, Inc. - General Agency (MD) (100%)
Bankers Financial Life Insurance Company - Insurance (AZ)
The Whitestone Corporation - Insurance agency (MD) (100%)
Cadet Holding Corp. - Holding company (IA) (100%)
AUSA Holding Company - Holding company (MD) (100%)
Monumental General Insurance Group, Inc. - Holding company (MD)
(100%)
Monumental General Administrators, Inc. - Provides management
services to unaffiliated third party administrator (MD) (100%)
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services (MD) (100%)
Monumental General Mass Marketing, Inc. - Marketing arm for sale of
mass marketed insurance coverages (MD) (100%)
AUSA Financial Markets, Inc. - Marketing (IA) (100%)
Universal Benefits Corporation - Third party administrator (IA)
(100%)
Investors Warranty of America, Inc. - Provider of automobile
extended maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - Trust company (IA) (100%)
Money Services, Inc. - Provides financial counseling for employees
and agents of affiliated companies (DE) (100%)
Zahorik Company, Inc. - Broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
InterSecurities, Inc. - Broker-dealer (DE) (100%)
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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%)
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 March 31, 1998, 7,776 non-qualified contracts and 10,485 qualified
contracts were 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.
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OHIO GENERAL CORPORATION LAW
Section 1701.13 Authority of corporation.
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(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:
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(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.
(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
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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
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
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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 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.
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(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,
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<PAGE>
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, Western Reserve will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) InterSecurities, Inc. ("ISI"), formerly known as Idex
Distributors, Inc. and before that, as Pioneer Western
Distributors, Inc., 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
William H. Geiger (1) Director and Secretary
Thomas R. Moriarty (1) Senior Vice President
William G. Cummings (1) Vice President and
Treasurer
--------------------------
(1) 201 Highland Avenue, Largo, Florida 33770
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by the Registrant through Western Reserve, 201
Highland Avenue, Largo, Florida 33770.
Item 31. MANAGEMENT SERVICES
Not Applicable
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<PAGE>
Item 32. UNDERTAKINGS
Western Reserve Life Assurance Co. of Ohio ("Western Reserve")
hereby represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by Western Reserve.
Item 33. SECTION 403(b)(11) REPRESENTATION
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986,
Registrant is relying on the no-action letter issued by the Office
of Insurance Products and Legal Compliance, Division of Investment
Management, to the American Council of Life Insurance dated November
28, 1988 (Ref. No. IP-6-88), and that the provisions of paragraphs
(1) - (4) thereof have been complied with.
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant 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. 16 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 28th day of April, 1998.
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. 16 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ JOHN R. KENNEY
------------------ Chairman of the Board, April 28, 1998
John R. Kenney Chief Executive Officer
and President
(Principal Executive
Officer)
/s/ ALLAN J. HAMILTON
- --------------------- Vice President, Treasurer April 28, 1998
Allan J. Hamilton and Controller
/s/ ALAN M. YAEGER
- ---------------------- Executive Vice President, April 28, 1998
Alan M. Yaeger Actuary and Chief Financial
Officer
/s/ PATRICK S. BAIRD Director April 28, 1998
- ----------------------
Patrick S. Baird */
<PAGE>
/s/ LYMAN H. TREADWAY Director April 28, 1998
- ---------------------
Lyman H. Treadway */
/s/JACK E. ZIMMERMAN Director April 28, 199
- --------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director April 28, 199
- --------------------
James R. Walker */
*/ /s/ THOMAS E. PIERPAN
- ------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
EXHIBIT (4)(a)
Specimen Flexible Payment Variable Accumulation Deferred Annuity Contract
<PAGE>
EXHIBIT 99.A7
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
(A STOCK COMPANY)
Home Office: Columbus, Ohio
Administrative Office: Clearwater, Florida
- --------------------------------------------------------------------------------
IN THIS CONTRACT Western Reserve Life Assurance Co. Of Ohio will be referred to
as WE, OUR or US. OFFICE refers to our Administrative Office located in
Clearwater, Florida.
- --------------------------------------------------------------------------------
WE agree to pay the benefits of this Contract in accordance with its provisions.
CONTRACT VALUES DURING THE ACCUMULATION PERIOD WILL INCREASE OR DECREASE IN
ACCORDANCE WITH THE CONTRACT VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF
THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CONTRACT VALUES, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SUBACCOUNT OF THE SEPARATE ACCOUNT, ARE VARIABLE AND
ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
THE CONSIDERATION for this Contract is the application and the payment of the
Initial Payment.
THE APPLICANT, OWNER, AND BENEFICIARY are as shown in the application unless
changed in accordance with the provisions of this Contract.
THE PROVISIONS on the following pages are part of this Contract.
IN WITNESS WHEREOF, we have signed this Contract at our Office in Clearwater,
Florida as of the Contract Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
--------------------- ------------------
Secretary President
- --------------------------------------------------------------------------------
RIGHT TO EXAMINE CONTRACT - The Owner may cancel this Contract at any time
within twenty days after receipt by returning it to us at P.O. Box 5068,
Clearwater, Florida 34618 or to the agent through whom it was purchased. If the
Contract is returned within this period, we will pay to the Owner the sum of:
1. The difference, if any, between the payments received and the amounts
allocated to any subaccounts and the fixed account under this Contract; plus
2. The amount allocated to the fixed account under this Contract; plus
3. The value of amounts allocated to the subaccounts on the date we or our
agent receive the returned Contract.
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit prior to Maturity.
Monthly Annuity commencing on Maturity Date.
Non-participating - No Dividends
Page 1
<PAGE>
CONTRACT GUIDE
ENDORSEMENTS .............................................................. 2
CONTRACT SHCEDULE ......................................................... 3
BLANK PAGE ................................................................ 4
DEFINITIONS ............................................................... 5
GENERAL PROVISIONS ........................................................ 6
SEPARATE ACCOUNT PROVISIONS ............................................... 7
PURCHASE PAYMENTS PROVISIONS .............................................. 8
DEATH BENEFIT PROVISIONS .................................................. 8
CONTRACT VALUE PROVISIONS ................................................. 9
ANNUITY PROVISIONS ........................................................ 11
TABLE OF ANNUITY PAYMENTS ................................................. 12
- --------------------------------------------------------------------------------
ENDORSEMENTS
Page 2
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
CONTRACT SCHEDULE
ANNUITANT: JOHN DOE CONTRACT NUMBER: 01-23456789
ANNUITY OPTION: B-10 YEAR CERTAIN CONTRACT DATE: JUL 07, 1997
ISSUE AGE AND SEX 35 - MALE MATURITY DATE: JUL 07, 2052
INITIAL PAYMENT: $25,000.00
ANTICIPATED PURCHASE PAYMENT PATTERN*
AMOUNT MODE YEARS PAYABLE
$25,000,00 ANNUAL 55 YEARS
* THE ANTICIPATED PURCHASE PAYMENT PATTERN IS BASED UPON SELECTION MADE IN
THE APPLICATION. THE AMOUNT AND MODE MAY BE CHANGED IN ACCORDANCE WITH THE
PURCHASE PAYMENT PROVISIONS ON PAGE 8.
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT: WRL SERIES ANNUITY ACCOUNT
MORTALITY AND EXPENSE RISK .00003424
CHARGE:
PURCHASE PAYMENT PROVISIONS
COLLECTION FEE: $0.00
MAXIMUM ADDITIONAL PAYMENT: $1,000,000
MINIMUM ADDITIONAL PAYMENT: $ 100
CONTRACT VALUE PROVISIONS
MINIMUM ALLOCATION PERCENTAGE: 10%
ANNUAL CONTRACT CHARGE: $30
MINIMUM BALANCE: $10,000
MINIMUM MONTHLY INCOME: $100
WITHDRAWAL CHARGE PERIOD: 5 YEARS
WITHDRAWAL CHARGE PERCENTAGE: 5%
Page 3
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
Page 4
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD. The period between the Contract Date and the Maturity Date
while the Contract is in force.
AGE. Issue Age refers to the age on the birthday nearest the Contract Date.
Attained Age refers to the Issue Age plus the number of completed contract
years.
ANNUITANT. The person named on the Contract Schedule Page, or as subsequently
changed, to receive annuity payments. The Annuitant may be changed as provided
in the Annuity Provisions.
ANNUITY PROCEEDS. The amount applied to purchase periodic annuity payments. Such
amount may be either a partial annuitization amount prior to the Maturity Date
or the annuity value on the Maturity Date, less any applicable premium taxes.
CONTINGENT ANNUITANT. The person named to become the new Annuitant upon the
current Annuitant's death during the accumulation period if the Owner is still
alive.
CONTINGENT BENEFICIARY. The new beneficiary upon the current beneficiary's
death.
CONTRACT DATE. The later of the date on which payments are first received and
the date the properly completed application is received by us at our Office.
FIXED ACCOUNT. An investment option other than the separate account.
MATURITY DATE. The date on which the accumulation period ends and annuity
payments are to commence. The date may be changed as provided in the Annuity
Provisions.
PREMIUM TAX. Premium taxes levied by a state or other government entity will be
paid when due and charged either against the purchase payment or the contract
value.
SEC. The Securities and Exchange Commission.
SEPARATE ACCOUNT. A separate investment account composed of several subaccounts
established to receive and invest net payments under the Contract.
SERIES FUND. A designated mutual fund from which each subaccount of the Separate
Account will buy shares.
SUPPLEMENTARY CONTRACT. A separate document to be issued at the time a partial
annuitization amount is withdrawn from this Contract outlining the terms of the
periodic annuity payments.
SURRENDER. The termination of the Contract at the option of the Owner.
VALUATION DATE. Each Monday through Friday except customary national business
holidays on which the New York Stock Exchange is not open for business.
VALUATION PERIOD. The period commencing at the end of one valuation date and
continuing to the end of the next succeeding valuation date.
WITHDRAWAL CHARGE PERIOD. The period of time a withdrawal charge may be imposed.
For each purchase payment, the period begins on the date the payment is received
by us.
Page 5
<PAGE>
GENERAL PROVISIONS
THE CONTRACT. This Contract and the attached application constitute the entire
contract. All statements in the application, in the absence of fraud, will be
deemed representations and not warranties. No statement can be used to void this
Contract or be used in defense of a claim unless it is contained in the written
application. No Contract provision can be waived or changed except by
endorsement. Such endorsement must be signed by our President or Secretary. We
reserve the right to amend the Contract to meet the requirements of any
applicable Federal or state laws or regulations.
OWNERSHIP. This Contract belongs to the Owner. The Owner, as named in the
application or subsequently changed, may exercise all rights under this Contract
including the right to transfer ownership. If two Owners are named, this
Contract will be owned jointly and the consent of each Owner will be required to
exercise ownership rights under the Contract.
We will not be bound by any change in the Ownership designation unless it is
made in writing and accepted by us. The change will be effective on the date it
is accepted by us. If we request, this Contract must be returned to our Office
for endorsement.
BENEFICIARY. The Beneficiary, as named in the application or subsequently
changed, will receive the benefits, if any, payable upon the earlier of (1) the
death of any Owner, or (2) the death of the Annuitant if no Contingent Annuitant
is named. If no Beneficiary survives the decedent, the benefits payable at death
will be paid to the Owner's estate.
We will not be bound by any change in the Beneficiary designation unless it is
made in writing and received at our Office. The request must be made by the
Owner in a form acceptable to us. The change will be effective on the date it
was signed; however, no change will apply to any payment we made before the
change is received. If we request, this Contract must be returned to our Office
for endorsement.
ASSIGNMENT. This Contract may be assigned prior to the Maturity Date. We will
not be bound by any assignment unless made in writing and accepted by us. The
assignment will be effective on the date it is accepted by us.
We assume no responsibility for the validity of any assignment.
INCONTESTABILITY. This Contract is incontestable from the Contract Date.
ISSUE AGE AND SEX. Issue Age refers to the age at nearest birthday on the
Contract Date. If a date of birth or sex has been misstated, any amount payable
will be adjusted to conform to the correct date of birth and sex.
CONTRACT YEARS. Contract years and anniversaries are measured from the Contract
Date.
REPORTS. During the accumulation period, we will send a report to the Owner at
least once each year. It will show the activity that occurred during the year
and the value of the Contract as of the date of the report.
CONTRACT PAYMENT. All payments from the fixed account will be paid in one sum
unless otherwise elected under the Annuity Provisions of this Contract. All
payments and transfers from the subaccounts will be processed as provided in
this Contract unless one of the following situations exist:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted or declares an emergency; or
3. The SEC allows us to defer payments to protect our contractowners.
Page 6
<PAGE>
SEPARATE ACCOUNT PROVISIONS
The variable benefits under this Contract are provided through the Separate
Account referenced on Page 3. The assets of the Separate Account are our
property. Assets equal to the liabilities of the Separate Account will not be
charged with liabilities arising out of any other business we may conduct. If
the assets of the Separate Account exceed the liabilities arising under the
contracts supported by the Separate Account, then the excess may be used to
cover the liabilities of our general account. The assets of the Separate Account
shall be valued as often as any contract benefits vary, but at least monthly.
SUBACCOUNTS. The Separate Account has various subaccounts. Each represents a
different investment objective. Income and realized and unrealized gains and
losses from assets in each subaccount are credited to, or charged against, that
subaccount without regard to income, gains, or losses in other subaccounts. Any
amount charged against the investment base for federal or state income taxes
will be deducted from that subaccount.
TRANSFERS AMONG SUBACCOUNTS. The Owner may transfer all or a portion of this
Contract's value in its subaccounts to other subaccounts or the fixed account.
We reserve the right to charge a $10 fee for each transfer after the first
twelve transfers during any one contract year. This charge will be deducted from
the funds transferred. We must be notified in a manner satisfactory to us. The
transfer will take effect on the first valuation date on or following the date
notice is received at our Off ice.
CHANGE OF INVESTMENT ADVISOR OR INVESTMENT OBJECTIVES. Unless otherwise required
by law or regulation, the investment advisor of the fund or any investment
objective (which includes the mutual fund designated for a subaccount) may not
be changed without our consent. Any investment objective will not be materially
changed unless a statement of the change is filed with and approved by the
Insurance Commissioner of the State of Ohio. If required, approval of or change
of any investment objective will be filed with the Insurance Department of the
state where this Contract is delivered.
UNIT VALUE. Some of the contract values fluctuate with the investment results of
the subaccounts. In order to determine how investment results affect the
contract values, a unit value is determined for each subaccount. The unit value
of each subaccount was originally established at $10 per unit. The unit value
may increase or decrease from one valuation period to the next. Unit values also
will vary between subaccounts.
The unit value of any subaccount at the end of a valuation period is the result
of:
1. The total value of the assets held in the subaccount. This value is
determined by multiplying the number of shares of the designated mutual fund
owned by the subaccount times the net asset value per share; minus
2. The accrued risk charge for adverse mortality and expense experience. The
current daily amount of this charge is equal to the net assets of the
subaccount multiplied by the Mortality and Expense Risk Charge shown on Page
3; minus
3. The accrued amount of reserve for any taxes that are determined by us to have
resulted from the investment operations of the subaccount; and the result
divided by
4. The number of outstanding units in the subaccount.
The use of the unit value in determining contract values is described in the
Contract Value Provisions.
Page 7
<PAGE>
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS. Payments after the first are payable at our Office or to our
agent upon delivery of a receipt signed by our President or Secretary and
countersigned by such agent. The Anticipated Purchase Payment Pattern is shown
on Page 3. We will charge a Collection Fee as shown on Page 3 to process any
payment collected for modes other than annual and single pay plans (unless we
waive such fee). Payment amounts and the mode of payment may be changed as
agreed upon with us.
The amount of payment which may be paid during any contract year may not exceed
the Maximum Additional Payment shown on Page 3 without our consent. Payments
will not be accepted in an amount less than the Minimum Additional Payment shown
on Page 3 without our consent. Our acceptance of any payment shall not
constitute a waiver of these limits with respect to subsequent payments.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
If an Annuitant or an Owner dies on or after the then current Maturity Date, we
will make payments in accordance with the Annuity Option in effect on the date
of death.
DEATH OF ANNUITANT. If the Annuitant dies during the accumulation period and no
Contingent Annuitant is named, we will pay the death benefit proceeds to the
Beneficiary and terminate the Contract upon receipt of due proof of death.
DEATH OF OWNER. If any Owner should die during the accumulation period, and an
alternative election by the Beneficiary is not made, we will pay the death
benefit proceeds to the Beneficiary and terminate the Contract upon receipt of
due proof of death.
DEATH BENEFIT PROCEEDS. The death benefit proceeds during the accumulation
period is the greater of:
1. The annuity value as of the date of death; or
2. The excess of (a) the amount of purchase payments paid less (b) any partial
withdrawal and partial annuitization amounts withdrawn from the Contract.
ALTERNATIVE ELECTION BY BENEFICIARY. If the Beneficiary is the spouse of the
deceased Owner, then the Beneficiary may elect to keep the Contract in force in
lieu of receiving the death benefit proceeds.
If the Beneficiary is not the spouse of the deceased Owner, the Beneficiary may
elect one of the following options that provide for complete distribution of the
death benefit proceeds and termination of this Contract:
1. Within 5 years of the date of such Owner's death; or
2. Over the lifetime of the Beneficiary; or
3. Over a period that does not exceed the life expectancy of such Beneficiary,
as defined by the Internal Revenue Code and Regulations adopted under the
Code.
Subparagraphs (2) and (3) apply only to individuals. All such payments must
start within one year of the date of such Owners death.
Page 8
<PAGE>
CONTRACT VALUE PROVISIONS
NET PAYMENT. The net payment will be the payment received less any premium tax
then due, if any, and less any collection fee, if any.
ALLOCATION OF NET PAYMENTS. Net payments will be allocated to the subaccounts of
the Separate Account and the fixed account on the first valuation date on or
following the date the payment is received at our Office. With respect to the
initial payment, the allocation will take place on the Contract Date.
Any allocation to a subaccount or the fixed account must not be less than the
Minimum Allocation Percentage shown on Page 3. No fractional percentages are
permitted. The allocation of future net payments may be changed by the Owner. We
reserve the right to limit such change to once each year. The request for change
of allocations must be in a manner satisfactory to us. The allocation change
will be effective with the first purchase payment on or following the date the
request for change is recorded by us.
SUBACCOUNT VALUE. At the end of any valuation period, the subaccount value is
equal to the number of units that the Contract has in the subaccount, multiplied
by the unit value of that subaccount.
The number of units that the Contract has in each subaccount is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional net payments are allocated to the
subaccount; plus
3. Units purchased through transfers from another subaccount or the fixed
account; minus
4. Any units that are redeemed to pay for partial annuitizations; minus
5. Any units that are redeemed to pay for partial withdrawals; minus
6. Any units that are redeemed as part of a transfer to another subaccount or
the fixed account; minus
7. Any units that are redeemed to pay the Annual Contract Charge.
FIXED ACCOUNT. At the end of any valuation period, the value is equal to:
1. The sum of all net payments allocated to the fixed account; plus
2. Any amounts transferred from a subaccount 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
annuitizations; minus
5. Any amounts withdrawn from the-fixed account to pay for partial withdrawals;
minus
6. Any amounts transferred to a subaccount from the fixed account; minus
7. Any amounts charged to pay the Annual Contract Charge.
Interest on the fixed account will be compounded daily at a minimum guaranteed
effective annual interest rate of 4% per year. We may declare from time to time
a higher current interest rate.
On transfers from the fixed account to a subaccount, we reserve the right to
impose the following limitations:
1. Written request be received at our Office from the Owner within 3O days after
ananniversary.
2. The transfe will take place on the date we receive such written request.
We further reserve the right to defer payment of any amounts from the fixed
account for no longer than six months after we receive such written request.
Page 9
<PAGE>
ANNUAL CONTRACT CHARGE. During the accumulation period, the Annual Contract
Charge shown on Page 3 will be made once a year on each contract anniversary
from the annuity value. If the Contract is surrendered on other than an
anniversary date, the charge will also be made on the date of surrender.
ANNUITY VALUE. At the end of any valuation period, the annuity value is equal to
the sum of the subaccount values plus the fixed account value.
PARTIAL ANNUITIZATION. A partial annuitization may be made by the Owner prior to
the Maturity Date and without surrender of this Contract, subject to all of the
following:
1. Written request is received at our Office prior to the Maturity Date.
2. The first partial annuitization must be at least one year after the Contract
Date and each subsequent one at least five years apart.
3. Each partial annuitization amount withdrawn from the annuity value must:
(a)not reduce the cash value below the Minimum Balance shown on Page 3; and
(b) purchase at least the Minimum Monthly Income amount shown on Page 3; and
(c) not exceed 50% of the cash value.
4. No amount from the fixed account may be partially annuitized without our
consent.
The amount withdrawn, less any applicable premium taxes, must be applied to
purchase periodic annuity income under a supplementary contract with us. The
subaccount(s) for the amount withdrawn must be specified.
PARTIAL WITHDRAWAL. A partial withdrawal may be made by the Owner after the
first contract year and prior to the Maturity Date without surrender of this
Contract, subject to all of the following:
1. Written request is received at our Office prior to the Maturity Date.
2. The partial withdrawal does not reduce the cash value to less than the
Minimum Balance shown on Page 3 without our consent.
3. No more than one partial withdrawal may be made during any contract year.
4. No amount from the fixed account may be withdrawn without our consent. The
amount payable will be the partial withdrawal less any applicable withdrawal
charge and premium taxes. The subaccount(s) for the withdrawal must be
specified.
CASH VALUE. This Contract may be surrendered by the Owner for its cash value
upon written request at any time prior to the then current Maturity Date. The
cash value at any time equals the annuity value on such date less any applicable
withdrawal charge and premium taxes. Payment will usually be made within seven
days of the date we receive the written request at our Office, subject to the
Contract Payment section of the General Provisions and the Fixed Account section
of these provisions.
WITHDRAWAL CHARGE. On the surrender or partial withdrawal of purchase payments
paid beyond the Withdrawal Charge Period shown on Page 3, no withdrawal charge
will be imposed. On the surrender or partial withdrawal of purchase payments
paid within the Withdrawal Charge Period, the withdrawal charge will equal the
purchase payment paid within the Withdrawal Charge Period times the Withdrawal
Charge Percentage shown on Page 3. However, for the first withdrawal during each
contract year, the withdrawal charge applicable on the first 10% of the annuity
value withdrawn will be waived.
BASIS OF COMPUTATION. A detailed statement of the method of computation of
values has been filed with the insurance supervisory official of the
jurisdiction in which this Contract is delivered. All values for this Contract
are equal to or greater than the values required by statutes in such
jurisdiction.
Page 10
<PAGE>
ANNUITY PROVISIONS
COMMENCEMENT OF ANNUITY PAYMENTS. Monthly annuity payments will begin as of the
Maturity Date shown on Page 3, unless another Maturity Date has been elected as
provided in these provisions.
MATURITY DATE. The Maturity Date shown on Page 3 may be changed to a different
Maturity Date, subject to all of the following:
1. Written request is received at our Office prior to the Maturity Date.
2. The new Maturity Date is at least 5 years after the Contract Date.
3. The attained age of the Annuitant as of the new Maturity Date is not greater
than 90.
ANNUITY OPTION. The Annuity Option shown on Page 3 may be changed to any other
option available upon written request received at our Office prior to the
Maturity Date.
CHANGE OF ANNUITANT. As of the Maturity Date and upon agreement with us, the
Owner may elect a different Annuitant or add a joint annuitant who will be a
joint payee under Option C.
PAYEE. The Annuitant(s) on the Maturity Date will become the payee(s) and
receive the annuity payments.
AMOUNT OF MONTHLY ANNUITY PAYMENT. The amount of each monthly annuity payment
will be determined by multiplying:
1. The appropriate factor from the Table of Annuity Payments; times
2. The
annuity proceeds as of the Maturity Date.
BETTERMENT OF MONTHLY ANNUITY. The payee will receive the greater of:
1. The annuity payments based on the factors guaranteed in this Contract; or
2. The annuity payments based on factors in effect at the time monthly annuity
payments are made.
CONVERSION FOR OTHER INSTALLMENTS. Annuity payments may be received quarterly,
semi-annually or annually rather than monthly. To determine an alternate payment
amount, multiply the monthly annuity payment by the following appropriate
factor:
PAYMENT FREQUENCY DESIRED FACTOR
------------------------- ------
Quarterly 2.90
Semi-annually 5.75
Annually 11.40
AVAILABILITY. If the payee is not a natural person, an Annuity Option is only
available with our permission. No Annuity Option is available if:
1. The payee is an assignee; or
2. The periodic payment is less than $20.
AGE. Age, when required, means age nearest birthday on the effective date of the
option. We will furnish rates for two males or two females under Option C upon
request.
PROOF OF AGE AND SEX. Prior to making the first monthly annuity payment under
this Contract, we reserve the right to require satisfactory evidence of the
birthdate and the sex of any payee.
Page 11
<PAGE>
PROOF OF SURVIVAL. Prior to making any payment under this Contract, we reserve
the right to require satisfactory evidence that the payee is:
1. Alive on the due date of such payment; and
2. Legally qualified to receive such payment.
INTEREST AND MORTALITY. All Annuity Option payments are based on a guaranteed
annual interest rate of 4%. Mortality is based on the 1983 Individual Annuity
Mortality Table.
TABLE OF ANNUITY PAYMENTS
DESCRIPTION AND TABLES OF MONTHLY ANNUITY PAYMENTS
PER $1,000 OF ANNUITY PROCEEDS.
Option A - Fixed Period. The annuity proceeds will be paid in equal
installments. The installments will be paid over a fixed period determined from
the following table:
FIXED PERIOD
(IN MONTHS) FACTOR
----------- ------
60 18.32
120 10.05
180 7.33
240 6.00
300 5.22
360 4.71
Option B - Life Income. The annuity proceeds will be paid in equal installments
determined from the following table. Such installments are payable:
1. during the payee's lifetime only (Life Annuity); or
2. during a fixed period certain and for the payee's remaining lifetime (Certain
Period); or
3. until the sum of installments paid equals the annuity proceeds applied and
for the payee's remaining lifetime (Installment Refund).
<TABLE>
<CAPTION>
MALE FEMALE
--------------------------------------- ----------------------------------------
Payee's Life Certain Period Installment Life Certain Period Installment
Age Annuity 5 yrs 10 yrs Refund Annuity 5 yrs 10 yrs Refund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.86 4.85 4.81 4.69 4.50 4.49 4.47 4.41
51 4.94 4.92 4.88 4.76 4.56 4.55 4.53 4.47
52 5.02 5.00 4.95 4.82 4.62 4.61 4.59 4.52
53 5.10 5.08 5.03 4.90 4.69 4.68 4.66 4.58
54 5.19 5.17 5.11 4.97 4.76 4.75 4.72 4.64
55 5.29 5.26 5.20 5.05 4.84 4.83 4.80 4.71
56 5.39 5.36 5.29 5.13 4.92 4.91 4.87 4.77
57 5.49 5.47 5.38 5.21 5.00 4.99 4.95 4.85
58 5.61 5.58 5.48 5.30 5.09 5.08 5.03 4.92
59 5.73 5.70 5.59 5.40 5.19 5.17 5.12 5.00
60 5.86 5.82 5.70 5.50 5.29 5.27 5.22 5.09
61 6.00 5.96 5.82 5.60 5.40 5.38 5.32 5.18
62 6.16 6.10 5.95 5.72 5.52 5.50 5.42 5.27
63 6.32 6.26 6.08 5.83 5.65 5.62 5.53 5.37
64 6.49 6.42 6.21 5.96 5.78 5.75 5.65 5.48
Page 12
<PAGE>
(con't)
MALE FEMALE
--------------------------------------- ----------------------------------------
Payee's Life Certain Period Installment Life Certain Period Installment
Age Annuity 5 yrs 10 yrs Refund Annuity 5 yrs 10 yrs Refund
65 6.68 6.60 6.35 6.09 5.92 5.89 5.77 5.59
66 6.88 6.78 6.50 6.23 6.08 6.03 5.90 5.71
67 7.09 6.98 6.65 6.38 6.24 6.19 6.04 5.83
68 7.31 7.18 6.81 6.53 6.42 6.36 6.19 5.97
69 7.56 7.40 6.97 6.69 6.61 6.54 6.34 6.11
70 7.82 7.64 7.14 6.86 6.81 6.74 6.50 6.26
71 8.09 7.88 7.31 7.04 7.04 6.95 6.67 6.42
72 8.39 8.14 7.48 7.23 7.28 7.17 6.84 6.59
73 8.71 8.41 7.65 7.43 7.54 7.41 7.02 6.77
74 9.05 8.70 7.83 7.64 7.83 7.67 7.21 6.97
75 9.41 9.00 8.00 7.86 8.14 7.95 7.40 7.17
76 9.81 9.32 8.17 8.10 8.47 8.24 7.60 7.39
77 10.23 9.65 8.34 8.34 8.83 8.56 7.80 7.62
78 10.68 9.99 8.50 8.60 9.23 8.89 7.99 7.86
79 11.16 10.35 8.66 8.87 9.65 9.24 8.19 8.13
80 11.68 10.72 8.81 9.16 10.12 9.61 8.38 8.40
81 12.23 11.09 8.95 9.45 10.62 10.01 8.57 8.69
82 12.81 11.47 9.09 9.76 11.16 10.41 8.74 9.01
83 13.44 11.86 9.21 10.09 11.76 10.84 8.91 9.34
84 14.09 12.25 9.32 10.44 12.39 11.28 9.06 9.68
85 14.79 12.64 9.43 10.78 13.08 11.72 9.21 10.04
86 15.52 13.02 9.52 11.16 13.83 12.17 9.33 10.43
87 16.30 13.40 9.61 11.55 14.62 12.62 9.45 10.82
88 17.11 13.78 9.69 11.97 15.47 13.07 9.55 11.24
89 17.98 14.16 9.75 12.39 16.37 13.50 9.63 11.67
90 18.90 14.52 9.81 12.84 17.31 13.91 9.71 12.12
</TABLE>
Option C - Joint and Survivor Life Income. The annuity proceeds will be paid in
equal installments during the joint lifetime of two payees:
1. continuing upon the death of the 2. reduced by one-third upon the
first payee for the remaining life- death of the first payee and
time of the survivor; or continuing for the remaining
lifetime of the survivor.
Joint Life Income with Joint Life Income with
Full Amount to Survivor 2/3 to Survivor
<TABLE>
<CAPTION>
Age
Nearest Age Nearest Birthday
Birthday Male
Female 55 60 65 70 75 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.27 4.34 4.39 4.43 4.45 4.65 4.81 5.00 5.21 5.42
55 4.45 4.55 4.64 4.71 4.76 4.83 5.03 5.24 5.48 5.73
60 4.62 4.79 4.94 5.06 5.14 5.05 5.28 5.54 5.83 6.13
65 4.79 5.03 5.27 5.47 5.63 5.29 5.58 5.90 6.26 6.63
70 4.94 5.27 5.61 5.94 6.22 5.57 6.91 6.32 6.77 7.25
75 5.06 5.46 5.93 6.43 6.90 5.89 6.30 6.80 7.38 8.02
80 5.15 5.62 6.20 6.87 7.60 6.22 6.70 7.32 8.06 8.91
</TABLE>
Page 13
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
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FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity
Monthly Annuity Commencing on Maturity Date
Non-Participating - No Dividends
EXHIBIT 99.1
EXHIBIT (4)(b)
Contract Loan Endorsement
(Form END00094)
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
ENDORSEMENT
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This Endorsement may be used only with Contracts purchased by a pension,
profit-sharing, or other similar plan qualified under section 401(a) of the
Internal Revenue Code, including a section 401(k) plan (the "Plan"), where the
Plan trustee is the Owner.
As of the date of the first Loan Application for this Contract, the following
provisions are added to the Contract:
CONTRACT LOANS PROVISIONS
The Owner has the sole responsibility for requesting loans and making loan
repayments that comply with applicable tax and ERISA requirements.
CONTRACT LOANS. After the Right To Examine Contract period and during the
Accumulation Period, the Owner can borrow against the Contract an amount which
may not exceed the lesser of (1) 50% of the Cash Value or (2) $50,000 reduced by
the highest outstanding loan balance during the 1-year period ending on the day
before the loan date. However, if the Cash Value is less han $20,000, the Owner
may borrow against the Contract the lesser of (1) 80% of the Cash Value or (2)
$10,000. In all events, the minimum loan amount is $1,000.
When a loan is made, an amount equal to the loan will be withdrawn from the
Accounts and transferred to the loan reserve. The loan reserve is a part of the
Fixed Account to be used as collateral for any contract loan. If no Account is
specified, the loan will be made from each Account in accordance with the
Owner's current payment allocation. Amounts transferred to the loan reserve do
not participate in the investment experience of the Accounts from which they
were withdrawn.
The loan date is the date we process a loan request. We reserve the right to
require payment of a fee to cover loan processing and set-up expenses. Loan
payments will usually be made within seven days of the date we receive a proper
loan request accompanied by any required processing fee, subject to the Contract
Payment section of the General Provisions of this Contract. This Contract will
be the sole security for the loan. We reserve the right to limit the number of
loans the Owner may make in a contract year.
At each contract anniversary, we will compare the amount of the outstanding loan
to the amount in the loan reserve. We will also make this comparison anytime the
Owner repays all or part of the loan. At each such time, if the amount of the
outstanding loan (plus any unpaid interest) exceeds the amount in the loan
reserve, we will withdraw the difference from the 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, we
<PAGE>
will withdraw the difference from the loan reserve and transfer it to the
Accounts in accordance with the Owner's current payment allocation. However, we
reserve the right to require the transfer to the Fixed Account if the amount was
transferred from the Fixed Account to establish the loan.
LOAN INTEREST. Interest on any loan will be at the annual contract loan rate of
6%, in arrears, unless 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. We may declare from time to time higher
current interest rates. Different current interest rates may be applied to the
loan reserve than the rest of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in substantially level
quarterly payments over a 5-year period or, if the loan is used to acquire the
Owner's principal residence, a 10, 15 or 20-year period, but not beyond the year
the Owner attains age 70-1/2. If a quarterly installment is not received within
a 31-day grace period, a partial withdrawal will be made from the Contract equal
to the quarterly amount of principal and interest due, and any applicable
charges under this Contract, including a withdrawal charge. 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.
If the Contract loan at any time exceeds the Cash Value of the Contract, we will
mail a notice to the last known address of the Owner and any assignee of record.
If the excess amount is not paid to us within 31 days after mailing of the
notice, this Contract will terminate without value.
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Signed for us at our Office in Clearwater, Florida.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
Secretary President
EXHIBIT 99.2
EXHIBIT (4)(c)
Other Endorsements (Form END.88.07.90)
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
ENDORSEMENT
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This endorsement amends the attached Annuity Contract (the "Contract") as
follows:
If you are confined to a nursing care facility (as defined below) for thirty
(30) consecutive days or longer, we will waive all withdrawal charges on
surrenders or partial withdrawals from the contract, as follows. Such
confinement must begin after the contract date. We must receive satisfactory
written evidence of such confinement within two (2) months after the confinement
ends. We will waive withdrawal charges under this endorsement only for
surrenders and withdrawals made during such confinement or within two (2) months
after the confinement ends.
"You" means the owner or a joint owner of the Contract. "We" or "Us" means
Western Reserve Life Assurance Co. of Ohio.
"Nursing Care Facility" means a skilled or intermediate care facility which
meets all of these tests: (1) It must be legally operated to provide skilled or
intermediate nursing care to patients at their expense. (2) It must provide
licensed nursing care by a registered, licensed practical or vocational nurse
(RN, LPN, or LVN); it must do so 24 hours a day under the direction of a
physician or registered nurse (RN). (3) It must keep daily medical records for
each patient. (4) It is not: a custodial care facility; a home for the aged; an
adult congregate living facility; an adult day care center; nor a place mainly
for rest, retirement care, or the treatment of alcoholism, mental illness, or
drug abuse. It is not a hospital but it may be part of a hospital. A bed, ward,
unit or wing not meeting all of the above tests is not considered part of such
Nursing Care Facility.
"Skilled or Intermediate Nursing Care" means care using professional nursing
methods and procedures administered by licensed health care personnel. Such care
includes: post-hospital care; rehabilitation nursing care; maintenance therapy;
administration of medications which cannot be self-administered; injections; and
catheterization.
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Signed for the Company at its Administrative Office as of the Contract Date set
forth in the Contract, unless a different date is shown here.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
Secretary President
EXHIBIT 99.C6
EXHIBIT (9)
Opinion and Consent of Thomas E. Pierpan, Esq.
as to Legality of Securities Being Registered
<PAGE>
WRL LETTERHEAD
April 28, 1998
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, Assistant Secretary 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. 33-24856) 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 provided 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
April 28, 1998
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, Assistant Secretary
and Associate General Counsel
EXHIBIT 99.C6.1
Exhibit 10(a)
Consent of Sutherland, Asbill & Brennan LLP
<PAGE>
S.A.B. letterhead
April 28, 1998
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. 33-24856
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information incorporated by reference in
Post-Effective Amendment No. 16 to the Registration Statement on Form N-4 (File
No. 33-24856) 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 99.C6.2
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 27, 1998, with respect
to the statutory-basis financial statements and schedules of Western Reserve
Life Assurance Co. of Ohio included in Post-Effective Amendment No. 16
Registration Statement (Form N-4 No. 33-49558) and related Prospectus of WRL
Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 28, 1998
EXHIBIT 99.C6.3
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 Variable Annuity Post-Effective Amendment
No. 16 to the Registration Statement on Form N-4 of our report dated January 30,
1998, 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 reference to us
under the heading "Independent Accountants" in such Statement of Additional
information.
PRICE WATERHOUSE LLP
Kansas City, Missouri
April 28, 1998
