As filed with the Securities and Exchange Commission on April 21, 1998
Registration No. 33-49558
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. 11 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 60 (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 Secretary 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
---------------------
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus contained
herein also relates to Registration Statement No. 333-00503.
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. 11 TO
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON FORM N-4
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
1. Cover Page............................ Cover Page
2. Definitions........................... Definitions of Special Terms
3. Synopsis or Highlights................ Summary
4. Condensed Financial
Information........................... Condensed Financial Information
(See Appendix A to the Prospectus)
5. General Description of
Registrant, Depositor,
and Portfolio Companies............... Western Reserve, the Series
Account, and the Fund; Voting
Rights
6. Deductions............................ Charges and Deductions;
Distribution of the Contracts
7. General Description of
Variable Annuity Contracts............ Western Reserve, the Series
Account, and the Fund; The
Contract; Statement of
Additional Information
8. Annuity Period........................ The Contract - Annuity
Provisions
9. Death Benefit......................... The Contract - Accumulation
Provisions - Death Benefits
during the Accumulation Period;
The Contract - Annuity
Provisions - Death Benefits
after the Maturity Date
10. Purchases and Contract
Value................................. The Contract - Accumulation
Provisions - Purchase Payments,
Net Purchase Payments,
Accumulation Unit Value;
Distribution of the Contracts
(i)
<PAGE>
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
11. Redemptions........................... The Contract - Accumulation
Provisions - Partial
Withdrawals and
Surrenders; Other Matters
Relating to the Contract -
Right to Examine Contract
12. Taxes................................. Federal Tax Matters
13. Legal Proceedings..................... Legal Proceedings
14. Table of Contents of the
Statement of Additional
Information........................... Statement of Additional
Information
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
------------- -----------------------
15. Cover Page............................ Cover Page
16. Table of Contents..................... Table of Contents
17. General Information and
History............................... Not Applicable
18. Services.............................. Custodian; Independent
Accountants
19. Purchase of Securities Being
Offered............................... Addition, Deletion, and
Substitution of Investments
20. Underwriters.......................... Distribution of Contracts
21. Calculation of Performance
Data.................................. Calculation of Performance
Related Information
22. Annuity Payments...................... Not Applicable
23. Financial Statements.................. Financial Statements
(ii)
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL
FREEDOM
CONQUEROR/registered trademark/
Flexible Payment
Variable Accumulation
Deferred Annuity
Contract
PROSPECTUS DATED
May 1, 1998
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 Conqueror/registered trademark/
Variable Annuity (the "Contract"), a tax deferred variable annuity contract
issued by Western Reserve Life Assurance Co. of Ohio ("Western Reserve").
The Contract provides for accumulation of Contract values on a variable basis,
a fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. If
the variable basis is chosen, Contract values will be held in the WRL Series
Annuity Account (the "Series Account") and will vary according to the
investment performance of the underlying investment portfolios of the WRL
Series Fund, Inc. (the "Fund"). If the fixed basis is chosen, Contract values
will be allocated to the Fixed Account and earn interest at no less than the
minimum guaranteed rate.
There are currently seventeen Sub-Accounts of the Series Account (in addition
to the Fixed Account) available through this Contract during the Accumulation
Period and after the Maturity Date. Each Sub-Account invests in one investment
portfolio of the Fund and Net Purchase Payments will be allocated to one or
more of these Sub-Accounts or the Fixed Account as directed by the Owner. These
seventeen investment portfolios of the Fund are: the Aggressive Growth
Portfolio, Emerging Growth Portfolio, Growth Portfolio, Global Portfolio,
Balanced Portfolio, Strategic Total Return Portfolio, Bond Portfolio, Growth &
Income Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio,
Value Equity Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio,
International Equity Portfolio, U.S. Equity Portfolio, Third Avenue Value
Portfolio and Real Estate Securities Portfolio.
This Prospectus sets forth information about the Contract that a prospective
investor should know before investing. Additional information about the Series
Account has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated May 1, 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 (800) 851-9777. The table of
contents for the Statement of Additional Information appears on page 30 of this
Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, A
BANK OR DEPOSITORY INSTITUTION AND THE CONTRACT IS NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE WRL
SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
DEFINITIONS OF SPECIAL TERMS ............................................. 1
SUMMARY .................................................................. 3
CALCULATION OF YIELDS AND TOTAL RETURNS .................................. 6
OTHER PERFORMANCE DATA ................................................... 7
/bullet/ Sub-Adviser Performance ....................................... 8
/bullet/ Other Information ............................................. 8
PUBLISHED RATINGS ........................................................ 9
WESTERN RESERVE, THE SERIES ACCOUNT, AND THE FUND ........................ 9
/bullet/ Western Reserve Life Assurance Co. of Ohio .................... 9
/bullet/ WRL Series Annuity Account .................................... 9
/bullet/ WRL Series Fund, Inc .......................................... 10
CHARGES AND DEDUCTIONS ................................................... 11
/bullet/ Withdrawal Charge ............................................. 11
/bullet/ Transfer Charge ............................................... 12
/bullet/ Mortality and Expense Risk Charge ............................. 12
/bullet/ Annual Contract Charge ........................................ 12
/bullet/ Administrative Charge ......................................... 13
/bullet/ Premium Taxes ................................................. 13
/bullet/ Deductions for Other Taxes .................................... 13
/bullet/ Expenses of the Fund .......................................... 13
THE CONTRACT
ACCUMULATION PROVISIONS ................................................. 13
/bullet/ Purchase Payments ............................................. 13
/bullet/ Net Purchase Payments ......................................... 14
/bullet/ Accumulation Unit Value ....................................... 14
/bullet/ Computing Sub-Account Value ................................... 15
/bullet/ Transfers to and from, and among Allocation Options ........... 15
/bullet/ Dollar Cost Averaging ......................................... 16
/bullet/ Asset Rebalancing Program ..................................... 16
/bullet/ Partial Withdrawals and Surrenders ............................ 17
/bullet/ Contract Loans For 401(a), 401(k), and 403(b) Contracts ....... 18
/bullet/ Death Benefits during the Accumulation Period ................. 19
ANNUITY PROVISIONS ...................................................... 21
/bullet/ Maturity Date and Selection of Annuity Options ................ 21
/bullet/ Fixed Account Annuity Options ................................. 22
/bullet/ Series Account Annuity Options ................................ 22
/bullet/ Death Benefits after the Maturity Date ........................ 22
/bullet/ Improved Annuity Rates ........................................ 22
/bullet/ Proof of Age, Sex, and Survival ............................... 22
OTHER MATTERS RELATING TO THE CONTRACT ................................... 22
/bullet/ Changes in Purchase Payments .................................. 22
/bullet/ Right To Examine Contract ..................................... 22
/bullet/ Contract Payments ............................................. 23
/bullet/ Ownership ..................................................... 23
/bullet/ Annuitant ..................................................... 23
/bullet/ Beneficiary ................................................... 23
/bullet/ Modification or Waiver ........................................ 23
FEDERAL TAX MATTERS ...................................................... 24
/bullet/ Introduction .................................................. 24
/bullet/ Company Tax Status ............................................ 24
/bullet/ Taxation of Annuities ......................................... 24
/bullet/ Qualified Plans ............................................... 25
/bullet/ Additional Considerations ..................................... 27
THE FIXED ACCOUNT ........................................................ 28
/bullet/ Minimum Guaranteed and Current Interest Rates ................. 28
/bullet/ Fixed Account Value ........................................... 29
/bullet/ Allocations, Transfers and Partial Withdrawals ................ 29
DISTRIBUTION OF THE CONTRACTS ............................................ 29
VOTING RIGHTS ............................................................ 29
LEGAL PROCEEDINGS ........................................................ 30
YEAR 2000 MATTERS ........................................................ 30
STATEMENT OF ADDITIONAL INFORMATION ...................................... 30
APPENDIX A--Condensed Financial Information .............................. A-1
</TABLE>
(i)
<PAGE>
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<S> <C>
ACCUMULATION PERIOD The period between the Contract Date and the Maturity Date while the Contract is In
Force.
ACCUMULATION UNIT An accounting unit of measure used to calculate Sub-Account values during the Ac-
VALUE cumulation Period.
ADMINISTRATIVE OFFICE Western Reserve's administrative office for variable annuity products, the address of
which is P.O. Box 5068, Clearwater, Florida 33758-5068. Telephone number:
1-800-851-9777; Fax number:1-800-572-0159.
ALLOCATION OPTIONS The Fixed Account and the Sub-Accounts of the Series Account.
ANNUITANT The person named in the application, or as subsequently changed, to receive annuity
payments. The Annuitant may be changed as provided in the Contract's death benefit
provisions and annuity provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity payments. Such amount is the An-
nuity Value on the Maturity Date, less any applicable premium tax.
ANNUITY VALUE The sum of the Series Account Value and the Fixed Account Value.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate annuity payments from certain Sub-
Accounts after the Maturity Date.
ANNIVERSARY The same day and month as the Contract Date for each succeeding year the Contract
remains In Force.
ATTAINED AGE The Issue Age plus the number of completed Contract Years.
BENEFICIARY The person(s) entitled to receive the death benefit proceeds under the Contract.
CASH VALUE The Annuity Value less any applicable premium taxes and Withdrawal Charge.
CODE The Internal Revenue Code of 1986, as amended.
CONTINGENT The person named in the application, or subsequently designated, to become the new
BENEFICIARY Beneficiary upon the current Beneficiary's death.
CONTRACT DATE The later of the date on which the initial Purchase Payment is received and the date
that the properly completed application is received at Western Reserve's Administra-
tive Office.
CONTRACT YEAR A period of twelve consecutive months beginning on the Contract Date and any An-
niversary thereafter.
FIXED ACCOUNT An Allocation Option under the Contract, other than the Series Account, that provides
for accumulation of Net Purchase Payments, and options for annuity payments on a
fixed basis. For Contracts issued in the States of New Jersey and Washington, the
Fixed Account is used solely for Contract loans, and is not available for allocation of
Net Purchase Payments or transfers of Annuity Value from the Sub-Accounts.
FIXED ACCOUNT VALUE During the Accumulation Period, a Contract's value allocated to the Fixed Account.
FUND WRL Series Fund, Inc.
IN FORCE Condition under which the Contract is active and the Owner is entitled to exercise all
rights under the Contract.
ISSUE AGE Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE The date on which the Accumulation Period ends and annuity payments are to com-
mence.
NET PURCHASE PAYMENT The Purchase Payment less any applicable premium taxes.
NON-QUALIFIED Contracts issued other than in connection with retirement plans. Non-Qualified
CONTRACTS Contracts do not qualify for special Federal income tax treatment under the Code.
OWNER The person(s) entitled to exercise all rights under the Contract. The Annuitant is the
Owner unless the application states otherwise, or unless a change of ownership is
made at a later time.
</TABLE>
1
<PAGE>
DEFINITIONS OF SPECIAL TERMS (CONTINUED)
<TABLE>
<S> <C>
PORTFOLIO A separate investment portfolio of the Fund.
PURCHASE PAYMENTS Amounts paid by an Owner or on the Owner's behalf to Western Reserve as
consideration for the benefits provided by the Contract.
QUALIFIED CONTRACTS Contracts issued in connection with retirement plans that qualify for special Federal
income tax treatment under the Code.
SERIES ACCOUNT (OR WRL Series Annuity Account, a separate investment account composed of several
SEPARATE ACCOUNT) Sub-Accounts established to receive and invest Net Purchase Payments not allocated
to the Fixed Account.
SERIES ACCOUNT VALUE During the Accumulation Period, the value in the Series Account allocable to a
Contract, which value is equal to the total of the values allocable to a Contract in each
of the Sub-Accounts during the Accumulation Period.
SUB-ACCOUNT A sub-division of the Series Account that invests exclusively in the shares of a speci-
fied Portfolio and supports the Contracts. Sub-Accounts corresponding to each ap-
plicable Portfolio hold assets under the Contract during the Accumulation Period.
Other Sub-Accounts corresponding to each applicable Portfolio will hold assets after
the Maturity Date if a Series Account annuity option is selected.
SURRENDER The termination of a Contract at the option of the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The period commencing at the end of one Valuation Date and continuing to the end of
the next succeeding Valuation Date.
</TABLE>
2
<PAGE>
SUMMARY
This summary provides you with an overview of the tax deferred variable annuity
contract offered by Western Reserve and funded by the Series Account and the
Fixed Account.
THE CONTRACT
The Contract is a tax deferred variable annuity contract that may be purchased
by submitting a completed application to Western Reserve for its approval. The
Contract provides for accumulation of Annuity Values on a variable basis, a
fixed basis, or a combination of both. The Contract also provides for the
payment of periodic annuity payments on a variable basis or a fixed basis. (See
"THE CONTRACT--ACCUMULATION PROVISIONS" on page 13 and "--ANNUITY PROVISIONS"
on page 21.) (For information about tax status, see "FEDERAL TAX MATTERS" on
pages 24-28.)
RIGHT TO EXAMINE CONTRACT
If an Owner is not satisfied with the Contract, it may be cancelled by
returning it within ten days after receipt together with a written request for
cancellation. In such event, Western Reserve will pay the Owner an amount equal
to the sum of: (i) the Purchase Payments received; plus (or minus) (ii) the
accumulated gains (or losses), if any, in the Series Account for the Contract
as of the date Western Reserve receives the returned Contract. (In certain
states, Western Reserve will refund the Purchase Payments.) (See "OTHER MATTERS
RELATING TO THE CONTRACT--Right to Examine Contract" on page 22.)
THE FUND
The underlying variable investments for the Contracts are shares of seventeen
Portfolios of the Fund, namely: the Aggressive Growth Portfolio, Emerging
Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio,
Money Market Portfolio, Tactical Asset Allocation Portfolio, Value Equity
Portfolio, C.A.S.E. Growth Portfolio, Global Sector Portfolio, International
Equity Portfolio, U.S. Equity Portfolio, Third Avenue Value Portfolio and Real
Estate Securities Portfolio. Western Reserve reserves the right to offer
additional investment portfolios or other mutual funds with differing
investment objectives. (See "WESTERN RESERVE, THE SERIES ACCOUNT, AND THE
FUND--WRL Series Fund, Inc." on page 10.)
PURCHASE PAYMENTS
The Owner may make Purchase Payments at such frequency as the Owner elects. The
initial Purchase Payment generally must accompany the application, and for
Non-Qualified Contracts must be at least $5,000; however, a minimum initial
Purchase Payment of $1,000 is allowed provided the application reflects
anticipated additional monthly periodic Purchase Payments of at least $100, via
electronic funds transfer from the Owner's bank account. For 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 $50. For all Contracts, subsequent
Purchase Payments must be at least $50, unless Western Reserve consents to a
smaller amount. The maximum amount of Purchase Payments that may be made in any
Contract Year is $1,000,000, unless Western Reserve consents to a larger
amount. Western Reserve reserves the right to reject any Purchase Payment for
any reason permitted by law. (See "ACCUMULATION PROVISIONS--Purchase Payments"
on page 13.)
PARTIAL WITHDRAWAL AND SURRENDER PRIVILEGE
A Contract may be surrendered or portions of the Cash Value may be partially
withdrawn at any time prior to the Maturity Date. The Cash Value may not,
however, be reduced by any partial withdrawal to less than $5,000. (See "THE
CONTRACT--Partial Withdrawals and Surrenders" on page 17.) For Qualified
Contracts issued under Code Section 403(b), certain restrictions will apply.
Moreover, a partial withdrawal or Surrender may have Federal income tax
consequences. (See "FEDERAL TAX MATTERS--Qualified Plans" on pages 25-26.)
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 Annuity Value when partially withdrawn or surrendered, and will also be
assessed upon payment of the death benefit in the event of the Annuitant's death
during the first seven Contract years if the death benefit payable is the Cash
Value.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or Surrender of that Purchase Payment determines whether the
Withdrawal Charge will be deducted. The charge is a percentage of the amount of
each Purchase Payment partially withdrawn or surrendered within seven years of
its payment. In determining which amounts withdrawn are subject to the
Withdrawal Charge, partial withdrawals and Surrenders will be deemed made first
from Purchase Payments on a first-in, first-out basis and then from any
Contract earnings. The charge is as follows:
NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- ---------- ---------------------
8% 0-1
7% 2
6% 3
5% 4
4% 5
3% 6
2% 7
0% Over 7
For the first withdrawal or series of Systematic Partial Withdrawals during
each Contract Year, the Withdrawal Charge is waived for the first 10% of the
Annuity Value that is subject to the Withdrawal Charge. No Withdrawal Charge
will be assessed if Annuity Values are applied to any annuity option under the
Contract. (See "CHARGES AND DEDUCTIONS--Withdrawal Charge" on page 11.)
Additionally, a 10% Federal income tax penalty under
3
<PAGE>
Code Section 72(q) is currently imposed on partial withdrawals or Surrenders
from Non-Qualified Contracts if such partial withdrawals or Surrenders are made
prior to age 591/2 and other exceptions do not apply. (See "FEDERAL TAX
MATTERS" on page 24.)
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contracts, Western Reserve
imposes a 1.25% per annum charge against all Annuity Value held in the Series
Account. (See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on
page 12.) This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date.
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $35 is deducted annually on the Anniversary and
upon any surrender during the Accumulation Period on other than an Anniversary.
(See "CHARGES AND DEDUCTIONS--Annual Contract Charge", page 12.)
ADMINISTRATIVE CHARGE
Western Reserve imposes a daily Administrative Charge equal to an annual rate
of 0.15% against all Annuity Value held in the Series Account. (See "CHARGES
AND DEDUCTIONS--Administrative Charge" on page 13.)
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 13.)
CHARGES BY THE FUND
The Fund is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE FUND--WRL Series Fund, Inc." on page 10
and the Prospectus for the Fund.)
OTHER CONTRACTS
Western Reserve offers other variable annuity contracts which also invest in
the same Portfolios of the Fund. These contracts may have different charges
that could affect Sub-Account performance, and may offer different benefits
more suitable to your needs. To obtain more information about these contracts,
contact your agent, or call (800) 851-9777.
SUMMARY OF CHARGES AND EXPENSES
The following illustrates the charges and deductions under the Contract during
the Accumulation Period, as well as the fees and expenses of the Fund.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases .......... None
Maximum Withdrawal Charge
(as a % of each Purchase Payment sur-
rendered or partially withdrawn within
7 years of receipt) .................... 8%
Transfer Charge
On first 12 transfers each year ......... None
On each transfer thereafter ............. $10.00
ANNUAL CONTRACT CHARGE .................... $35.00 Per Contract
SEPARATE ACCOUNT ANNUAL EXPENSES (as a %
of average account value)
Mortality and Expense Risk Charge ....... 1.25%
Other Account Fees and Expenses
(See "Administrative Charge," page 11) .. 0.15%
Total Separate Account Annual Expenses .. 1.40%
</TABLE>
- --------------------------------------------
Fund Annual Expenses* (as a % of Fund average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- -----------
<S> <C> <C> <C>
Management Fees ............................ 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ....... 0.16% 0.13% 0.07%
Total Fund Annual Expenses ................. 0.96% 0.93% 0.87%
<CAPTION>
U.S. INTERNATIONAL
GLOBAL BALANCED EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Management Fees ............................ 0.80% 0.80% 0.80% 1.00%
Other Expenses (after reimbursement) ....... 0.20% 0.14% 0.50% 0.50%
Total Fund Annual Expenses ................. 1.00% 0.94% 1.30% 1.50%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
TOTAL GROWTH & MONEY
BOND RETURN INCOME MARKET
PORTFOLIO*** PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Management Fees .................... 0.45% 0.80% 0.75% 0.40%
Other Expenses
(after reimbursement) ............. 0.14% 0.08% 0.21% 0.08%
Total Fund Annual Expenses ......... 0.59% 0.88% 0.96% 0.48%
<CAPTION>
TACTICAL THIRD REAL
ASSET VALUE C.A.S.E. GLOBAL AVENUE ESTATE
ALLOCATION EQUITY GROWTH SECTOR VALUE SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO**
------------ ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .................... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Other Expenses
(after reimbursement) ............. 0.07% 0.09% 0.20% 0.90% 0.20% 0.20%
Total Fund Annual Expenses ......... 0.87% 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-hundredths of one percent) on an annualized
basis of the average daily net assets. This fee is measured and accrued
daily and paid monthly. ISI has determined that it will not seek payment by
the Fund of distribution expenses incurred with respect to any Portfolio
during the fiscal year ending December 31, 1998. Prior to ISI seeking
reimbursement, Policyowners will be notified in advance.
** Because the 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 (|P`SEC|P') approving the substitution
of shares of the Bond Portfolio for shares of the Short-to-Intermediate
Government Portfolio. On or about December 16, 1997, the
4
<PAGE>
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 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. Certain states and other governmental
entities may impose a premium tax, which the Table does not include. For more
information on the charges described in this Table, see "CHARGES AND
DEDUCTIONS" on page 11 and the Fund Prospectus which accompanies this
Prospectus.
WRL Investment Management, Inc. ("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
1. If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ................. $105 $137 $171 $279
Emerging Growth Sub-Account ................... 105 136 169 276
Growth Sub-Account ............................ 104 134 166 270
Global Sub-Account ............................ 105 138 173 283
Balanced Sub-Account .......................... 105 136 170 277
Strategic Total Return Sub-Account ............ 104 134 167 271
Bond Sub-Account .............................. 101 125 152 242
Growth & Income Sub-Account ................... 105 137 171 279
Money Market Sub-Account ...................... 100 122 147 230
Tactical Asset Allocation Sub-Account ......... 104 134 166 270
Value Equity Sub-Account ...................... 104 134 167 272
C.A.S.E. Growth Sub-Account ................... 105 138 173 283
Global Sector Sub-Account ..................... 112 158 207 350
International Equity Sub-Account .............. 110 153 197 331
U.S. Equity Sub-Account ....................... 108 147 188 312
Third Avenue Value Sub-Account ................ 105 138 173 283
Real Estate Securities Sub-Account ............ 105 138 173 283
</TABLE>
2. If you annuitize or do not surrender at the end of the applicable time
period (note that annuitization is not available prior to a Contract's fifth
anniversary):
5
<PAGE>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Sub-Account ................. $25 $77 $131 $279
Emerging Growth Sub-Account ................... 25 76 129 276
Growth Sub-Account ............................ 24 74 126 270
Global Sub-Account ............................ 25 78 133 283
Balanced Sub-Account .......................... 25 76 130 277
Strategic Total Return Sub-Account ............ 24 74 127 271
Bond Sub-Account .............................. 21 65 112 242
Growth & Income Sub-Account ................... 25 77 131 279
Money Market Sub-Account ...................... 20 62 107 230
Tactical Asset Allocation Sub-Account ......... 24 74 126 270
Value Equity Sub-Account ...................... 24 74 127 272
C.A.S.E. Growth Sub-Account ................... 25 78 133 283
Global Sector Sub-Account ..................... 32 98 167 350
International Sub-Account ..................... 30 93 157 331
U.S. Equity Sub-Account ....................... 28 87 148 312
Third Avenue Value Sub-Account ................ 25 78 133 283
Real Estate Securities Sub-Account ............ 25 78 133 283
</TABLE>
THE ABOVE EXAMPLES ASSUME THAT NO TRANSFER CHARGES HAVE BEEN ASSESSED. IN
ADDITION, THE EXAMPLES FACTOR IN THE $35 ANNUAL CONTRACT CHARGE BASED ON AN
AVERAGE SERIES ACCOUNT VALUE PER CONTRACT OF $36,770, WHICH CONVERTS THAT
CHARGE TO AN ANNUAL RATE OF 0.10% OF THE SERIES ACCOUNT VALUE.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
DEATH BENEFIT
If the Annuitant is also the Owner, or if the Owner is not a natural person,
and the Annuitant dies at any time before the Maturity Date, a death benefit
will be provided, unless certain elections have been made that would keep the
Contract In Force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "ACCUMULATION
PROVISIONS-Death Benefits during the Accumulation Period" on page 19 and
"ANNUITY PROVISIONS--Death Benefits after the Maturity Date" on page 22.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution of
the Annuity Proceeds after the Maturity Date. The Maturity Date may not be
earlier than the end of the fifth Contract Year and cannot be deferred beyond
the Annuitant reaching Attained Age 90. Subject to these limitations, the
default Maturity Date may be changed by the Owner, at any time prior to that
date, by delivering a written request to Western Reserve. (See "ANNUITY
PROVISIONS--Maturity Date and Selection of Annuity Options" on page 21.)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the Annuity
Value from a Sub-Account to the Fixed Account, from the Fixed Account to a
Sub-Account (subject to certain restrictions), or among the Sub-Accounts. (For
Contracts issued in the States of New Jersey and Washington, the Fixed Account
is not available for transfers of Annuity Value from the Sub-Accounts.) (See
"THE CONTRACT--ACCUMULATION PROVISIONS--Transfers to and from, and among
Allocation Options," on page 15.) Twelve transfers are permitted without charge
in a Contract Year. Each additional transfer will be subject to a transfer
charge of $10. This charge will not be increased. Certain restrictions apply to
transfers from the Fixed Account. Western Reserve may, at any time, revoke or
modify the transfer privilege. (See "ACCUMULATION PROVISIONS--Transfers to and
from, and among Allocation Options" on page 15 and "THE FIXED ACCOUNT--
Allocations, Transfers and Partial Withdrawals" on page 29.)
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 28.
CONDENSED FINANCIAL INFORMATION
A table that contains the accumulation unit value history of the Sub-Accounts
is presented in Appendix A--Condensed Financial Information.
CALCULATION OF YIELDS AND TOTAL RETURNS From time to time, Western Reserve may
disclose in advertisements and sales literature yields and total
6
<PAGE>
returns for the Sub-Accounts representing the Accumulation Period under a
Contract. In addition, Western Reserve may, on the same basis, advertise the
effective yield of the Money Market Sub-Account under a Contract. THESE YIELDS
AND TOTAL RETURNS ARE BASED ON THE SUB-ACCOUNTS' HISTORICAL PERFORMANCE ONLY
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. For more detailed
information about the performance data calculations described below, see the
Statement of Additional Information.
YIELD
The yield of the Money Market Sub-Account refers to the annualized income
produced by a hypothetical Series Account Value in the Money Market Sub-Account
under a Contract over a specified seven day period. The yield calculation
assumes that the same amount of income produced for that seven day period is
also produced for each seven day period over a fifty-two week period and is
shown as a percentage of the Series Account Value. The effective yield is
calculated similarly but, when annualized, the income earned by the Series
Account Value in the Money Market Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment of income. Based on the method
of calculation described in the Statement of Additional Information, for the
seven-day period ended December 31, 1997, the current yield and effective yield
for the Money Market Sub-Account were as follows:
Current Yield = 3.88%
Effective Yield = 3.96%
The yield of a Sub-Account other than the Money Market Sub-Account ("other
Sub-Account"), refers to the income produced by a hypothetical Series Account
Value in the other Sub-Account over a specified thirty day period expressed as
a percentage rate of return for that period. The yield is calculated by
assuming that the income produced by the investment during that thirty day
period is produced each thirty day period over a twelve month period and is
shown as a percentage of the Series Account Value. Based on the method of
calculation described in the Statement of Additional Information, for the
thirty day period ended December 31, 1997, the yield for the Bond Sub-Account
was 4.36%.
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%, the Administrative Charge of 0.15%,
and the $35 Annual Contract Charge based on an average Series Account Value of
$36,770, which translates into an annual charge of 0.10%. The total return
calculations in the table below also assume a complete surrender of the
Contract at the end of the period, and therefore THE WITHDRAWAL CHARGE IS
DEDUCTED.
THE STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUB-ACCOUNTS SINCE THE
INCEPTION OF EACH SUB-ACCOUNT IS:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1997
--------------------------------------------------------
ONE THREE FIVE FROM INCEPTION
SUB-ACCOUNT YEAR YEARS YEARS INCEPTION DATE*
- ------------------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Growth 7.74% 23.68% 12.07% 12.27% 12/3/92
Bond -0.48% -7.02% 5.01% 5.06% 12/3/92
Money Market** -4.26% -1.83% 2.08% 1.88% 12/3/92
Global 8.88% -19.92% 18.22% 18.16% 12/3/92
Emerging Growth 11.57% 25.30% N/A 17.99% 3/1/93
Strategic Total Return 12.00% 17.22% N/A 12.66% 3/1/93
Aggressive Growth 14.37% 20.55% N/A 14.85% 3/1/94
Balanced 7.35% 12.56% N/A 7.43% 3/1/94
Growth & Income 14.79% 17.15% N/A 11.25% 3/1/94
Tactical Asset
Allocation 6.83% N/A N/A 13.56% 1/3/95
C.A.S.E. Growth 5.32% N/A N/A 8.17% 5/1/96
Value Equity 15.18% N/A N/A 17.05% 5/1/96
Global Sector -6.11% N/A N/A -0.59% 5/1/96
International Equity -2.09% N/A N/A -2.09% 1/2/97
U.S. Equity 17.15% N/A N/A 17.15% 1/2/97
</TABLE>
- -----------------------------
* Commencement of operations of the Sub-Account.
** 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.
In addition, Western Reserve may present historic performance data for the
Portfolios since their inception reduced by some or all of the fees and charges
under the Contract. Such adjusted historic performance includes data that
precedes the inception dates of the Sub-Accounts. This data is designed to show
the performance that would have resulted if the Contract had been in existence
during that time.
7
<PAGE>
For instance, as shown in the table below, Western Reserve may disclose average
annual total returns for the Portfolios reduced by all fees and charges under
the Contract, as if the Contract had been in existence. Such fees and charges
include the Mortality and Expense Risk Charge of 1.25%, the Administrative
Charge of 0.15% and the $35 Annual Contract Charge (based on an average Series
Account Value of $36,770, the Annual Contract Charge is translated into an
annual charge of 0.10%), and Withdrawal Charges. Such data assumes a complete
surrender of the Contract at the end of the period; THEREFORE THE WITHDRAWAL
CHARGE IS DEDUCTED.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL THE FEES AND CHARGES UNDER THE CONTRACT ARE:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
ONE THREE FIVE TEN FROM INCEPTION
PORTFOLIO YEAR YEARS YEARS YEARS INCEPTION DATE
- ------------------ ---------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth*** 7.74% 23.68% 12.07% 16.89% 15.89% 10/2/86*
Bond*** -0.48% 7.02% 5.01% 7.35% 6.16% 10/2/86*
Money Market*** -4.26% 1.83% 2.08% 3.49% 3.43% 10/2/86*
Global 8.88% 19.92% 18.22% N/A 18.16% 12/3/92**
Emerging Growth 11.57% 25.30% N/A N/A 17.99% 3/1/93**
Strategic Total
Return 12.00% 17.22% N/A N/A 12.66% 3/1/93**
Aggressive
Growth 14.37% 20.55% N/A N/A 14.85% 3/1/94**
Balanced 7.35% 12.56% N/A N/A 7.43% 3/1/94**
Growth & Income 14.79% 17.15% N/A N/A 11.25% 3/1/94**
Tactical Asset
Allocation 6.83% N/A N/A N/A 13.56% 1/3/95**
C.A.S.E. Growth 5.32% N/A N/A N/A 11.29% 5/1/95*
Value Equity 15.18% N/A N/A N/A 17.05% 5/1/96**
Global Sector -6.11% N/A N/A N/A -0.59% 5/1/96**
International
Equity -2.09% N/A N/A N/A -2.09% 1/2/97**
U.S. Equity 17.15% N/A N/A N/A 17.15% 1/2/97**
</TABLE>
- -----------------------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of the Sub-Account.
*** The calculation of total return performance for the Growth, Bond and Money
Market Sub-Accounts prior to December 3, 1992 reflects deductions for the
mortality and expense risk charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
Sub-Accounts had actually been in existence since the inception of the
Portfolio. Yield more closely reflects 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%, the Administrative Charge of 0.15% and the
$35 Annual Contract Charge (based on an average Series Account Value of
$36,770, the Annual Contract Charge is translated into an annual charge of
0.10%.)
THE AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS SINCE THEIR INCEPTION
REDUCED BY ALL FEES AND CHARGES UNDER THE CONTRACT EXCEPT THE WITHDRAWAL CHARGE
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 15.74% 24.97% 12.57% 16.89% 15.89% 10/2/86*
Bond 7.52% 8.74% 5.66% 7.35% 6.16% 10/2/86*
Money Market*** 3.74% 3.72% 2.81% 3.49% 3.43% 10/2/86*
Global 16.88% 21.30% 18.62% N/A 18.65% 12/3/92**
Emerging Growth 19.57% 26.56% N/A N/A 18.64% 3/1/93**
Strategic Total
Return 20.00% 18.66% N/A N/A 13.44% 3/1/93**
Aggressive
Growth 22.37% 21.92% N/A N/A 16.06% 3/1/94**
Balanced 15.35% 14.12% N/A N/A 8.89% 3/1/94**
Growth & Income 22.79% 18.59% N/A N/A 12.57% 3/1/94**
Tactical Asset
Allocation 14.83% N/A N/A N/A 15.35% 1/3/95**
C.A.S.E. Growth 13.32% N/A N/A N/A 18.29% 5/1/95*
Value Equity 23.18% N/A N/A N/A 21.31% 5/1/96**
Global Sector 1.89% N/A N/A N/A 4.14% 5/1/96**
International Equity 5.91% N/A N/A N/A 5.91% 1/2/97**
U.S. Equity 25.15% N/A N/A N/A 25.15% 1/2/97**
</TABLE>
- -----------------------------
* Commencement of operations of the Fund's Portfolio.
** Commencement of operations of these Sub-Accounts.
*** Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Because the Third Avenue Value and Real Estate Securities Sub-Accounts had not
commenced operations as of December 31, 1997, 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,
8
<PAGE>
BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE and FORTUNE. Lipper,
VARDS, CDA and Morningstar are independent services which monitor and rank the
performances of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS and CDA rankings compare only variable
annuity issuers. The performance analysis prepared by Lipper, VARDS, CDA and
Morningstar each rank such issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales charges, redemption fees
or certain expense deductions at the separate account level into consideration.
In addition, VARDS prepares risk adjusted rankings, which consider the effects
of market risk on total return performance. This type of ranking provides data
as to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Western Reserve may also compare, as appropriate, the performance of each
Sub-Account in advertising and sales literature to widely used measures of
market performance, such as the Standard and Poor's Index of 500 Common Stocks,
Dow Jones Industrials Average, Value Line (Arithmetic) Index, CDA/Wiesenberger
Long Term Growth Average - VA, Wilshire 5000, Financial Times (FT) World Index
Ex-USA, Lehman Hutton Bond Index, Russell 3000, Morgan Stanley Capital
International World Index, FT World Index, Russell MidCap Growth Index, Lehman
Brothers Government/Corporate Bond Index, Donoghue's Taxable Money Fund Average
and others. Unmanaged indices may assume the reinvestment of dividends, but
usually do not reflect any "deduction" for the expense of operating or managing
an investment portfolio.
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
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(I.E., debt/ commercial paper). 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 and
a unit investment trust on
9
<PAGE>
April 12, 1988. The Series Account meets the definition of a "separate account"
under the Federal securities laws. The Series Account will receive and invest
Net Purchase Payments paid under the Contracts. In addition, the Series Account
may be used for other variable annuity contracts issued by Western Reserve.
Although the assets of the Series Account belong to Western Reserve, Ohio
insurance law provides that the assets in the Series Account attributable to
variable annuity contracts are not chargeable with liabilities arising out of
any other business of Western Reserve. However, the assets of the Series
Account are available to cover the liabilities of the general asset account of
Western Reserve to the extent that the Series Account's assets exceed the
liabilities arising under variable annuity contracts supported by it.
The Series Account is currently divided into 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, and Western Reserve reserves the right to add or remove
Sub-Accounts. Western Reserve further reserves the right to change the
investment objective of any Sub-Account, subject to applicable law as described
in the Statement of Additional Information.
WRL SERIES FUND, INC.
The Series Account currently invests only in shares of the Fund, a series
mutual fund that is registered with the SEC under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management investment company.
The Fund currently has 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 are unrelated to that of any
other Portfolio.
On or about December 16, 1997, after receiving an Order from the SEC, Western
Reserve redeemed shares of the Short-to-Intermediate Government Portfolio held
by the Short-to-Intermediate Government Sub-Account and purchased shares of the
Bond Portfolio with the proceeds. Immediately following the substitution of
shares, the assets of the Short-to-Intermediate Government Sub-Account were
transferred to the Bond Sub-Account, thereby consolidating the
Short-to-Intermediate Government Sub-Account into the Bond Sub-Account. The
Portfolio substitution and Sub-Account consolidation took place at net asset
value with no change in the amount of any Owner's death benefit or dollar value
of his or her investment in the Series Account. Western Reserve and its
affiliates did not receive any compensation or remuneration as a result of this
transaction.
WRL Investment Management, Inc. ("WRL Management"), a wholly-owned subsidiary
of Western Reserve, serves as investment adviser to the Fund and manages the
Fund in accordance with policies and guidelines established by the Board of
Directors of the Fund.
The name and sub-adviser for each Portfolio is stated below. THERE IS NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT OBJECTIVE. More
detailed information, including a description of risks and the investment
objective of each Portfolio, can be found in the Prospectus for the Fund, which
should be read carefully before investing.
AGGRESSIVE GROWTH PORTFOLIO: Sub-Adviser -- Fred Alger Management, Inc.
EMERGING GROWTH PORTFOLIO: Sub-Adviser -- Van Kampen American Capital Asset
Management, Inc.
GROWTH PORTFOLIO: Sub-Adviser -- Janus Capital Corporation.
GLOBAL PORTFOLIO: Sub-Adviser -- Janus Capital Corporation.
BALANCED PORTFOLIO: Sub-Adviser -- AEGON USA Investment Management, Inc.
STRATEGIC TOTAL RETURN PORTFOLIO: Sub Adviser -- Luther King Capital Management
Corporation.
BOND PORTFOLIO: Sub-Adviser -- 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.
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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 Portfolios of the Fund are also sold through different variable
annuity contracts offered through the Series Account. In addition to the Series
Account shares of certain Portfolios of the Fund are sold to the WRL Series
Life Account, a separate account established by Western Reserve for its
variable life insurance policies, the PFL Endeavor Variable Annuity Account,
PFL Endeavor Platinum Variable Annuity Account, and PFL 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, will, however, be assessed
against Annuity Value when partially withdrawn or surrendered, and will also be
assessed upon payment of the death benefit in the event of the Annuitant's death
during the first seven Contract years if the death benefit payable is the Cash
Value. No Withdrawal Charge will be assessed if Annuity Values are applied to an
annuity option provided under the Contract.
For the first partial withdrawal or Systematic Partial Withdrawal (see, "THE
CONTRACT--ACCUMULATION PROVISIONS--Partial Withdrawals and Surrenders", page
17) during each Contract Year, any applicable Withdrawal Charge is currently
waived on that portion of the amount withdrawn which equals 10% of the
Contract's Annuity Value on the date of the withdrawal. For example, if the
amount of the first partial withdrawal during a Contract Year is $2,000, and
the Contract's Annuity Value on the date of the withdrawal is $25,000, then 10%
of $25,000 equals $2,500, and the Withdrawal Charge is waived on the entire
$2,000 withdrawn. Thereafter, the full amount of any subsequent partial
withdrawal or Systematic Partial Withdrawal during the remainder of that
Contract Year will be subject to the Withdrawal Charge. However, no waiver of a
Withdrawal Charge will be made in connection with a Surrender. In determining
which amounts withdrawn are subject to the Withdrawal Charge, partial
withdrawals and Surrenders will be deemed made first from Purchase Payments on
a first-in, first-out basis, and then from any Contract earnings.
The length of time from receipt of a Purchase Payment to the time of a partial
withdrawal or surrender determines whether the Withdrawal Charge will be
deducted. The charge is a percentage of each respective Purchase Payment
partially withdrawn or surrendered within seven years of its payment. The
charge is as follows:
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NUMBER OF YEARS
FROM RECEIPT OF EACH
CHARGE PURCHASE PAYMENT
- ---------------- ---------------------
8% 0-1
7% 2
6% 3
5% 4
4% 5
3% 6
2% 7
0% Over 7
For Contracts issued with an appropriate endorsement, if the Owner or a joint
Owner is confined to a nursing care facility (as defined in the endorsement)
for thirty (30) consecutive days or longer, Western Reserve will also waive the
Withdrawal Charge on partial withdrawals or Surrenders as follows. Such
confinement must begin after the Contract Date. Western Reserve must receive
satisfactory written evidence of such confinement within two (2) months after
the confinement ends. Western Reserve will waive the Withdrawal Charge under
the endorsement only for Surrenders and partial withdrawals made during such
confinement or within two (2) months after the confinement ends. The
endorsement is not available in the States of Pennsylvania and Texas.
The Withdrawal Charge is imposed to enable Western Reserve to recover sales
expenses it advances, including compensation to broker-dealers, the cost of
printing prospectuses and sales literature and any advertising costs. The
Withdrawal Charge is deducted from the Annuity Value by cancelling the number
of Accumulation Units equal to the charge. The amount of the Withdrawal Charge
will be determined as of the date the partial withdrawal or Surrender payment
is processed. In the event of a partial withdrawal, the Owner will receive the
full amount requested, and an amount equal to the Withdrawal Charge will also
be withdrawn in order for the Owner to receive the full amount requested. For
example, if the Owner requests a distribution in the amount of $100 during the
second Contract Year (such distribution is deemed to be made from the initial
Purchase Payment) and the Withdrawal Charge is to be imposed on the full
amount, the Owner would receive $100, the total Annuity Value partially
withdrawn would be $107.53, and the Withdrawal Charge would be $7.53 (which is
7% of $107.53). Any partial withdrawal or Surrender may be subject to tax, and
the Owner should, therefore, consult with his or her tax advisor before
requesting any partial withdrawal or Surrender. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on pages 24-25 and "--Qualified Plans" on pages
25-27.)
The Withdrawal Charge may be reduced when sales of Contracts are made to a
group of directors, officers and employees of the same employer (including
directors, officers and employees of Western Reserve and its affiliates) as
outlined in the following paragraph. The amount of reduction will depend on
factors such as the size of the group, total Purchase Payments, and other
relevant factors that might tend to reduce expenses incurred in connection with
such sales.
TRANSFER CHARGE
After twelve free transfers of Annuity Value among the Sub-Accounts during any
one Contract Year, each additional transfer will be subject to a Transfer
Charge of $10, which will be deducted from the amount transferred to compensate
Western Reserve for the costs of the transfer. All transfers made on any one
day will be considered a single transfer, with any transfer charge allocated
equally. The Transfer Charge will not be increased. Western Reserve may, at any
time, revoke or modify this transfer privilege.
MORTALITY AND EXPENSE RISK CHARGE
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 22 and "ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period" on page 19.) Western
Reserve also assumes an expense risk through its guarantee not to increase the
charges for issuing and administering the Contracts and the Series Account,
regardless of its actual expenses.
This charge is deducted from the Series Account both during the Accumulation
Period and after the Maturity Date. The Mortality and Expense Risk Charge will
not be assessed against either the Fixed Account Value or monies that have been
applied to purchase a Fixed Account annuity option.
ANNUAL CONTRACT CHARGE
On each Anniversary through the Maturity Date, Western Reserve will deduct and
Annual Contract Charge of $35 as partial compensation for the cost of providing
administrative services under the Contracts. The Annual Contract Charge is
deducted from each Sub-Account and the Fixed Account in proportion to the value
each bears to the Annuity Value. If the Annuity Value is surrendered other than
on an Anniversary, a full $35 fee will be deducted.
Western Reserve may reduce the amount of the Annual Contract Charge when sales
of Contracts are made to a group of employees of the same employer, employer
group or similar group, under an arrangement which results in a savings in
administrative service expenses. Even if administrative expenses of the Account
increase,
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Western Reserve guarantees that it will not increase the amount of the Annual
Contract Charge.
ADMINISTRATIVE CHARGE
Western Reserve deducts a daily Administrative Charge from values remaining in
the Series Account at an annual rate of 0.15% of the average daily net assets
of the Series Account for the cost of providing administrative services under
the Contracts and the Account. This charge is deducted from the Series Account
both during the Accumulation Period and after the Maturity Date.
Even if administrative expenses of the Contract and the Account increase,
Western Reserve guarantees that it will not increase the amount of the
Administrative Charge.
PREMIUM TAXES
Certain states and other governmental entities may impose a premium tax,
ranging up to 3.5% of Purchase Payments. If applicable, and if Western Reserve
has incurred or reasonably expects to incur expenses in respect of premium
taxes, the tax will be deducted, either from the Purchase Payment when
received, from amounts partially withdrawn or surrendered, from death benefit
proceeds, or from the amount applied to effect an annuity at the time annuity
payments commence. Western Reserve will deduct any applicable premium taxes
when it incurs them, but reserves the right to defer deduction to a later date
as long as such deferral is equitable to Owners.
Premium tax rates are subject to change by the respective state legislatures,
administrative interpretations, or judicial acts. The amount of any such tax
will depend on, among other things, the Owner's state of residence, the status
of Western Reserve in that state, and the insurance tax laws of such state.
DEDUCTIONS FOR OTHER TAXES
Currently, no charge is made to the Series Account for Federal income taxes
attributable to the Series Account. Western Reserve may, however, make such a
charge in the future subject to obtaining any necessary regulatory approvals.
Charges for any other applicable taxes including any tax or other economic
burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Account may also be made. (See
"FEDERAL TAX MATTERS--Company Tax Status" on page 24.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Fund, the net assets of the
Series Account will reflect the investment management fee and other expenses
incurred by the Portfolios of the Fund, as described in the Prospectus for the
Fund.
Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan,
entered into a Distribution Agreement with ISI, principal underwriter for the
Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek
payment by the Fund of distribution expenses incurred with respect to any
Portfolio during the fiscal year ending December 31, 1998. Prior to ISI seeking
reimbursement, Policyowners will be notified in advance.
THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Owners may make Purchase Payments as frequently as they elect. Purchase
Payments after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany
the application, and for Non-Qualified Contracts must be at least $5,000;
however, a minimum initial Purchase Payment of $1,000 is allowed provided the
application reflects anticipated additional monthly periodic Purchase Payments
of at least $100, via electronic funds transfer from the owner's bank account.
For 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 $50. For all Contracts, subsequent Purchase Payments are
not required but may be made at any time and in any amount provided that each
payment is for a minimum of $50, unless Western Reserve consents to a smaller
amount and further provided that total Purchase Payments in any Contract Year
do not exceed $1,000,000, unless Western Reserve consents to a larger amount.
As an accommodation to Owners, Western Reserve will accept transmittal of both
initial and subsequent Purchase Payments of at least $1,000 by wire transfer.
For initial Purchase Payments, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission of an application ("FAXED
Application"). Initial Purchase Payments accepted via wire transfer with FAXED
Application will be invested at the value next determined following receipt.
Initial Purchase Payments made by wire transfer not accompanied by simultaneous
FAXED Application, or accompanied by an incomplete FAXED Application, will be
retained for a period up to five business days while Western Reserve attempts
to obtain the FAXED Application or complete the essential information required
to
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<PAGE>
establish the Contract and allocate the initial Purchase Payment at the
Accumulation Unit Value which will be determined after receipt of the FAXED
Application or information necessary to complete the application. If Western
Reserve cannot obtain the FAXED Application or essential information within
five business days, Western Reserve will return the initial Purchase Payment to
the applicant, unless the applicant consents to allow Western Reserve to retain
the initial Purchase Payment until the required FAXED Application or essential
information is received. When the FAXED Application contains all information
necessary to issue the Contract and allocate the Net Purchase Payment, but the
FAXED Application has not been signed by the Owner, Western Reserve will issue
the Contract and allocate the Net Purchase Payment as indicated in the FAXED
Application. At the same time, Western Reserve will also electronically prepare
a new application form, containing the same information received on the FAXED
Application, for delivery with the Contract to the Owner. Upon delivery, the
Owner will sign the electronically prepared application, which will be retained
by Western Reserve.
In the event the original application with original signature is later received
and the allocation instructions in that application are, for any reason,
inconsistent with those previously designated on the FAXED Application, the
initial Purchase Payment will be reallocated in accordance with the allocation
instructions in the application with original signature at the Accumulation
Unit Value next determined after receipt of such application.
Owners wishing to make payments via bank wire should instruct their banks to
wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention: Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any reason
permitted by law.
NET PURCHASE PAYMENTS
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "Premium Taxes," page 13.) 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 any Account
to no less than 10% of each Net Purchase Payment. No fractional percentages are
permitted. (For Contracts issued in the States of New Jersey and Washington,
the Fixed Account is not available for allocation of Net Purchase Payments.)
The Owner, or the registered representative/agent of record for the Contract
upon instructions from the Owner, may change the allocation of subsequent
Purchase Payments at any time upon written notice to Western Reserve, or by
telephone by calling Western Reserve's toll-free number, 1-800-851-9777.
Western Reserve will employ the same procedures to confirm that such telephone
instructions are genuine as it employs regarding transfers among Sub-Accounts
and the Fixed Account by telephone. Western Reserve reserves the right to limit
such change to once each Contract Year.
Upon allocation to the Series Account, Net Purchase Payments are converted into
units of the appropriate Sub-Account based upon the Accumulation Unit Value in
that Sub-Account on or following the Valuation Date on which the Purchase
Payment is received at Western Reserve's Administrative Office. (See
"Accumulation Unit Value" below.) If the Contract application and other
information necessary for processing the request to apply the Purchase Payment
(collectively, "application") are complete upon receipt, Western Reserve will
accept the application and apply the initial Net Purchase Payment within two
business days of receipt. If it is incomplete, Western Reserve will attempt to
have it properly completed within five business days of receipt, and if unable
to do so, Western Reserve will inform the prospective purchaser of the reasons
that the application is incomplete and request that the prospective purchaser
consent to Western Reserve retaining the Purchase Payment until the application
is properly completed. If such consent is not obtained, Western Reserve will
immediately return the entire Purchase Payment. Once the application is
complete, Western Reserve will accept it and apply the initial Net Purchase
Payment within two business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund
Portfolio owned by the Sub-Account times the Portfolio's net asset value
per share; minus
2. The accrued daily percentage for the Administrative Charge and Mortality and
Expense Risk Charge multiplied by the net assets of the Sub-Account; minus
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<PAGE>
3. The accrued amount of reserve for any taxes that are determined by Western
Reserve to have resulted from the investment operations of the
Sub-Account; divided by
4. The number of outstanding units in the Sub-Account.
The Mortality and Expense Risk Charge is deducted at an annual rate of 1.25% of
net assets for each day in the Valuation Period and compensates Western Reserve
for certain mortality and expense risks. The Administrative Charge is deducted
at an annual rate of 0.15% of net assets for each day in the Valuation Period
and compensates Western Reserve for certain administrative expenses. (See
"CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge" on page 12 and "--
Administrative Charge" on page 13.) The Accumulation Unit Value may increase,
decrease, or remain the same from Valuation Period to Valuation Period.
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of Units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are allocated
to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account or
the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any premium
taxes and any Transfer Charge.
PORTFOLIO SHARE NET ASSET VALUE. The net asset value per share of shares of the
Fund is determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m. Eastern
time), on each day the Exchange is open.
TRANSFERS TO AND FROM, AND AMONG ALLOCATION OPTIONS
Before the Maturity Date, the Owner may, at any time, transfer amounts among
Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts issued
in the States of New Jersey and Washington, the Fixed Account is not available
to receive Annuity Value transferred from the Sub-Accounts.) Transfers may also
be made from the Fixed Account to the Sub-Accounts, subject to certain
restrictions. (See "THE FIXED ACCOUNT --Allocations, Transfers and Partial
Withdrawals" on page 29.) 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 the close of the regular business session, on any day
the Exchange is open for business will be processed utilizing the net asset
value for each share of the applicable Portfolio determined as of the close of
the regular business session, on the next day the Exchange is open for
business.
The amount available for transfer from the Fixed Account will be determined in
the same manner. Owners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the Contract may, upon
instructions from the Owner, make telephone transfers upon request without the
necessity for the Owner to have previously authorized telephone transfers in
writing. If, for any reason, an Owner does not want the ability to make
transfers by telephone, the Owner should provide written notice to Western
Reserve. All telephone transfers should be made by calling Western Reserve at
the toll-free number 1-800-851-9777.
Western Reserve will not be liable for complying with telephone instructions it
reasonably believes to be authentic, nor for any loss, damage, costs or expense
in acting on such telephone instructions, and Owners will bear the risk of any
such loss. Western Reserve will employ reasonable procedures to confirm that
telephone instructions are genuine. If Western Reserve does not employ such
procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring forms of
personal identification prior to acting upon such telephone instructions,
providing written confirmation of such transactions to Owners and/or tape
recording of telephone transfer request instructions received from Owners.
Western Reserve may, at any time, revoke or modify the transfer privilege.
Western Reserve ordinarily will effect transfers and determine all values in
connection with transfers at the end of the Valuation Period during which the
transfer request is received at Western Reserve's Administrative Office.
Western Reserve currently imposes a $10 charge for each transfer after the
first twelve transfers during any Contract Year. (See "CHARGES AND DEDUCTIONS--
Transfer Charge" on page 12.)
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<PAGE>
Western Reserve or an affiliate may provide administrative or other support
services to independent third parties authorized by Owners to conduct transfers
on a Policyowner's behalf, or who provide recommendations as to how Sub-Account
values should be allocated. This includes, but is not limited to, transferring
Sub-Account values among Sub-Accounts in accordance with various investment
allocation strategies such third party may employ. Such independent third
parties may or may not be appointed Western Reserve agents for the sale of
Contracts. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO OFFER
INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS OFFERING
SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH
WESTERN RESERVE FOR THE SALE OF CONTRACTS. WESTERN RESERVE THEREFORE TAKES NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON AN
OWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
an Owner any additional fees for providing these support services. Western
Reserve reserves the right to discontinue providing administrative and support
services for Owners utilizing independent third parties who provide investment
allocation and transfer recommendations.
DOLLAR COST AVERAGING
The Owner may direct Western Reserve to automati-cally transfer specified
amounts from the Money Market Sub-Account, the Bond Sub-Account, the Fixed
Account or any combination of these Accounts on a monthly basis to any other
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss.
To qualify for Dollar Cost Averaging, a minimum of $10,000 must be allocated to
each Account from which transfers will be made and at least $1,000, in the
aggregate, must be transferred each month, unless Western Reserve consents to a
smaller amount. To further qualify for Dollar Cost Averaging from the Fixed
Account, no more than one-tenth (1/10) of the amount in the Fixed Account at
the commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain other
restrictions. (See "THE FIXED ACCOUNT--Allocations, Transfers and Partial
Withdrawals" on page 29.)
A written election of this service, on a form provided by Western Reserve, must
be completed by the Owner in order to begin transfers. The first transfer will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. Once elected, transfers from the Money
Market or Bond Sub-Accounts or the Fixed Account will be processed monthly
until the entire value of each Account from which transfers are made is
completely depleted or the Owner instructs Western Reserve in writing to cancel
the monthly transfers. For example, if $15,000 was allocated to the Money
Market Sub-Account and $10,000 was allocated to the Bond Sub-Account and
transfers of $500 are made each month from each of these Sub-Accounts to the
Growth Sub-Account, transfers of $500 per month would continue to be made from
the Money Market Sub-Account even though transfers from the Bond Sub-Account
had ceased as a result of depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
twelve free transfers allowed during each Contract Year. (See "CHARGES AND
DEDUCTIONS--Transfer Charge" on page 12.) Western Reserve reserves the right to
discontinue offering Dollar Cost Averaging upon 30 days' written notice to
Owners. Dollar Cost Averaging is not available if the Owner has elected the
Asset Rebalancing Program or Systematic Partial Withdrawals.
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,
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Western Reserve will effect the initial rebalancing of Annuity Value on the
next such anniversary, in accordance with the Contract's current Net Purchase
Payment allocation schedule. The amounts transferred will be credited at the
Accumulation Unit Value as of the end of the Valuation Dates on which the
transfers are made. If a day on which rebalancing would ordinarily occur falls
on a day on which the New York Exchange is closed, rebalancing will occur on
the next day the New York Stock Exchange is open. There is no charge for the
Asset Rebalancing Program. However, each reallocation which occurs under the
Asset Rebalancing Program will be counted towards the twelve free transfers
allowed during each Contract Year. (See "CHARGES AND DEDUCTIONS--Transfer
Charge" on page 12.)
An Owner may terminate participation at any time in the Asset Rebalancing
Program by oral or written request to Western Reserve's Administrative Office.
Participation in the Asset Rebalancing Program will terminate automatically if
any transfer is made to, or from, any Sub-Account, other than on account of a
scheduled rebalancing. If an Owner wishes to resume the Asset Rebalancing
Program after it has been canceled, a new Asset Rebalancing Request Form must
be completed and sent to Western Reserve's Administrative Office. Owners may
start and stop participation in the Asset Rebalancing Program at any time;
however, Western Reserve reserves the right to restrict entry into the Asset
Rebalancing Program to once per Contract Year. The Asset Rebalancing Program is
available only during the Accumulation Period, and is not available if the
Owner has elected Dollar Cost Averaging or Systematic Partial Withdrawals.
Western Reserve may discontinue, modify, or suspend the Asset Rebalancing
Program at any time.
PARTIAL WITHDRAWALS AND SURRENDERS
1. PARTIAL WITHDRAWALS. Prior to the earlier of the Maturity Date or the death
of the Annuitant (when no Contingent Annuitant has been named), the Owner may
partially withdraw a portion of the Series Account Value upon written request,
complete with all necessary information, to Western Reserve's Administrative
Office. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $5,000. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT--Allocations, Transfers and Partial Withdrawals" on page 29.) All
partial withdrawals are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the request for
partial withdrawal by Western Reserve at its Administrative Office. Western
Reserve will cancel units equal to the amount requested from each Sub-Account,
and an amount equal to the Withdrawal Charge and any premium tax will also be
withdrawn in order for the Owner to receive the full amount requested, (See
"CHARGES AND DEDUCTIONS--Withdrawal Charge" on page 11 and "Premium Taxes" on
page 13.) The Sub-Accounts for a partial withdrawal may be specified and the
amount requested to be withdrawn from each specified Sub-Account may not exceed
the value of that Sub-Account. If not specified, the amount requested will be
withdrawn on a pro-rata basis from each Sub-Account. 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 completed
faxed request.
2. SYSTEMATIC PARTIAL WITHDRAWALS. The Owner may elect in writing on a form
provided by Western Reserve to partially withdraw from the Series Account up to
10% of the Cash Value annually (10% of the initial Purchase Payment if elected
at time of application for a Contract), in equal monthly payments ("Systematic
Partial Withdrawals") of at least $200 per month. The first withdrawal will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. If Systematic Partial Withdrawals are
elected at the time of application for a Contract, a minimum initial Purchase
Payment of at least $25,000 must accompany the application, unless Western
Reserve consents to a smaller amount. A subsequent election is subject to the
Contract then having a minimum of $25,000 of Cash Value, unless Western Reserve
consents to a smaller amount. Western Reserve will pay the Systematic Partial
Withdrawal amount requested and cancel units equal to the amount withdrawn from
the Sub-Accounts in the same manner as the current Net Purchase Payment
allocation instructions, except no Systematic Partial Withdrawals are permitted
from the Fixed Account. The amount to be partially withdrawn from each
Sub-Account may not exceed the Cash Value of the Sub-Account. Western Reserve
will not process a Systematic Partial Withdrawal if the Cash Value for the
entire Contract would be reduced below $5,000.
Generally, under a Non-Qualified Contract, Systematic Partial Withdrawals, like
other distributions prior to the Maturity Date, are first treated as taxable
income to the extent that the Contract Value immediately before a withdrawal
exceeds the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable. Further, under a Non-Qualified Contract, a 10%
Federal income tax penalty may be imposed on the taxable portion of a partial
withdrawal and a Systematic Partial Withdrawal made prior to the Owner's age
591/2. unless certain exceptions apply. The Owner should, therefore, consult
with his or her tax advisor before requesting any partial withdrawal or
Systematic Partial Withdrawals. (See "FEDERAL TAX MATTERS--Taxation of
Annuities" on page 24.)
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Systematic Partial Withdrawals are not available if the Owner has elected
Dollar Cost Averaging or the Asset Rebalancing Program. Systematic Partial
Withdrawals may be discontinued by the Owner at any time by notifying Western
Reserve in writing. Western Reserve reserves the right to discontinue offering
Systematic Partial Withdrawals upon 30 days' written notice to Owners.
3. SURRENDERS. The Owner may completely surrender the Contract at any time
prior to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct the $35 Annual Contract Charge, 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.
4. PARTIAL WITHDRAWALS AND SURRENDERS. The amount of any partial withdrawal or
Surrender will be paid promptly, and in any event within seven days of receipt
of the written request, complete with all necessary information at Western
Reserve's Administrative Office, except that Western Reserve reserves the right
to defer the right of partial withdrawal or Surrender under certain
circumstances. (See "OTHER MATTERS RELATING TO THE CONTRACT--Contract Payments"
on page 22.) Under Non-Qualified Contracts, Western Reserve will withhold from
each partial withdrawal, systematic partial withdrawal or Surrender for tax
purposes the minimum amount required by law, unless the Owner affirmatively
elects, before payments begin, to have either nothing withheld or a different
amount withheld. When Western Reserve incurs extraordinary charges, such as
overnight mail expenses, for expediting delivery of a partial withdrawal or
Surrender payment to a Contract Owner, Western Reserve will deduct such charges
from the payment. The current charge for overnight delivery is $20. For the
protection of Owners, all requests for partial withdrawals or Surrenders of
more than $100,000, or where the partial withdrawal or Surrender proceeds are
to be sent to an address other than the address of record, will require a
signature guarantee. All required guarantees of signatures must be made by a
national or state bank, a member firm of a national stock exchange or any other
institution which is an eligible guarantor institution as defined by rules and
regulations of the SEC. If the Owner is a corporation, partnership, trust or
fiduciary, evidence of the authority, 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 (800) 851-9777. Partial withdrawals,
Systematic Partial Withdrawls, and Surrenders may be subject to tax including a
10% Federal income tax penalty. (See "FEDERAL TAX MATTERS--Taxation of
Annuities" on page 24.) For certain Qualified Contracts, a partial withdrawal
may require the consent of the Owner's spouse under the Code and the
regulations promulgated thereunder by the Treasury Department (the "Treasury
Regulations"). (See "FEDERAL TAX MATTERS--Qualified Plans" on page 25.) For
Qualified Contracts issued under Code Section 403(b) and Contracts issued under
the Texas Optional Retirement Program, certain restrictions will apply. (See
"FEDERAL TAX MATTERS--Qualified Plans" on page 25.)
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
After the ten day Right to Examine Contract Period and during the Accumulation
Period, (1) Owners of Contracts used in connection with a Tax Sheltered Annuity
Plan ("TSA Plan") under Section 403(b) of the Code, if the TSA Plan is not
subject to the Employee Retirement Income Security Act of 1974, and (2) Owners
of Contracts purchased by a pension, profit-sharing, or other similar plan
qualified under Section 401(a) of the Code (a "401 Plan"), including a Section
401(k) plan, where a plan trustee is the Owner, may elect a Contract loan
endorsement under which the Owner can receive Contract loans. The availability
of Contract loans will also be governed by the provisions of the TSA Plans or
401 Plans involved. An Owner of a Contract used in connection with a TSA Plan
or 401 Plan may be subject to income tax or tax penalties if loans from the
plan are not repaid in accordance with applicable provisions of the Code. In
addition, Internal Revenue Service authorities suggest that a Contract loan
may, at least in certain circumstances, result in adverse tax consequences for
the TSA Plan or 401 Plan. Accordingly, a competent tax advisor should be
consulted before a Contract loan is requested.
If the Contract loan endorsement is available, the Owner can borrow against the
Contract an amount which may not exceed the lesser of (1) 50% of the Annuity
Value or (2) $50,000 reduced by the highest outstanding loan balance during the
one-year period ending on the day before the loan date (determined below).
However, if the Annuity Value is less than $20,000, the Owner may borrow
against the Contract the lesser of (1) 80% of the Annuity Value or (2) $10,000.
In all events, the minimum amount that can be borrowed is $1,000. The Owner has
the sole responsibility for requesting loans and making loan repayments that
comply with applicable tax requirements.
When a loan is made, an amount equal to the loan will be withdrawn from the
Sub-Accounts specified by the Owner and transferred to the loan reserve. The
loan reserve is part of the Fixed Account used as collateral for any Contract
loan. If no Sub-Accounts are specified, the loan will be made from each
Sub-Account in proportion to the
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value each bears to the Annuity Value. Amounts transferred to the loan reserve
do not participate in the investment experience of the Allocation Options from
which they were withdrawn.
All loan requests are processed at the Accumulation Unit Value for each
Sub-Account next computed after receipt and acceptance of the loan request by
Western Reserve at its Administrative Office. The loan 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 to one per
Contract Year.
On each Contract Anniversary, Western Reserve will compare the amount of the
outstanding loan to the amount in the loan reserve. At each such time, if the
amount of the outstanding loan (plus any unpaid interest) exceeds the amount in
the loan reserve, Western Reserve will withdraw the difference from the
Contract's Sub-Accounts and transfer it to the loan reserve, in the same
fashion as when a loan is made. If the amount in the loan reserve exceeds the
amount of the outstanding loan, Western Reserve will withdraw the difference
from the loan reserve and transfer it to the Sub-Accounts in accordance with
the Owner's current payment allocation. However, Western Reserve reserves the
right to require the transfer to the Fixed Account if the amount was
transferred from the Fixed Account to establish the loan.
If the Contract loan at any time exceeds the Cash Value of the Contract,
Western Reserve will mail a notice to the last known address of the Owner and
any assignee of record. If the excess amount is not paid within 31 days after
mailing of the notice, the Contract will terminate without value.
LOAN INTEREST. Interest on any loan will be at the Contract loan annual rate of
6% in arrears unless, under a 401 Plan, a higher rate is requested by the Owner
in the loan application. (See "Repayment of Loans," below.)
Amounts in the loan reserve will earn interest at a minimum guaranteed
effective annual interest rate of 4% per year. Western Reserve may declare from
time to time higher current interest rates. Different current interest rates
may be applied to the Fixed Account attributable to the loan reserve than to
the rest of the Fixed Account.
REPAYMENT OF LOANS. Principal and interest must be repaid in substantially
level quarterly or monthly payments over a 5-year period or, if the loan is
used to acquire the Owner's principal residence, a 10, 15, or 20-year period,
but such an extended period cannot go beyond the year the Owner attains age
701/2. If a loan installment repayment is not received within 31 days from the
installment's original due date, a deemed distribution of the entire amount of
the outstanding loan principal and interest due, and any applicable charges
under the Contract including any Withdrawal Charge, will take place. Under a
Qualified Plan, this distribution may be subject to a Federal income tax
penalty, and may cause the Contract to fail to qualify under the Code. (See
"FEDERAL TAX MATTERS--Qualified Plans," page 25.)
While the Contract is in force and during the Accumulation Period, any loan may
be repaid in full. IF NOT REPAID, LOANS WILL AUTOMATICALLY REDUCE THE AMOUNT OF
ANY DEATH BENEFIT PROCEEDS, THE AMOUNT PAYABLE UPON A PARTIAL WITHDRAWAL OR
SURRENDER OF THE CONTRACT AND THE AMOUNT APPLIED ON THE MATURITY DATE TO
PROVIDE ANNUITY PAYMENTS.
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. GENERAL
In general, if the Annuitant dies during the Accumulation Period and the Owner
is a natural person other than the Annuitant, the Owner will automatically
become the new Annuitant and the Contract will continue in force and no death
benefit will be payable to the Beneficiary. If the Annuitant dies during the
Accumulation Period and an Owner is either the same individual as the Annuitant
or other than a natural person, Western Reserve will pay the death benefit
proceeds to the Beneficiary in a lump sum upon receipt of due proof of death
unless a written Alternative Election, as described below, is made.
2. AMOUNT OF DEATH BENEFIT PROCEEDS
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND PRIOR TO THE EIGHTH
CONTRACT YEAR and an Owner is either the same person as the Annuitant or other
than a natural person, the death benefit proceeds, if payable, will be the
greater of: (i) the Cash Value as of the date Western Reserve receives due
proof of death and a written election as to the method of payment, as described
above; or (ii) the excess of (a) the amount of Purchase Payments paid less (b)
any amounts partially withdrawn from the Contract to pay for partial
withdrawals, increased by 5% on each Contract Anniversary prior to the Owner's
age 80 (Annuitant's age 80 if the Owner is not a natural person), up to an
amount not to exceed 200% of the Purchase Payments less partial withdrawals.
The CASH VALUE is the Annuity Value less any applicable premium taxes and
Withdrawal Charge. Because the Withdrawal Charge applies during the first seven
Contract years, the appropriate Withdrawal Charge will be made from the
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death benefit proceeds, if death of the Annuitant occurs during the first seven
Policy years. In this event, if the Beneficiary requests application of the
death benefit proceeds as a Purchase Payment to a new Western Reserve variable
annuity Contract with the Beneficiary as the Owner, Western Reserve will not
deduct the Withdrawal Charge from the death benefit proceeds.
IF THE ANNUITANT DIES DURING THE ACCUMULATION PERIOD AND AFTER THE SEVENTH
CONTRACT YEAR and an Owner is either the same person as the Annuitant or other
than a natural person, the death benefit proceeds, if payable, will be the
greatest of: (i) the Cash Value as of the date Western Reserve receives due
proof of death and a written election as to the method of payment, as described
above; or (ii) the excess of (a) the amount of Purchase Payments paid less (b)
any amounts partially withdrawn from the Contract to pay for partial
withdrawals, increased by 5% on each Contact Anniversary prior to the Owner's
age 80 (Annuitant's age 80 if the Owner is not a natural person), up to an
amount not to exceed 200% of the Purchase Payments less partial withdrawals; or
(iii) the Cash Value as of the seventh Contract Anniversary, less any amounts
partially withdrawn from the Contract after the seventh Contract Year to pay
for partial withdrawals. In certain states, the calculation of death benefit
proceeds under item (iii) may vary. The Contract should be consulted for
details.
The Insurance Departments of Missouri, New Jersey, Pennsylvania, South Carolina
and Washington have disapproved for Contracts issued in these States that
portion of item (ii) of the death benefit provision described in the two
preceding paragraphs, which increases the death benefit payable by 5% on each
Contract Anniversary. Therefore, for Contracts issued in these States, when the
amount of death benefit payable under the Contract is the excess of (a) the
amount of Purchase Payments paid less (b) any amount partially withdrawn from
the Contract to pay for partial withdrawals, such amount of death benefit will
not be increased by 5% on each Contract Anniversary.
3. ALTERNATIVE ELECTIONS
If the Beneficiary is entitled to receive the death benefit proceeds as in 2.
above and is the spouse of the deceased Annuitant, then the spousal Beneficiary
may elect to become the new Owner and Annuitant and keep the Contract in force
in lieu of receiving the death benefit proceeds.
If the Beneficiary is not the spouse of the deceased Annuitant and is entitled
to receive the death benefit proceeds, the Beneficiary may elect, in lieu of a
lump sum payment, one of the following options that provide for complete
distribution of the death benefit proceeds and termination of the Contract: (i)
within five years of the date of such Annuitant's death; (ii) over the lifetime
of the Beneficiary; or (iii) over a period that does not exceed the life
expectancy of such Beneficiary, as defined by the Code and the Treasury
Regulations. Options (ii) and (iii) may be elected only if the Beneficiary is a
natural person and payments start within one year of the date of the
Annuitant's death, (For a more detailed explanation of these requirements, see
"FEDERAL TAX MATTERS--Additional Considerations" on page 27.) Multiple
Beneficiaries may choose individually among any of the three options.
For options (i) and (iii) above, the Annuity Value as of the date Western
Reserve receives due proof of death and a written election as to the method of
payment, if any, will be adjusted to equal the death benefit proceeds, as
described below, and the Contract will remain in force as a deferred annuity
until the end of the elected distribution period.
Under option (i) above, Western Reserve will:
/bullet/ Allow the Beneficiary, at the time of electing (i), to make
partial withdrawal. Further partial withdrawals during the duration of
the five-year period are not permitted;
/bullet/ Allow the Beneficiary, at the time of electing (i), to make a
"one-time" transfer of Contract values among Sub-Accounts and to the
Fixed Account, and transfers from the Fixed Account to the Sub-
Accounts;
/bullet/ Deduct the Annual Contract Charge during the duration of the
five-year period;
/bullet/ Not apply the Withdrawal Charge in the event of a partial
withdrawal upon election of (i) or upon a total distribution of all
Contract values during or at the end of the five-year period;
/bullet/ Not allow annuitization during or at the end of the five-year
period. Distribution of all Contract values will be made in a lump
sum;
/bullet/ In the event of the death of the Beneficiary prior to the end of
the five-year period, pay remaining Contract value, according to its
value at the time of payment, to the Beneficiary's estate, unless a
Contingent Beneficiary has been named by the Owner, in which event
payment will be made to the Contingent Beneficiary. The Beneficiary is
NOT entitled to name his or her own beneficiary of the Contract's
value.
Under option (ii), the Maturity Date will be changed to the date Western
Reserve receives due proof of death and a written election as to the method of
payment, if any, and the death benefit proceeds will be used to purchase
annuity payments under the annuity provisions of the Contract. (See "ANNUITY
PROVISIONS" page 21.)
4. DEATH OF AN OWNER WHO IS NOT AN ANNUITANT
If an Owner is not the same individual as the Annuitant and dies before the
Annuitant:
(a) If no Successor Owner has been named or, if named, is no longer alive, the
Owner's estate will become the new
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Owner. The Cash Value must be distributed within five years of the former
Owner's death; or
(b) If a Successor Owner has been named, is alive and is the Owner's spouse,
the Contract will continue with the spouse as the new Owner; or
(c) If a Successor Owner has been named, is alive and is not the Owner's
spouse, the Successor Owner will become the new Owner. The Cash Value must be
distributed either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person with payments
beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year of
the former Owner's death.
5. QUALIFIED CONTRACTS
If a Qualified Contract is issued to a retirement plan, similar provisions will
apply upon the death of the plan participant. However, the required
distribution rules are more complex in the case of a Qualified Contract held by
a plan. Plan participants should consult a qualified pension or tax advisor
concerning the operation of these rules.
ANNUITY PROVISIONS
MATURITY DATE AND SELECTION OF ANNUITY OPTIONS
Provided the Contract is still In Force, annuity payments will begin on the
Maturity Date, which is, for both Non-Qualified Contracts and Qualified
Contracts, the Anniversary nearest the Annuitant's Attained Age 90. However,
the Owner may change the Maturity Date at any time prior to the Maturity Date
by written request. Any new Maturity Date must be at least five years after the
Contract Date, and the Attained Age of the Annuitant as of the new Maturity
Date cannot be greater than 90. After the Maturity Date, no additional Purchase
Payments, partial withdrawals, transfers, full Surrenders, or change of
Annuitants or annuity options may be made under the Contract. The Qualified
Contract is designed for use with several types of qualified plans. A tax
advisor should be consulted about the use of a Qualified Contract with
qualified plans, including the specified minimum distribution rules applicable
to such plans.
Annuity Payments will be paid under Option D (described on page 21), with 120
payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
Thirty days prior to the Maturity Date, Western Reserve will mail to the Owner
a notice and a form upon which the Owner can select Allocation Options for the
annuity proceeds as of the Maturity Date, which cannot be changed thereafter
and will remain in effect until the Contract terminates. If a Series Account
annuity option is chosen, the Owner must include in the written notice the
Sub-Account allocation of the Annuity Proceeds as of the Maturity Date. If
Western Reserve does not receive that form or other written notice acceptable
to Western Reserve prior to the Maturity Date, the Contract's existing
Allocation Options will remain in effect until the Contract terminates. The
Owner may also, prior to the Maturity Date, select or change the frequency of
annuity payments, which may be monthly, quarterly, semi-annually or annually,
provided that the annuity option and payment frequency provides for payments of
at least $100 per period. If none of these is possible, a lump sum payment will
be made.
The Owner may select one of the Fixed Account annuity options or Series Account
annuity options described below or any alternate form of settlement acceptable
to Western Reserve. Treasury Regulations may preclude the availability of
certain annuity options in connection with certain Qualified Contracts.
Fixed Account annuity options provide equal periodic (monthly, quarterly,
semi-annual or annual) payments of a specific amount that Western Reserve
guarantees will not change. The amount of the periodic annuity payment will be
based on the Annuity Proceeds on the Maturity Date, the annuity option selected
(i.e., the form and duration of payments), the age of the Annuitant or
Beneficiary (or ages of Co-Annuitants), the sex of the Annuitant (except for
certain Qualified Contracts), and the applicable annuity rate shown in the
Contract (or a more favorable current rate available under the Contracts on the
Maturity Date). The annuity rates shown in the Contract are based on the
Society of Actuaries 1983 Table A with projection and an assumed investment
rate of 3%. Western Reserve may in its sole discretion increase the amount of a
payment or payments once payments begin.
Series Account annuity options (i.e., variable annuity options) are similar to
fixed annuity options except that the amount of each periodic payment after the
first will vary to reflect the net investment experience of the Sub-Accounts
selected by the Owner. The amount of the first annuity payment is determined in
the manner described in the Statement of Additional Information for a Series
Account annuity option. Under a Series Account annuity option, the Owner
applies the Annuity Proceeds to one or more of the seventeen Sub-Accounts
designated to support annuity payments by purchasing units issued in connection
with one or more of these Sub-Accounts. The number of units purchased is equal
to the amount of the first annuity payment allocated to a particular Sub-Account
divided by the Annuity Unit Value for that Sub-Account on the Maturity Date.
The number of units of a
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particular Sub-Account supporting payments to an Annuitant never changes, but
the second and subsequent payments will vary with the Annuity Unit Value
because each payment will equal the number of units in each selected
Sub-Account multiplied by the Annuity Unit Value of that Sub-Account on the
date the payment is processed. Annuity Proceeds allocated to Series Account
annuity options are subject to a daily Mortality and Expense Risk Charge of
1.25% per annum and a daily Administrative Charge of 0.15% per annum.
The Annuity Unit Value for a Sub-Account, designed to support annuity payments,
is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Fund Portfolio would be calculated (see "THE
CONTRACT--ACCUMULATION PROVISIONS" page 13), and then is adjusted to reflect a
5% assumed investment return. The adjustment results in the Annuity Unit Value
increasing to the extent that the net investment factor increases at greater
than an annual rate of 6.4%. It results in the Annuity Unit Value decreasing to
the extent that the net investment factor decreases or increases at less than
an annual rate of 6.4%. Consequently, if, for a monthly periodic payment, the
net investment experience of a Sub-Account for a given month exceeds an annual
rate of 6.4%, the monthly payment from that Sub-Account will be greater than
the previous payment. Likewise, if the net investment experience for that month
is less than an annual rate of 6.4%, the payment will be less than the previous
payment.
FIXED ACCOUNT ANNUITY OPTIONS
The following options are available for payment of fixed account monthly
annuity payments.
OPTION A--FIXED INSTALLMENTS. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
OPTION B--LIFE INCOME. The Annuity Proceeds will be paid in equal installments:
(1) during the lifetime of the Annuitant only ("Life Annuity"); (2) during a 10
year fixed period certain and for the remaining lifetime of the Annuitant
("Certain Period"); or (3) until the sum of installments paid equals the
Annuity Proceeds applied and for the remaining life of the Annuitant
("Installment Refund").
OPTION C--JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be paid
during the joint lifetimes of the Annuitant and a designated Co-Annuitant and
will continue upon the death of the first payee for the remaining lifetime of
the survivor.
SERIES ACCOUNT ANNUITY OPTIONS
Under the Series Account annuity options, the Contract's Annuity Proceeds will
be used to purchase annuity units of the Sub-Accounts, selected by the Owner.
The following Series Account annuity options are available:
OPTION D--VARIABLE LIFE INCOME. The Annuity Proceeds will be paid in
installments determined in accordance with the table set forth in the Contract.
Such installments are payable (1) during the payee's lifetime only ("Variable
Life Annuity"); or (2) during a 10 year fixed period certain and for the
payee's remaining lifetime ("Variable Certain Period").
OPTION E--VARIABLE JOINT AND SURVIVOR LIFE INCOME. The Annuity Proceeds will be
paid in installments during the joint lifetime of two payees and continuing
upon the death of the first payee for the remaining lifetime of the survivor.
DEATH BENEFITS AFTER THE MATURITY DATE
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If a
payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as rapidly
as under the method of distribution being used as of the date of the payee's
death. (For additional information about death benefit payments under the
Contract, see "ACCUMULATION PROVISIONS--Death Benefits during the Accumulation
Period" on page 19.)
IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the Maturity
Date, it is offering annuity contracts of the same type and class as the
Contract with more favorable rates than those contained in the Contract's
income tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If
required by law to ignore differences in sex of any payee, annuity payments
will be determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase
Payment pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and obtain
a refund equal to the sum of: (1) the Purchase Payments received; plus (or
minus) (2) the accumulated gains (or losses), if any, in the Series Account for
the Contract as of the date Western
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Reserve receives the returned Contract. Certain states require a Free-Look
Period longer than ten days, either for all Contract Owners or for certain
classes of Contract Owners. The Owner bears the investment risk during the
Free-Look Period. Certain states require Western Reserve to refund the Purchase
Payment, which may be greater or less than the amount computed above. In these
states, Western Reserve bears the investment risk during the Free-Look Period.
The specific terms applicable to a particular Contract will be set forth in the
"Right to Examine Contract" provision of that Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner elects
otherwise. Western Reserve reserves the right to suspend or postpone the right
of partial withdrawal and Surrender or postpone the date of payment for any
period: (1) the New York Stock Exchange is closed, other than customary weekend
and holiday closing, or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC by order permits postponement for the
protection of Owners; or (3) an emergency exists, as determined by the SEC, as
a result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or bank
draft may be delayed until the check or bank draft has cleared the payor's
bank.
OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule Page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of the
Owner prior to the death of the Annuitant. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Death Benefits during the Accumulation Period--4. Death of an Owner
Who is Not an Annuitant" on page 20.)
With regard to Non-Qualified Contracts, ownership of the Contract may be
changed or the Contract collaterally assigned at any time during the lifetime
of the Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS--Taxation of Annuities" on page 24.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and shall not be responsible for the validity or effect of
any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior
designation of Successor Owner, but it does not change the Beneficiary or
Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties, or even
prohibition under the Code, and must also be permitted under the terms of the
underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. As of the
Maturity Date, and upon agreement with Western Reserve, the Owner may elect a
different Annuitant or, if either annuity Option C or Option E has been
selected, add a joint annuitant. On the Maturity Date, the Annuitant(s) will
become the payee(s) and receive the annuity payments.
BENEFICIARY
The Beneficiary is the person or persons named in the application or as
subsequently changed, The Beneficiary may be changed during the lifetime of the
Annuitant, subject to the rights of any irrevocable Beneficiary. Any change
must be made in writing and received at Western Reserve's Administrative Office
and, if accepted, will be effective as of the date on which signed by the
Owner. Western Reserve assumes no liability for any payments made or actions
taken before the change is received and shall not be responsible for the
validity or effect of the change. Prior to the Maturity Date, if no Beneficiary
survives the Annuitant, the Owner, if living, or the Owner's estate will be the
Beneficiary. The interest of any Beneficiary is subject to that of any
assignee. In the case of certain Qualified Contracts, the Treasury Regulations
prescribe certain limitations on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the contrary,
no Beneficiary may assign any payments under the Contract before such payments
are due. To the extent permitted by law, no payments under the Contract will be
subject to the claims of any Beneficiary's creditors.
MODIFICATION OR WAIVER
The contract and the application constitute the entire Contract. Only
statements in the application can be used to void the Contract or defend a
claim. The statements are considered representations and not warranties. No
Contract provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provision of the Contract.
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The Contract may not be modified by Western Reserve without the consent of the
Owner, except as may be required to make it conform to any law or regulation or
ruling issued by a governmental agency or to improve the rights and/or benefits
under the Contract.
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts are designed for use by individuals to accumulate Annuity Value
and may be used by retirement plans regardless of whether the plans qualify for
special Federal income tax treatment. The ultimate effect of Federal income
taxes on the amounts held under a Contract, on annuity payments, and on the
economic benefits to the Owner, Annuitant or Beneficiary depends on Western
Reserve's tax status, on the type of retirement plan for which the Contract is
purchased, and upon the tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion is based upon Western Reserve's understanding of the Federal
income tax laws as they are currently interpreted. Western Reserve makes no
representations regarding the likelihood of continuation of the Federal income
tax laws, the Treasury Regulations, or the current interpretations by the
Internal Revenue Service (the "Service"). For a discussion of Federal income
taxes as they relate to the Fund, please see the accompanying Prospectus for
the Portfolios of the Fund.
COMPANY TAX STATUS
Western Reserve is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Because the Series Account is not an entity separate from
Western Reserve and its operations form a part of Western Reserve, it will not
be taxed separately as a "regulated investment company" under Subchapter M of
the Code. Investment income and realized capital gains on the assets of the
Series Account are reinvested and taken into account in determining the Annuity
Value. Western Reserve believes that under existing Federal income tax law, the
Series Account's investment income, including realized net capital gains, will
not be taxed to Western Reserve. Based upon this belief, it is anticipated that
no charges will be made against the Series Account for Federal income tax. If
any such charge is made a Contract's Annuity Value will reflect a deduction for
the charge. Western Reserve reserves the right to make a deduction from the
assets of the Series Account should any tax or other economic burden resulting
from the application of tax laws that Western Reserve determines to be properly
attributable to the Account be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. IN GENERAL. Code Section 72 governs taxation of annuities. In general, an
Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is not a natural
person must include in income any increase in the excess of the Contract's
Annuity Value over the investment in the Contract during the taxable year.
However, there are some exceptions to this exception and you may wish to
discuss these with your tax counsel. The taxable portion of a distribution (in
the form of an annuity or lump sum payment) is generally taxed as ordinary
income. For this purpose, the assignment, pledge, or agreement to assign or
pledge any portion of the Annuity Value generally will be treated as a
distribution.
2. PARTIAL WITHDRAWALS AND SURRENDERS. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract (other than a Qualified Contract used in
a retirement plan that qualifies for special Federal income tax treatment under
section 457 of the Code as to which there are special rules), a ratable portion
of the amount received is taxable, generally based on the ratio of the
investment in the Contract to the total Annuity Value. The "investment in the
contract" generally equals the portion, if any, of any Purchase Payments paid
by or on behalf of an individual under a Contract which is not excluded from
the individual's gross income. For Contracts issued in connection with
qualified plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial Withdrawal,
or Surrender under a Non-Qualified Contract before the Maturity Date, amounts
received are first treated as taxable income to the extent that the Annuity
Value immediately before the partial withdrawal, Systematic Partial Withdrawal,
or Surrender exceeds the "investment in the contract" at that time. Any
additional amount partially withdrawn, applied to a Systematic Partial
Withdrawal, or Surrender is not taxable. In the event of a partial withdrawal
or Systematic Partial Withdrawal from, or Surrender of, a Non-Qualified
Contract, Western Reserve will withhold for tax purposes the minimum amount
required by law, unless the Owner affirmatively elects, before payments begin,
to have either nothing withheld or a different amount withheld.
3. ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
Annuity Payment that represents the amount by which the Annuity Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is
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recovered, the full amount of any additional Annuity Payments is taxable. For
variable annuity payments, the taxable portion is generally determined by an
equation that establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the "investment in the
contract" by the total number of expected periodic payments. However, the
entire distribution will be taxable once the recipient has recovered the dollar
amount of his or her "investment in the contract." For Fixed Annuity Payments,
in general, there is no tax on the portion of each payment which represents the
same ratio that the "investment in the contract" bears to the total expected
value of the Annuity Payments for the term of the payments; however, the
remainder of each Annuity Payment is taxable until the recovery of the
"investment in the contract", and thereafter the full amount or each Annuity
Payment is taxable. If death occurs before full recovery of the "investment in
the contract", the unrecovered amount may be deducted on the Annuitant's final
tax return.
4. PENALTY TAX ON CERTAIN DISTRIBUTIONS. In the case of a distribution pursuant
to a Non-Qualified Contract, a Federal income tax penalty may be imposed equal
to 10% of the amount treated as taxable income. The penalty tax is not imposed
in certain circumstances, including, generally, distributions: (1) made on or
after the date on which the Owner attains age 591/2, (2) made as a result of
death of the Owner or disability of the taxpayer, or (3) received in
substantially equal installments as a life annuity. Other tax penalties may
apply to certain distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
Surrender of the Contract, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as Annuity Payments, as
described above. For these purposes, the investment in the Contract is not
affected by the Owner's or Annuitant's death. That is, the investment in the
Contract remains the amount of any Purchase Payments paid which were not
excluded from gross income.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts entered
into after October 21, 1988, that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same Owner. Accordingly, an Owner should consult a
competent tax advisor before purchasing more than one Contract or other annuity
contracts.
7. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership or
assignment of a Contract, the designation of an Annuitant or other Beneficiary
who is not also the Owner, the selection of certain Maturity Dates, or a change
of Annuitant, may result in certain income or gift tax consequences to the
Owner that are beyond the scope of this discussion. An Owner contemplating any
such transfer, assignment, selection or change should contact a competent tax
advisor in respect to the potential tax effects of such a transaction.
8. POSSIBLE CHANGES IN TAXATION.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 591/2
(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 plans 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
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qualified plan should seek competent legal and tax advice regarding the
suitability of the Contract therefor.
1. (A) SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be subject
to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions, and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
591/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship. The Contract includes an Enhanced Death Benefit that in some
cases may exceed the greater of Purchase Payments (less amounts partially
withdrawn) or the Annuity 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.
(B) Restrictions Under the Texas Optional Retirement Programs. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program (ORP) to withdraw their interest in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
2. TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the
Code permit individuals or their employers to contribute to an individual
retirement program known as a "Traditional Individual Retirement Annuity" or a
"Traditional IRA". Traditional IRAs 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 a Traditional IRA on a tax-deferred basis. The Service
has not reviewed the Contract for qualification as a Traditional 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 Traditional 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 income
level. 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 591/2, 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 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 lifetime; 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 permit self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Contracts to provide benefits under the
plans. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments. The Contract includes an Enhanced Death Benefit that in some
cases may exceed the greater of Purchase Payments (less amounts partially
withdrawn) or the Annuity 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
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non-governmental employer may be entitled to draw on deferred amounts for
purposes unrelated to its section 457 plan obligations. In general, all amounts
received under a section 457 plan are taxable and are subject to Federal income
tax withholding as wages.
6. DISTRIBUTIONS 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 701/2 or
(ii) retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), 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 particular circumstances. Each Owner is responsible
for requesting distributions under the Contract that satisfy applicable tax
rules, and should consult a qualified tax advisor.
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 advisor with regard to the suitability of the Contract as an
investment vehicle for the qualified plan.
ADDITIONAL CONSIDERATIONS
1. DIVERSIFICATION. Section 817(h) of the Code requires that the investments of
the Series Account must be "adequately diversified" in accordance with Treasury
Regulations in order for the Contracts to qualify as annuity contracts under
Section 72 of the Code. The Series Account, through the Fund, intends to comply
with the diversification requirements prescribed by the Treasury in Reg. Sec.
1.817.5, which affect how the Fund's assets may be invested. Western Reserve
believes the Series Account will, thus, meet the diversification requirements
of Section 817(h). If the Series Account does not meet those diversification
requirements, Owners would be taxed currently on any investment income under
the Contract.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. The Treasury Department has
stated in published rulings that a variable annuity contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also announced,
in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor (I.E., the contract owner), rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement further states that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts without being treated as owners of
the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of more sub-accounts in which
to allocate net purchase payments and Contract values, and may be able to
transfer among sub-accounts more frequently than in such rulings. These
differences could result in an Owner being treated as the owner of the assets
of the Series Account. In addition, Western Reserve does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. Western Reserve therefore
reserves the right to modify the Contract as necessary to attempt to prevent an
Owner from being considered the owner of a pro rata share of the assets of the
Series Account.
2. DISTRIBUTION-AT-DEATH RULES. The Code also requires Non-Qualified Contracts
to contain specific provisions for distribution of the Contract proceeds upon
the death of the Owner. In order to be treated as an annuity contract for
Federal income tax purposes, the Code requires that such Contract provide that
(a) if any Owner dies on or after the Maturity Date and before the entire
interest in the Contract has been distributed, the remaining portion must be
distributed at least as rapidly as under the method in effect on the Owner's
death; and (b) if any Owner dies before the Maturity Date, the entire interest
in the Contract must generally be distributed within 5 years after the Owner's
date of death. These requirements will be considered satisfied if the entire
interest of the Contract is
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used to purchase an immediate annuity under which payments will begin within
one year of the Owner's death and will be made for the life of the Beneficiary
or for a period not extending beyond the life expectancy of the Beneficiary.
The Owner's Beneficiary is the person to whom ownership of the Contract passes
because of death and must be a natural person. (In the Contract, the successor
owner is the Owner's Beneficiary.) If the Beneficiary is the Owner's surviving
spouse, the Contract may be continued with the surviving spouse as the new
Owner. Non-Qualified Contracts will be reviewed and modified, if necessary, to
attempt to assure that they comply with the Code requirements when clarified by
regulation or otherwise. Other rules may apply to Qualified Contracts.
3. WITHHOLDING. Withholding of Federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring
withholding. Effective January 1, 1993, certain distributions from Section
401(a), 403(a) and 403(b) plans are subject to mandatory withholding.
4. SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered Contract was issued prior to August 14, 1982, the tax rules
that formerly provided that the Surrender was taxable only to the extent the
amount received exceeds the Owner's investment in the Contract will continue to
apply to amounts allocable to investment in the Contract before August 14,
1982. In contrast, Contracts issued on or after January 19, 1985, in a Code
Section 1035 exchange are treated as new Contracts for purposes of the penalty
and distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective purchasers wishing to take advantage of
Code Section 1035 should consult their tax advisors.
5. DIVERSIFICATION AND QUALIFIED PLANS. Code Section 817(h) applies to variable
annuity contracts other than pension plan contracts. The regulations reiterate
that the diversification requirements do not apply to pension plan contracts.
All of the qualified retirement plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (I.E., the Fund) will be structured
to comply with the diversification standards because it serves as the
investment vehicle for Non-Qualified Contracts as well as Qualified Contracts.
THE FIXED ACCOUNT
An Owner may allocate Net Purchase Payments and transfer Annuity Value to the
Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the States of New Jersey and Washington has
disapproved, for Contracts issued in New Jersey and Washington, the ability
both to allocate Net Purchase Payments to the Fixed Account and to transfer
Annuity Value from Sub-Accounts to the Fixed Account.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 and neither
the Fixed Account nor the general account has been registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account, the general
account or any interests therein are generally subject to the provisions of
these acts, and Western Reserve has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
Disclosure regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 4%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. 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 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
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to the Fixed Account Value, that new interest rate will be guaranteed on such
allocation for at least a one year period measured from the date of each
Purchase Payment or transfer (the "Guarantee Period"). At the end of the
Guarantee Period, Western Reserve reserves the right to declare a new current
interest rate on such allocation and accrued interest thereon (which may be a
different current interest rate than the current interest rate on new
allocations to the Fixed Account Value on that date). The rate declared on such
allocation and accrued interest thereon at the end of each Guarantee Period
will be guaranteed again for another Guarantee Period. At the end of any
Guarantee Period, any interest credited on the Fixed Account Value in excess of
the minimum guaranteed rate of 4% per year will be determined in the sole
discretion of Western Reserve. The Owner assumes the risk that interest
credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting interest
from time to time, provided that such changes will not have the effect of
reducing the guaranteed rate of interest below 4% per annum.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial withdrawals;
minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
transfer charges, if any.
ALLOCATIONS, TRANSFERS AND PARTIAL WITHDRAWALS
Net Purchase Payments and transfers to the Fixed Account will be allocated to
the Fixed Account on the first Valuation Date on or following the date Western
Reserve receives the payment or transfer request at its Administrative Office,
except that any allocation of the initial Net Purchase Payment will take place
on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each
Contract Year. The amount that may be transferred is the greater of (a) 25% of
the amount in the Fixed Account, or (b) the amount transferred in the prior
Contract Year from the Fixed Account, unless Western Reserve consents
otherwise. No transfer charge will apply to transfers from the Fixed Account to
a Sub-Account. Amounts may be withdrawn from the Fixed Account for partial
withdrawals and Surrenders only upon written request and (other than for
Surrenders) only with Western Reserve's consent, Western Reserve further
reserves the right to defer payment of transfers, partial withdrawals, or
Surrenders from the Fixed Account for up to six months. In addition, Contract
provisions relating to transfers, partial withdrawals or Surrenders from the
Series Account will also apply to the Fixed Account. Dollar Cost Averaging may
be done from the Fixed Account. (See "THE CONTRACT--ACCUMULATION
PROVISIONS--Transfers to and from, and among Allocation Options" on page 15.)
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by individuals who, in addition to being licensed as
life insurance agents for Wes-tern Reserve, are also registered representatives
of ISI which has the same address as Western Reserve, an affiliate of Western
Reserve and the principal underwriter of the Contracts, or of broker-dealers
who have entered into written sales agreements with the principal underwriter.
ISI is registered with the SEC under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. No amounts
have been retained by ISI for acting as principal underwriter for the
Contracts. Western Reserve will generally pay broker-dealers first year sales
commissions in an amount no greater than 7% of Purchase Payments. In addition,
broker-dealers may receive renewal commissions at an annual rate equal to an
amount no greater than 0.20% (twenty one-hundredths of one percent) of the
Annuity Value as of each Contract Anniversary, beginning with the first
Contract Anniversary, providing the 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
29
<PAGE>
or special shareholder meetings. If the 1940 Act or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result Western Reserve determines that it is permitted to vote the Fund
shares in its own right, it may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated
separately for each Sub-Account, and will be determined during the Accumulation
Period by dividing the portion of the Annuity Value in that Sub-Account by
$100. Fractional shares will be counted. After the Maturity Date, the number of
votes that an Annuitant has the right to instruct will be calculated based on
the liability for future variable annuity payments. This liability will be
calculated on the basis of the mortality assumptions used in determining the
number of units purchased by the Annuitant. Because this liability generally
declines as any Annuitant ages, the number of votes attributable to that
Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the right
to instruct will be determined as of the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions are
received and Fund shares that are not attributable to Owners in proportion to
the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain on any item to
be voted upon will reduce the votes eligible to be cast by Western Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
Western Reserve, like other life 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 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. See the Fund's prospectus for information on the Fund's
preparation for Year 2000.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9051,
Clearwater, Florida 33758-9051; telephone number (800) 851-9777.
WRL00030-05/98
30
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 3, 1992* TO
DECEMBER 31, 1992
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- -------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth .................. $10.000 $10.240 10,000
Bond .................... 10.000 10.140 10,000
Money Market ............ 10.000 10.010 10,000
Global .................. 10.000 10.151 25,000
Short-to-
Intermediate
Government/dagger/..... 10.000 10.035 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 .................. $10.240 $10.500 7,300,170
Bond .................... 10.140 11.330 1,298,622
Money Market ............ 10.010 10.110 618,769
Global .................. 10.151 13.520 1,927,294
Short-to-
Intermediate
Government/dagger/..... 10.035 10.350 1,020,014
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1993* TO DECEMBER 31, 1993
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Emerging
Growth ......... $10.000 $12.350 2,319,646
Strategic Total
Return ......... 10.000 11.240 1,874,169
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- -------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth .................. $10.500 $ 9.493 10,691,346
Bond .................... 11.330 10.400 1,516,637
Money Market ............ 10.110 10.319 2,375,242
Global .................. 13.520 13.364 6,555,723
Short-to-
Intermediate
Government/dagger/..... 10.350 10.161 913,604
Emerging
Growth ................ 12.350 11.286 5,255,225
Strategic Total
Return ................ 11.240 11.027 6,078,888
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1994* TO DECEMBER 31, 1994
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Aggressive
Growth ......... $10.000 $9.782 1,104,940
Balanced ......... 10.000 9.339 790,146
Growth &
Income ......... 10.000 9.453 384,654
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- -------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C>
Growth .................. $9.493 $13.771 13,303,045
Bond .................... 10.400 12.613 2,298,276
Money Market ............ 10.319 10.728 2,315,107
Global .................. 13.364 16.217 6,454,647
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- -------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C>
Short-to-
Intermediate
Government/dagger/..... 10.161 11.376 964,168
Emerging
Growth ................ 11.286 16.337 6,116,953
Strategic Total
Return ................ 11.027 13.555 7,005,600
Aggressive
Growth ................ 9.782 13.313 4,238,166
Balanced ................ 9.339 11.032 1,396,713
Growth &
Income ................ 9.453 11.676 815,938
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 3, 1995* TO DECEMBER 31, 1995
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- --------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Tactical Asset
Allocation ....... $10.000 $11.843 5,948,340
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- -------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Growth .................. $13.771 $16.019 18,529,755
Bond .................... 12.613 12.455 2,818,826
Money Market ............ 10.728 11.119 4,642,483
Global .................. 16.217 20.428 10,475,149
Short-to-
Intermediate
Government/dagger/..... 11.376 11.608 1,203,208
Emerging
Growth ................ 16.337 19.152 8,959,748
Strategic Total
Return ................ 13.555 15.372 12,133,712
Aggressive
Growth ................ 13.313 14.500 6,567,346
Balanced ................ 11.032 12.045 2,269,160
Growth &
Income ................ 11.676 12.853 1,463,937
Tactical Asset
Allocation ............ 11.843 13.363 8,913,473
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM MAY 1, 1996* TO DECEMBER 31, 1996
------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- --------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Value Equity ....... $10.000 $11.213 1,992,766
Global Sector ...... 10.000 10.508 302,972
C.A.S.E.
Growth ........... 10.000 10.773 1,090,757
</TABLE>
- -----------------------------
* Commencement of operations of the Sub-Account.
/dagger/ Prior to December 17, 1997, the Short-to-Intermediate Government
Sub-Account was offered for investment under the Contract, and,
therefore, is included in the Condensed Financial Information and
financial statement. However, the Short-to-Intermediate Government
Sub-Account is no longer available for investment.
A-1
<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 ............. $16.019 $18.568 21.612,112
Bond ............... 12.455 13.407 4,382,859
Money Market ....... 11.119 11.546 4,779,680
Global ............. 20.428 23.921 14,519,787
Emerging
Growth ........... 19.152 22.938 10,710,088
Strategic Total
Return ........... 15.372 18.471 14,239,379
Aggressive
Growth ........... 14.500 17.766 8,635,090
Balanced ........... 12.045 13.909 2,959,587
Growth &
Income ........... 12.853 15.799 2,124,715
Tactical Asset
Allocation ....... 13.363 15.363 11,818,340
Value Equity ....... 11.213 13.827 6,443,843
Global Sector ...... 10.509 10.719 885,691
C.A.S.E.
Growth ........... 10.773 12.220 2,396,337
</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 10.601 950,809
U.S. Equity ........ 10.000 10.526 1,885,784
</TABLE>
- -----------------------------
* Commencement of operations of these Sub-Accounts.
Because the Third Avenue Value Sub-Account commenced operations on January 2,
1998 and the Real Estate Securities Sub-Account commenced operations on May 1,
1998, there is no condensed financial information for these Sub-Accounts for
the year ended December 31, 1997.
A-2
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
WRL SERIES ANNUITY ACCOUNT
WRL FREEDOM CONQUEROR/registered trademark/
Flexible Payment Variable Accumulation
Deferred Annuity Contract
Issued by
Western Reserve Life Assurance Co. of Ohio
201 Highland Avene
Largo, Florida 33770
Telephone: (800) 851-9777
(813) 585-6565
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the WRL Freedom Conqueror/registered trademark/
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 telephone number above.
May 1, 1998
WRL00031-05/98
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Custodian ................................................... 3
Independent Accountants ..................................... 3
Legal Matters ............................................... 3
Calculation of Performance Related Information .............. 3
Addition, Deletion, and Substitution of Investments ......... 6
Calculation of Variable Annuity Payments .................... 7
Financial Statements ........................................ 8
</TABLE>
2
<PAGE>
CUSTODIAN
The assets of the WRL Series Annuity Account (the "Series Account") are
held by Western Reserve. The assets of the Series Account are kept physically
segregated and held apart from the general account and any other separate
accounts of Western Reserve. WRL Investment Services, Inc. maintains records of
all purchases and redemptions of shares of the WRL Series Fund, Inc. (the
"Fund"). Additional protection for the assets of the Series Account is provided
by a blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in
the amount of $5 million (subject to a $1 million deductible), covering all of
the employees of AEGON U.S. and its affiliates, including Western Reserve. A
Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. provides
additional fidelity coverage, to a limit of $12 million.
INDEPENDENT ACCOUNTANTS
The accounting firm of Price Waterhouse LLP, independent accountants,
provided audit services to the Series Account for the year ended December 31,
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, Associate General Counsel and Assistant Secretary of Western
Reserve.
CALCULATION OF PERFORMANCE RELATED INFORMATION
A. YIELD AND EFFECTIVE YIELD QUOTATIONS FOR THE MONEY MARKET SUB-ACCOUNT
YIELD - The yield quotation set forth in the Prospectus for the Money
Market Sub-Account is for the seven days ended on the date of the most recent
balance sheet of the Series Account included in the registration statement, and
is computed by determining the net change, exclusive of capital changes and
income other than investment income, in the value of a hypothetical
pre-existing account having a balance of one unit in the Money Market
Sub-Account at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Owner accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7) with the
resulting figure carried to at least the nearest hundredth of one percent.
EFFECTIVE YIELD - The effective yield quotation for the Money Market
Sub-Account set forth in the Prospectus is for the seven days ended on the date
of the most recent balance sheet of the Series Account included in the
registration statement. The effective yield is computed by determining the net
change, exclusive of capital changes and income other than investment income,
in the value of a hypothetical pre-existing Sub-Account having a balance of one
Unit in the Money Market Sub-Account at the beginning of the period. A
hypothetical charge, reflecting deductions from Owner accounts, is subtracted
from the balance. The difference is divided by the value of the Sub-Account at
the beginning of the base period to obtain the base period return, which is
then compounded by adding 1. Next the sum is raised to a power equal to 365
divided by 7, and 1 is subtracted from the result. The following formula
describes the computation:
3
<PAGE>
EFFECTIVE YIELD = ({BASE PERIOD RETURN + 1}365/7)- 1
The effective yield is shown at least to the nearest hundredth of one
percent.
HYPOTHETICAL CHARGE - For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all Owner accounts in proportion to the length of the base period.
Such fees and charges include the $35 Annual Contract Charge, calculated on the
basis of an average Series Account Value per Contract of $36,770, which
converts that charge to an annual rate of 0.10% of the Series Account Value.
The yield and effective yield quotations do not reflect any deduction for
premium taxes or Transfer Charges that may be applicable to a particular
Contract, nor do they reflect the Withdrawal Charge that may be assessed at the
time of redemption in an amount ranging up to 8% of the requested redemption
amount. The specific Withdrawal Charge percentage applicable to a particular
redemption depends on the length of time Purchase Payments have been held under
the Contract and whether redemptions have been previously made during that
Contract Year. (See "Charges and Deductions--Withdrawal Charge" on page 11-12
of the Prospectus.) No fees or sales charges are assessed upon annuitization
under the Contracts, except premium taxes. Realized gains and losses from the
sale of securities, and unrealized appreciation and depreciation of assets held
by the Money Market Sub-Account and the Fund are excluded from the calculation
of yield.
B. TOTAL RETURN AND YIELD QUOTATIONS FOR THE AGGRESSIVE GROWTH, EMERGING
GROWTH, GROWTH, GLOBAL, BALANCED, STRATEGIC TOTAL RETURN, BOND, GROWTH &
INCOME, TACTICAL ASSET ALLOCATION, 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 during the Accumulation Period are average annual total return
quotations for the one, three, five, and ten-year periods (or, while the Series
Account or a Sub-Account has been in existence for a period of less than one,
three, five or ten years, for such lesser period) ended on the date of the most
recent balance sheet of the Series Account, and for the period from the date
the Sub-Accounts commenced operations until the aforesaid date. The quotations
are computed by determining the average annual compounded rates of return over
the relevant periods that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(l + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the particular period of
a hypothetical $1,000 payment made at the beginning of the
particular period
For purposes of the total return quotations for all of these Sub-Accounts,
except the Money Market Sub-Account, the calculations take into account all
fees that are charged to all Owner accounts during the Accumulation Period.
Such fees include the $35 Annual Contract charge, calculated on the basis of an
average Series Account Value per Contract of $36,770, which converts that
charge to an annual rate of 0.10% of the Series Account Value. The calculations
also assume a complete surrender as of the end of the particular period. The
calculations do not reflect any deductions for premium taxes or any transfer
charges that may be applicable to a particular Contract.
4
<PAGE>
The yield quotations for all of the Sub-Accounts except the Money Market
Sub-Account representing the accumulation period set forth in the Prospectus is
based on the thirty-day period ended on the date of the most recent balance
sheet of the Series Account and are computed by dividing the net investment
income per unit earned during the period by the maximum offering price per unit
on the last date of the period, according to the following formula:
a-b
YIELD = 2 [ ( --- + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding Portfolio of the Fund attributable to shares
owned by the Sub-Account
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of units outstanding during the
period
d = the maximum offering price per unit on the last day of the
period
For purposes of the yield quotations for the Bond, Growth, and Global
Sub-Accounts, the calculations take into effect all fees that are charged to
all Owner accounts during the Accumulation Period. Such fees include the $35
Annual Contract Charge, calculated on the basis of an average Series Account
Value per Contract of $36,770, which converts that charge to an annual rate of
0.10% of the Series Account Value. The calculations do not take into account
any premium taxes, the Withdrawal Charge or any transfer charges.
Premium taxes currently range from 0% to 3.5% of Purchase Payments
depending upon the jurisdiction in which the Contract is delivered. A
Withdrawal Charge may be assessed at the time of redemption in an amount
ranging up to 8% of the requested redemption amount, with the specific
percentage applicable to a particular redemption depending on the length of
time Purchase Payments were held under the Contract, and whether redemptions
had been previously made during that Contract Year. (See "Charges and
Deductions--Withdrawal Charge" on page 11-12 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
5
<PAGE>
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 an historical overview of the performance of a variety of investment
market indices, the performance of these indices over time, and the performance
of different asset classes, such as stocks, bonds, cash equivalents, etc.
Western Reserve may also discuss investment volatility including the range of
returns for different asset classes and over different time horizons, and the
correlation between the returns of different asset classes. Western Reserve may
also discuss the basis of portfolio optimization including the required inputs
and the construction of efficient portfolios using sophisticated computer-based
techniques. Finally, Western Reserve may describe various investment strategies
and methods of implementation, the periodic rebalancing of diversified
portfolios, the use of dollar cost averaging techniques, a comparison of the
tax impact of purchase payments made on a "before tax" basis through a
tax-qualified plan with those made on an "after tax" basis outside of a
tax-qualified plan, and a comparison of tax-deferred versus non tax-deferred
accumulation of purchase payments.
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 a distribution is made under the Contract. As a result,
the Contract will benefit from tax deferral during the Accumulation Period, as
the Annuity 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 tax deferral in advertising and sales literature.
ADDITION, DELETION, AND SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right, subject to compliance with applicable
law, to make additions to, deletions from or substitutions for the shares that
are held by the Series Account or that the Series Account may purchase. Western
Reserve reserves the right to eliminate the shares of any of the Portfolios of
the Fund and to substitute shares of another Portfolio of the Fund or of
another open-end registered investment company, if the shares of a Portfolio
are no longer available for investment, or if in Western Reserve's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Series Account. Western Reserve will not, however, substitute
any shares attributable to an Owner's interest in a Sub-Account without notice
to and prior approval of the Securities and Exchange Commission, to the extent
required by the Investment Company Act of 1940, as amended (the "1940 Act") or
other applicable law.
Western Reserve also reserves the right to establish additional
Sub-Accounts, each of which would invest in a new Portfolio of the Fund, or in
shares of another investment company, with a specified investment objective.
New Sub-Accounts may be established when, in the sole discretion of Western
Reserve, marketing, tax or investment conditions warrant, and any new
Sub-Accounts will be made available to existing Owners on a basis to be
determined by Western Reserve. Western Reserve may also eliminate one or more
Sub-Accounts if, in its sole discretion, marketing, tax or investment
conditions warrant.
In the event of any such substitution or change, Western Reserve may make
such changes in the Contracts and other annuity contracts as may be necessary
or appropriate to reflect such substitution or change. If deemed by Western
Reserve to be in the best interests of persons having voting rights under the
Contracts, the Series Account may be operated as a management company under the
1940 Act, or, subject to any required approval, it may be deregistered under
that Act in the event such registration is no longer required.
Western Reserve reserves the right to change the investment objective of
any Sub-Account. Additionally, if required by law or regulation, Western
Reserve will not materially change an investment objective of the Series
Account or of a Portfolio designated for a Sub-Account unless a statement of
the
6
<PAGE>
change is filed with and approved by the appropriate insurance official of the
state of Western Reserve's domicile or deemed approved in accordance with such
law or regulation.
CALCULATION OF VARIABLE ANNUITY PAYMENTS
Under a Series Account annuity option, the Owner applies his or her
Annuity Proceeds (or a portion thereof) on the Maturity Date to one or more of
the seventeen Sub-Accounts designated to support annuity payments by purchasing
units issued in connection with each Sub-Account selected by the Owner. The
Annuity Unit Value of any Sub-Account will increase or decrease in accordance
with the investment experience of that Sub-Account. The Annuity Unit Value of
any Sub-Account at the end of a Valuation Period is equal to the product of (a)
the Annuity Unit Value for that Sub-Account at the end of the immediately
preceding Valuation Period, multiplied by (b) the net investment factor for
that Sub-Account for the Valuation Period, multiplied by (c) the "assumed
investment return adjustment factor" for the Valuation Period.
The "assumed investment return adjustment factor" for a Valuation Period
is the product of discount factors of .99986634 per day, and is designed to
recognize the 5% effective annual assumed investment return.
The net investment factor used to calculate the Annuity Unit Value in each
Sub-Account for the Valuation Period is equal to (a) the net result of (1) the
net asset value of a Fund share held in that Sub-Account determined as of the
end of the current Valuation Period; plus (2) the per share amount of any
dividend or capital gain distributions made by the Fund for shares held in that
Sub-Account if the ex-dividend date occurs during the Valuation Period; plus or
minus (3) a per share charge or credit for any taxes reserved for, which
Western Reserve determines to have resulted from the investment operations of
the Sub-Account; divided by (b) the net asset value of a Fund share held in the
Sub-Account determined as of the end of the immediately preceding Valuation
Period; minus (c) a factor representing the mortality and expense risk charge
and administrative charge. This factor is equal, on an annual basis, to 1.40%
of the daily net asset value of a Fund share held in the Series Account for the
Sub-Account.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first
variable payment is determined by multiplying the Annuity Proceeds times the
appropriate rate for the variable option selected. The rates are based on the
Society of Actuaries 1983 Individual Mortality Table A with projection and a 5%
effective annual assumed investment return and assuming a Maturity Date in the
year 2000. Gender based mortality tables will be used unless prohibited by law.
The amount of the first payment depends upon the adjusted age of the
Annuitant. The adjusted age is the Annuitant's actual age nearest birthday at
the Maturity Date, adjusted as follows:
MATURITY DATE ADJUSTED AGE
- ---------------- -------------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After the year 2040 as determined by Western Reserve.
DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS. The amount of variable
annuity payments after the first will increase or decrease according to the
Annuity Unit Value which reflects the investment experience of the selected
Sub-Account(s). Each variable annuity payment after the first will be equal to
the number of units attributable to the Contract in each selected Sub-Account
multiplied by the Annuity Unit Value of that Sub-Account on the date the
payment is processed. The number of such units is determined by dividing the
first payment allocated to that Sub-Account by the Annuity Unit Value of that
Sub-Account on the date the first annuity payment is processed.
7
<PAGE>
FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Statement of Additional Information should be considered only as bearing on the
ability of Western Reserve to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the assets
held in the Series Account.
Financial Statements for Western Reserve for the years ended December 31,
1997, 1996 and 1995, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
INDEX TO FINANCIAL STATEMENTS
WRL SERIES ANNUITY ACCOUNT (BELLWETHER, CONQUEROR AND CREATOR 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
8
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
----------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio
and Contract Owners of the WRL Series Annuity Account--WRL Freedom
Bellwether, WRL Freedom Conqueror, and WRL Freedom Wealth Creator Contracts
In our opinion, the accompanying statements of assets, liabilities and
equity accounts and the related statements of operations and of changes in
equity accounts and the selected per unit data and ratios present fairly,
in all material respects, the financial position of each of the
Sub-Accounts constituting the WRL Freedom Bellwether, WRL Freedom Conqueror
and WRL Freedom Wealth Creator 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.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 30, 1998
9
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 .................................. 61,588,977 5,776,333 11,726,698
================= ================= ==================
Cost .................................... $ 61,589 $ 64,302 $ 381,293
================= ================= ==================
Investments at net asset value ........... $ 61,589 $ 64,361 $ 432,061
Accrued transfers from depositor ......... 563 15 64
----------------- ----------------- ------------------
Total assets ............................ 62,152 64,376 432,125
----------------- ----------------- ------------------
LIABILITIES:
Accrued transfers to depositor ........... 0 0 0
----------------- ----------------- ------------------
Net assets .............................. $ 62,152 $ 64,376 $ 432,125
================= ================= ==================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................... 5,382,845.870799 4,801,744.463198 23,272,251.525870
================= ================= ==================
Unit value .............................. $ 11.546365 $ 13.406842 $ 18.568260
================= ================= ==================
Contract Owners' equity ................. $ 62,152 $ 64,376 $ 432,125
----------------- ----------------- ------------------
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 ............................ $ 62,152 $ 64,376 $ 432,125
================= ================= ==================
</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 .................................. 19,531,180 17,846,662 12,670,693 10,144,715
================== ================== ================== =================
Cost .................................... $ 351,359 $ 241,928 $ 226,211 $ 150,651
================== ================== ================== =================
Investments at net asset value ........... $ 371,939 $ 278,847 $ 258,072 $ 162,769
Accrued transfers from depositor ......... 0 508 658 0
------------------ ------------------ ------------------ -----------------
Total assets ............................ 371,939 279,355 258,730 162,769
------------------ ------------------ ------------------ -----------------
LIABILITIES:
Accrued transfers to depositor ........... 427 0 0 368
------------------ ------------------ ------------------ -----------------
Net assets .............................. $ 371,512 $ 279,355 $ 258,730 $ 162,401
------------------ ------------------ ------------------ -----------------
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................... 15,530,666.209892 15,124,297.031939 11,279,603.185013 9,141,315.304706
================== ================== ================== =================
Unit value .............................. $ 23.921219 $ 18.470638 $ 22.937836 $ 17.765572
================== ================== ================== =================
Contract Owners' equity ................. $ 371,512 $ 279,355 $ 258,730 $ 162,401
------------------ ------------------ ------------------ -----------------
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 ............................ $ 371,512 $ 279,355 $ 258,730 $ 162,401
================== ================== ================== =================
</TABLE>
The notes to the financial statements are an integral part of this report.
10
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ................................ 3,683,285 2,884,424 14,250,304 2,234,881
================= ================= ================== =================
Cost .................................. $ 40,701 $ 34,400 $ 180,989 $ 31,111
================= ================= ================== =================
Investments at net asset value ......... $ 44,233 $ 36,221 $ 193,992 $ 31,312
Accrued transfers from depositor ....... 0 370 92 683
----------------- ----------------- ------------------ -----------------
Total assets .......................... 44,233 36,591 194,084 31,995
----------------- ----------------- ------------------ -----------------
LIABILITIES:
Accrued transfers to depositor ......... 331 0 0 0
----------------- ----------------- ------------------ -----------------
Net assets ............................ $ 43,902 $ 36,591 $ 194,084 $ 31,995
================= ================= ================== =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................. 3,156,353.983498 2,315,991.647763 12,633,176.602715 2,618,283.969060
================= ================= ================== =================
Unit value ............................ $ 13.908933 $ 15.799260 $ 15.363005 $ 12.219711
================= ================= ================== =================
Contract Owners' equity ............... $ 43,902 $ 36,591 $ 194,084 $ 31,995
----------------- ----------------- ------------------ -----------------
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 .......................... $ 43,902 $ 36,591 $ 194,084 $ 31,995
================= ================= ================== =================
</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 ................................ 999,486 7,005,029 1,040,824 2,218,809
=============== ================= ================= =================
Cost .................................. $ 10,767 $ 86,920 $ 11,523 $ 27,063
=============== ================= ================= =================
Investments at net asset value ......... $ 10,360 $ 97,403 $ 11,140 $ 27,146
Accrued transfers from depositor ....... 0 0 1 0
--------------- ----------------- ----------------- -----------------
Total assets .......................... 10,360 97,403 11,141 27,146
--------------- ----------------- ----------------- -----------------
LIABILITIES:
Accrued transfers to depositor ......... 16 131 0 324
--------------- ----------------- ----------------- -----------------
Net assets ............................ $ 10,344 $ 97,272 $ 11,141 $ 26,822
=============== ================= ================= =================
EQUITY ACCOUNTS:
Contract Owners' equity:
Units ................................. 965,056.817608 7,035,131.859758 1,020,984.488864 2,126,414.461035
=============== ================= ================= =================
Unit value ............................ $ 10.718516 $ 13.826568 $ 10.600692 $ 12.525559
=============== ================= ================= =================
Contract Owners' equity ............... $ 10,344 $ 97,272 $ 10,823 $ 26,634
--------------- ----------------- ----------------- -----------------
Depositor's equity:
Units ................................. N/A N/A 30,000.000000 15,000.000000
=============== ================= ================= =================
Unit value ............................ $ N/A $ N/A $ 10.600692 $ 12.525559
=============== ================= ================= =================
Depositor's equity .................... $ N/A $ N/A $ 318 $ 188
--------------- ----------------- ----------------- -----------------
Total equity .......................... $ 10,344 $ 97,272 $ 11,141 $ 26,822
=============== ================= ================= =================
</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
BELLWETHER, CONQUEROR, AND CREATOR
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 ..................................................... $ 3,303 $ 2,777 $ 2,913
Capital gain distributions .......................................... 0 0 42,884
---------- ---------- ----------
3,303 2,777 45,797
EXPENSES:
Mortality and expense risk .......................................... 894 584 5,367
---------- ---------- ----------
Net investment income (loss) ....................................... 2,409 2,193 40,430
---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions .............. 0 725 7,041
Change in unrealized appreciation (depreciation) ................... 0 251 5,897
---------- ---------- ----------
Net gain (loss) on investments .................................... 0 976 12,938
---------- ---------- ----------
Net increase (decrease) in equity accounts resulting from operations $ 2,409 $ 3,169 $ 53,368
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING AGGRESSIVE
GLOBAL TOTAL RETURN GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................................... $ 20,771 $6,554 $0 $4,183
Capital gain distributions .......................................... 23,043 16,769 23,760 10,389
---------- -------- -------- --------
43,814 23,323 23,760 14,572
EXPENSES:
Mortality and expense risk .......................................... 4,461 3,360 3,060 1,859
---------- -------- -------- --------
Net investment income (loss) ....................................... 39,353 19,963 20,700 12,713
---------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions .............. 10,093 4,086 14,075 3,706
Change in unrealized appreciation (depreciation) ................... (5,246) 19,127 4,013 8,243
---------- -------- -------- --------
Net gain (loss) on investments .................................... 4,847 23,213 18,088 11,949
---------- -------- -------- --------
Net increase (decrease) in equity accounts resulting from operations$ 44,200 $ 43,176 $ 38,788 $ 24,662
========== ======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
12
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ....................................................... $ 2,274 $ 2,668
Capital gain distributions ............................................ 2,158 2,341
--------- ---------
4,432 5,009
EXPENSES:
Mortality and expense risk ............................................ 511 358
--------- ---------
Net investment income (loss) ......................................... 3,921 4,651
--------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................ 513 584
Change in unrealized appreciation (depreciation) ..................... 766 526
--------- ---------
Net gain (loss) on investments ...................................... 1,279 1,110
--------- ---------
Net increase (decrease) in equity accounts resulting from operations $ 5,200 $ 5,761
========= =========
<CAPTION>
TACTICAL ASSET
ALLOCATION C.A.S.E. GROWTH
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $ 7,080 $ 2,574
Capital gain distributions ............................................ 7,287 236
--------- ---------
14,367 2,810
EXPENSES:
Mortality and expense risk ............................................ 2,310 309
--------- ---------
Net investment income (loss) ......................................... 12,057 2,501
--------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................ 2,439 354
Change in unrealized appreciation (depreciation) ..................... 8,073 (429)
--------- ---------
Net gain (loss) on investments ...................................... 10,512 (75)
--------- ---------
Net increase (decrease) in equity accounts resulting from operations $ 22,569 $ 2,426
========= =========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR VALUE EQUITY
SUB-ACCOUNT (C) SUB-ACCOUNT
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $475 $ 1,069
Capital gain distributions ............................................ 33 165
------ --------
508 1,234
EXPENSES:
Mortality and expense risk ............................................ 92 850
------ --------
Net investment income (loss) ......................................... 416 384
------ --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................ 147 1,431
Change in unrealized appreciation (depreciation) ..................... (529) 8,951
------ --------
Net gain (loss) on investments ...................................... (382) 10,382
------ --------
Net increase (decrease) in equity accounts resulting from operations $ 34 $ 10,766
====== ========
<CAPTION>
INTERNATIONAL U.S.
EQUITY EQUITY
SUB-ACCOUNT (D) SUB-ACCOUNT (D)
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $ 48 $ 903
Capital gain distributions ............................................ 0 81
------- -------
48 984
EXPENSES:
Mortality and expense risk ............................................ 83 145
------- -------
Net investment income (loss) ......................................... (35) 839
------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................ 164 808
Change in unrealized appreciation (depreciation) ..................... (383) 83
------- -------
Net gain (loss) on investments ...................................... (219) 891
------- -------
Net increase (decrease) in equity accounts resulting from operations $ (254) $ 1,730
======= =======
</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
BELLWETHER, CONQUEROR, AND CREATOR
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) ......................... $ 2,409 $ 1,540 $ 2,193 $ 1,599
Net gain (loss) on investments ....................... 0 0 976 (1,938)
-------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 2,409 1,540 3,169 (339)
-------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 13,128 37,166 27,784 8,367
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges. ............................. 29 18 30 24
Policy loans ........................................ 28 101 7 12
Surrender benefits .................................. 11,282 8,017 4,268 2,412
Death benefits ...................................... 461 679 327 297
-------- -------- -------- --------
11,800 8,815 4,632 2,745
-------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 1,328 28,351 23,152 5,622
-------- -------- -------- --------
Net increase (decrease) in equity accounts. ......... 3,737 29,891 26,321 5,283
Depositor's equity contribution (redemption) ......... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period .................................. 58,415 28,524 38,055 32,772
-------- -------- -------- --------
End of period ........................................ $ 62,152 $ 58,415 $ 64,376 $ 38,055
======== ======== ======== ========
<CAPTION>
GROWTH
SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 40,430 $ 16,289
Net gain (loss) on investments ....................... 12,938 20,917
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 53,368 37,206
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 89,734 98,111
--------- ---------
Less cost of units redeemed:
Administrative charges. ............................. 356 243
Policy loans ........................................ 165 175
Surrender benefits .................................. 25,016 14,230
Death benefits ...................................... 3,145 1,102
--------- ---------
28,682 15,750
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 61,052 82,361
--------- ---------
Net increase (decrease) in equity accounts. ......... 114,420 119,567
Depositor's equity contribution (redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period .................................. 317,705 198,138
--------- ---------
End of period ........................................ $ 432,125 $ 317,705
========= =========
</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) ........................... $ 39,353 $ 16,880 $ 19,963 $ 8,640
Net gain (loss) on investments ......................... 4,847 21,126 23,213 8,201
--------- --------- --------- ---------
Net increase (decrease) in equity accounts resulting
from operations ....................................... 44,200 38,006 43,176 16,841
--------- --------- --------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................... 120,751 88,386 57,079 85,201
--------- --------- --------- ---------
Less cost of units redeemed:
Administrative charges. ............................... 247 146 140 92
Policy loans .......................................... 132 148 65 78
Surrender benefits .................................... 19,577 9,451 15,264 6,805
Death benefits ........................................ 1,438 650 1,736 413
--------- --------- --------- ---------
21,394 10,395 17,205 7,388
--------- --------- --------- ---------
Increase (decrease) in equity accounts from capital
unit transactions .................................... 99,357 77,991 39,874 77,813
--------- --------- --------- ---------
Net increase (decrease) in equity accounts. ........... 143,557 115,997 83,050 94,654
Depositor's equity contribution (redemption) ........... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period .................................... 227,955 111,958 196,305 101,651
--------- --------- --------- ---------
End of period .......................................... $ 371,512 $ 227,955 $ 279,355 $ 196,305
========= ========= ========= =========
</TABLE>
The notes to the financial statements are an integral part of this report.
14
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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) ......................... $ 20,700 $ 5,806
Net gain (loss) on investments ....................... 18,088 14,108
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 38,788 19,914
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 54,227 63,633
--------- ---------
Less cost of units redeemed:
Administrative charges. ............................. 198 128
Policy loans ........................................ 114 109
Surrender benefits .................................. 12,701 8,246
Death benefits ...................................... 861 590
--------- ---------
13,874 9,073
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 40,353 54,560
--------- ---------
Net increase (decrease) in equity accounts. ......... 79,141 74,474
Depositor's equity contribution (redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period .................................. 179,589 105,115
--------- ---------
End of period ........................................ $ 258,730 $ 179,589
========= =========
<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) ......................... $ 12,713 $ 1,823 $ 3,921 $ 585
Net gain (loss) on investments ....................... 11,949 6,050 1,279 1,594
--------- --------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 24,662 7,873 5,200 2,179
--------- --------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 45,729 36,889 12,830 12,103
--------- --------- -------- --------
Less cost of units redeemed:
Administrative charges. ............................. 135 70 24 14
Policy loans ........................................ 61 102 0 22
Surrender benefits .................................. 8,242 4,071 2,303 1,284
Death benefits ...................................... 384 107 535 79
--------- --------- -------- --------
8,822 4,350 2,862 1,399
--------- --------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 36,907 32,539 9,968 10,704
--------- --------- -------- --------
Net increase (decrease) in equity accounts. ......... 61,569 40,412 15,168 12,883
Depositor's equity contribution (redemption) ......... 0 0 0 (218)
EQUITY ACCOUNTS:
Beginning of period .................................. 100,832 60,420 28,734 16,069
--------- --------- -------- --------
End of period ........................................ $ 162,401 $ 100,832 $ 43,902 $ 28,734
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
INCOME
SUB-ACCOUNT (B)
DECEMBER 31
--------------------------
1997 1996
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ 4,651 $ 822
Net gain (loss) on investments ....................... 1,110 816
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 5,761 1,638
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 13,075 9,551
--------- ---------
Less cost of units redeemed:
Administrative charges. ............................. 18 9
Policy loans ........................................ 14 12
Surrender benefits .................................. 1,590 811
Death benefits ...................................... 595 241
--------- ---------
2,217 1,073
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 10,858 8,478
--------- ---------
Net increase (decrease) in equity accounts. ......... 16,619 10,116
Depositor's equity contribution (redemption) ......... 0 (230)
EQUITY ACCOUNTS:
Beginning of period .................................. 19,972 10,086
--------- ---------
End of period ........................................ $ 36,591 $ 19,972
========= =========
<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) ......................... $ 12,057 $ 3,678 $ 2,501 $ 200
Net gain (loss) on investments ....................... 10,512 5,793 (75) 640
--------- --------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 22,569 9,471 2,426 840
--------- --------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 58,937 51,801 18,228 11,840
--------- --------- -------- --------
Less cost of units redeemed:
Administrative charges. ............................. 70 32 12 1
Policy loans ........................................ 36 23 7 11
Surrender benefits .................................. 11,696 7,426 951 151
Death benefits ...................................... 1,197 514 206 0
--------- --------- -------- --------
12,999 7,995 1,176 163
--------- --------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 45,938 43,806 17,052 11,677
--------- --------- -------- --------
Net increase (decrease) in equity accounts. ......... 68,507 53,277 19,478 12,517
Depositor's equity contribution (redemption) ......... 0 0 (25) 25
EQUITY ACCOUNTS:
Beginning of period .................................. 125,577 72,300 12,542 0
--------- --------- -------- --------
End of period ........................................ $ 194,084 $ 125,577 $ 31,995 $ 12,542
========= ========= ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
15
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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) ......................... $ 416 $ 5 $ 384 $ 19
Net gain (loss) on investments ....................... (382) 122 10,382 1,562
-------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... 34 127 10,766 1,581
-------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 7,204 3,410 67,627 22,294
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .............................. 3 1 26 2
Policy loans ........................................ 1 0 10 6
Surrender benefits .................................. 390 27 4,425 258
Death benefits ...................................... 9 0 248 0
-------- -------- -------- --------
403 28 4,709 266
-------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 6,801 3,382 62,918 22,028
-------- -------- -------- --------
Net increase (decrease) in equity accounts .......... 6,835 3,509 73,684 23,609
Depositor's equity contribution (redemption) ......... 0 0 (171) 150
EQUITY ACCOUNTS:
Beginning of period .................................. 3,509 0 23,759 0
-------- -------- -------- --------
End of period ........................................ $ 10,344 $ 3,509 $ 97,272 $ 23,759
======== ======== ======== ========
</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) ......................... $ (35) $ 839
Net gain (loss) on investments ....................... (219) 891
-------- --------
Net increase (decrease) in equity accounts resulting
from operations ..................................... (254) 1,730
-------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) .................. 11,350 26,831
-------- --------
Less cost of units redeemed:
Administrative charges .............................. 2 2
Policy loans ........................................ 5 0
Surrender benefits .................................. 248 1,886
Death benefits ...................................... 0 1
-------- --------
255 1,889
-------- --------
Increase (decrease) in equity accounts from capital
unit transactions .................................. 11,095 24,942
-------- --------
Net increase (decrease) in equity accounts. ......... 10,841 26,672
Depositor's equity contribution (redemption) ......... 300 150
EQUITY ACCOUNTS:
Beginning of period .................................. 0 0
-------- --------
End of period ........................................ $ 11,141 $ 26,822
======== ========
</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
BELLWETHER, CONQUEROR, AND CREATOR
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 ........................ $ 11.12 $ 10.73
Income from operations:
Net investment income (loss) ...................................... 0.43 0.39
Net realized and unrealized gain (loss) on investments ............ 0.00 0.00
-------- --------
Total income (loss) from operations. ............................. 0.43 0.39
-------- --------
Accumulation unit value, end of period .............................. $ 11.55 $ 11.12
======== ========
Total return (a) .................................................... 3.84% 3.65%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 62,152 $ 58,415
Ratios of net investment income (loss) to average net assets (b) .. 3.78% 3.57%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
DECEMBER 31
-------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ........................ $ 10.32 $ 10.11 $ 10.01
Income from operations:
Net investment income (loss) ...................................... 0.41 0.21 0.10
Net realized and unrealized gain (loss) on investments ............ 0.00 0.00 0.00
-------- -------- -------
Total income (loss) from operations. ............................. 0.41 0.21 0.10
-------- -------- -------
Accumulation unit value, end of period .............................. $ 10.73 $ 10.32 $ 10.11
======== ======== =======
Total return (a) .................................................... 3.96% 2.07% 1.01%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 28,524 $ 28,537 $ 8,786
Ratios of net investment income (loss) to average net assets (b) .. 3.89% 2.26% 1.03%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of period ....................... $ 12.46 $ 12.61
Income from operations:
Net investment income (loss) ..................................... 0.67 0.56
Net realized and unrealized gain (loss) on investments ........... 0.28 (0.71)
-------- -------
Total income (loss) from operations. ............................ 0.95 (0.15)
-------- -------
Accumulation unit value, end of period ............................. $ 13.41 $ 12.46
======== =======
Total return (a) ................................................... 7.64% (1.25%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 64,376 $38,055
Ratios of net investment income (loss) to average net assets (b) .. 5.26% 4.60%
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31
------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ....................... $ 10.40 $ 11.33 $ 10.14
Income from operations:
Net investment income (loss) ..................................... 0.64 0.52 2.69
Net realized and unrealized gain (loss) on investments ........... 1.57 (1.45) (1.50)
------- ------- -------
Total income (loss) from operations. ............................ 2.21 (0.93) 1.19
------- ------- -------
Accumulation unit value, end of period ............................. $ 12.61 $ 10.40 $ 11.33
======= ======= =======
Total return (a) ................................................... 21.28% (8.23%) 11.81%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $32,772 $17,614 $17,280
Ratios of net investment income (loss) to average net assets (b) .. 5.45% 4.91% 24.79%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ....................... $ 16.02 $ 13.77
Income from operations:
Net investment income (loss) ..................................... 1.87 0.95
Net realized and unrealized gain (loss) on investments ........... 0.68 1.30
--------- ---------
Total income (loss) from operations. ............................ 2.55 2.25
--------- ---------
Accumulation unit value, end of period ............................. $ 18.57 $ 16.02
========= =========
Total return (a) ................................................... 15.91% 16.32%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 432,125 $ 317,705
Ratios of net investment income (loss) to average net assets (b) .. 10.53% 6.21%
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31
-----------------------------------------
1995 1994 1993
------------- -------------- ------------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ....................... $ 9.49 $ 10.50 $ 10.24
Income from operations:
Net investment income (loss) ..................................... 1.30 (0.03) 0.31
Net realized and unrealized gain (loss) on investments ........... 2.98 (0.98) (0.05)
--------- -------- --------
Total income (loss) from operations. ............................ 4.28 (1.01) 0.26
--------- -------- --------
Accumulation unit value, end of period ............................. $ 13.77 $ 9.49 $ 10.50
========= ======== ========
Total return (a) ................................................... 45.08% (9.58%) 2.55%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 198,139 $ 112,383 $ 87,415
Ratios of net investment income (loss) to average net assets (b) .. 11.07% (0.26%) 3.14%
</TABLE>
The notes to the financial statements are an integral part of this report.
17
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ........................ $ 20.43 $ 16.22
Income from operations:
Net investment income (loss) ...................................... 2.85 1.79
Net realized and unrealized gain (loss) on investments ............ 0.64 2.42
--------- ---------
Total income (loss) from operations. ............................. 3.49 4.21
--------- ---------
Accumulation unit value, end of period .............................. $ 23.92 $ 20.43
========= =========
Total return (a) .................................................... 17.10% 25.96%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 371,512 $ 227,955
Ratios of net investment income (loss) to average net assets (b) ... 12.33% 9.45%
<CAPTION>
GLOBAL SUB-ACCOUNT
DECEMBER 31
--------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ........................ $ 13.36 $ 13.52 $ 10.15
Income from operations:
Net investment income (loss) ...................................... 0.43 0.53 0.11
Net realized and unrealized gain (loss) on investments ............ 2.43 (0.69) 3.26
--------- ------- -------
Total income (loss) from operations. ............................. 2.86 (0.16) 3.37
--------- ------- -------
Accumulation unit value, end of period .............................. $ 16.22 $ 13.36 $ 13.52
========= ======= =======
Total return (a) .................................................... 21.35% (1.14%) 33.17%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 111,958 $95,829 $29,905
Ratios of net investment income (loss) to average net assets (b) ... 2.96% 3.95% 0.99%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT (H)
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.37 $ 13.56
Income from operations:
Net investment income (loss) ....................................... 1.42 0.94
Net realized and unrealized gain (loss) on investments ............. 1.68 0.87
--------- ---------
Total income (loss) from operations ............................... 3.10 1.81
--------- ---------
Accumulation unit value, end of period ............................... $ 18.47 $ 15.37
========= =========
Total return (a) ..................................................... 20.16% 13.40%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 279,355 $ 196,305
Ratios of net investment income (loss) to average net assets (b) ... 8.31% 6.55%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT (H)
DECEMBER 31
--------------------------------------
1995 1994 1993 (C)
------------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.03 $ 11.24 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.59 0.16 0.20
Net realized and unrealized gain (loss) on investments ............. 1.94 (0.37) 1.04
--------- ------- -------
Total income (loss) from operations ............................... 2.53 (0.21) 1.24
--------- ------- -------
Accumulation unit value, end of period ............................... $ 13.56 $ 11.03 $ 11.24
========= ======= =======
Total return (a) ..................................................... 22.93% (1.92%) 12.43%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 101,651 $71,733 $28,312
Ratios of net investment income (loss) to average net assets (b) ... 4.76% 1.49% 2.24%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
DECEMBER 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 19.15 $ 16.34
Income from operations:
Net investment income (loss) ....................................... 2.00 0.73
Net realized and unrealized gain (loss) on investments ............. 1.79 2.08
--------- ---------
Total income (loss) from operations. .............................. 3.79 2.81
--------- ---------
Accumulation unit value, end of period ............................... $ 22.94 $ 19.15
========= =========
Total return (a) ..................................................... 19.77% 17.23%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 258,730 $ 179,589
Ratios of net investment income (loss) to average net assets (b) ... 9.45% 3.96%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
DECEMBER 31
--------------------------------------
1995 1994 1993 (C)
------------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.29 $ 12.35 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.54 (0.15) (0.14)
Net realized and unrealized gain (loss) on investments ............. 4.51 (0.91) 2.49
--------- ------- -------
Total income (loss) from operations. .............................. 5.05 (1.06) 2.35
--------- ------- -------
Accumulation unit value, end of period ............................... $ 16.34 $ 11.29 $ 12.35
========= ======= =======
Total return (a) ..................................................... 44.75% (8.65%) 23.54%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......................... $ 105,115 $62,615 $25,444
Ratios of net investment income (loss) to average net assets (b) ... 3.85% (1.33%) (1.44%)
</TABLE>
The notes to the financial statements are an integral part of this report.
18
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ........................ $ 14.50 $ 13.31 $ 9.78 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 1.60 0.31 0.40 (0.10)
Net realized and unrealized gain (loss) on investments ............ 1.67 0.88 3.13 (0.12)
--------- --------- ------- -------
Total income (loss) from operations .............................. 3.27 1.19 3.53 (0.22)
--------- --------- ------- -------
Accumulation unit value, end of period .............................. $ 17.77 $ 14.50 $ 13.31 $ 9.78
========= ========= ======= =======
Total return (a) .................................................... 22.52% 8.91% 36.10% (2.18%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 162,401 $ 100,832 $60,420 $11,403
Ratios of net investment income (loss) to average net assets (b) .. 9.55% 2.22% 3.04% (1.19%)
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
DECEMBER 31
-------------------------------------------------------
1997 1996 1995 1994 (D)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ........................ $ 12.05 $ 11.03 $ 9.34 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 1.40 0.30 0.32 0.27
Net realized and unrealized gain (loss) on investments ............ 0.46 0.72 1.37 (0.93)
------- -------- ------- -------
Total income (loss) from operations. .............................. 1.86 1.02 1.69 (0.66)
------- -------- ------- -------
Accumulation unit value, end of period .............................. $ 13.91 $ 12.05 $ 11.03 $ 9.34
======= ======== ======= =======
Total return (a) .................................................... 15.47% 9.18% 18.13% (6.61%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $43,902 $ 28,734 $16,069 $ 7,936
Ratios of net investment income (loss) to average net assets (b) .. 10.72% 2.69% 3.16% 3.48%
</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 ........................ $ 12.85 $ 11.68 $ 9.45 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 2.52 0.68 0.47 0.33
Net realized and unrealized gain (loss) on investments ............ 0.43 0.49 1.76 (0.88)
------- ------- ------- -------
Total income (loss) from operations. ............................. 2.95 1.17 2.23 (0.55)
------- ------- ------- -------
Accumulation unit value, end of period .............................. $ 15.80 $ 12.85 $ 11.68 $ 9.45
======= ======= ======= =======
Total return (a) .................................................... 22.92% 10.08% 23.52% (5.47%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $36,591 $19,972 $10,086 $ 3,786
Ratios of net investment income (loss) to average net assets (b) .. 18.15% 5.68% 4.50% 4.18%
</TABLE>
The notes to the financial statements are an integral part of this report.
19
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ........................ $ 13.36 $ 11.84 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 1.06 0.47 0.82
Net realized and unrealized gain (loss) on investments ............ 0.94 1.05 1.02
--------- --------- -------
Total income (loss) from operations. ............................. 2.00 1.52 1.84
--------- --------- -------
Accumulation unit value, end of period .............................. $ 15.36 $ 13.36 $ 11.84
========= ========= =======
Total return (a) .................................................... 14.97% 12.83% 18.43%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 194,084 $ 125,577 $72,300
Ratios of net investment income (loss) to average net assets (b) .. 7.30% 3.72% 7.29%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH
SUB-ACCOUNT
DECEMBER 31
--------------------------
1997 1996 (F)
------------ -----------
<S> <C> <C>
Accumulation unit value, beginning of period ........................ $ 10.77 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 1.34 0.36
Net realized and unrealized gain (loss) on investments ............ 0.11 0.41
-------- --------
Total income (loss) from operations. ............................. 1.45 0.77
-------- --------
Accumulation unit value, end of period .............................. $ 12.22 $ 10.77
======== ========
Total return (a) .................................................... 13.43% 7.73%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 31,995 $ 12,542
Ratios of net investment income (loss) to average net assets (b) .. 11.31% 5.46%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR SUB-ACCOUNT
(J)
DECEMBER 31
--------------------------
1997 1996 (F)
------------ -----------
<S> <C> <C>
Accumulation unit value, beginning of period ........................ $ 10.51 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 0.69 0.04
Net realized and unrealized gain (loss) on investments ............ (0.48) 0.47
-------- -------
Total income (loss) from operations. ............................. 0.21 0.51
-------- -------
Accumulation unit value, end of period .............................. $ 10.72 $ 10.51
======== =======
Total return (a) .................................................... 1.99% 5.09%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 10,344 $ 3,509
Ratios of net investment income (loss) to average net assets (b) .. 6.30% 0.59%
</TABLE>
The notes to the financial statements are an integral part of this report.
20
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ....................... $ 11.21 $ 10.00
Income from operations:
Net investment income (loss) ..................................... 0.08 0.02
Net realized and unrealized gain (loss) on investments ........... 2.54 1.19
------- -------
Total income (loss) from operations. ............................ 2.62 1.21
------- -------
Accumulation unit value, end of period ............................. $ 13.83 $ 11.21
======= =======
Total return (a) ................................................... 23.30% 12.13%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $97,272 $23,759
Ratios of net investment income (loss) to average net assets (b) .. 0.63% 0.33%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY U.S. 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) ....................................... (0.06) 0.95
Net realized and unrealized gain (loss) on investments ............. 0.66 1.58
------- -------
Total income (loss) from operations. .............................. 0.60 2.53
------- -------
Accumulation unit value, end of period ............................... $ 10.60 $ 12.53
======= =======
Total return (a) ..................................................... 6.01% 25.26%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $11,141 $26,822
Ratios of net investment income (loss) to average net assets (b) .... (0.58%) 7.99%
</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
BELLWETHER, CONQUEROR, AND CREATOR
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 Bellwether, Conqueror, and Creator
contracts. The financial statements for Freedom and Attainer 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 |P`Portfolio|P'), 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
Bellwether, Conqueror, and Creator 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>
Bellwether, Conqueror, and Creator 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 redemption orders 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
BELLWETHER, CONQUEROR, AND CREATOR
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 the purchase payments. A
contingent deferred sales charge may, however, be assessed against contract
values when withdrawn or surrendered.
On each anniversary through maturity date, WRL will deduct an annual contract
charge as partial compensation for providing administrative services under the
Contracts.
B. BELLWETHER, CONQUEROR, AND CREATOR
SUB-ACCOUNT CHARGES
A daily charge equal to an annual rate of 1.40% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks and
administrative services in connection with issuance and administration of the
Contracts. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 -- DIVIDENDS AND DISTRIBUTIONS
Dividends of the 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 .................... $ 153,633 $ 37,443 $ 122,522
Proceeds from sales of long-term securities ......... 149,511 12,120 21,149
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 168,791 $ 73,081 $ 96,258
Proceeds from sales of long-term securities ......... 29,502 13,988 35,413
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 66,644 $ 16,681 $ 17,644
Proceeds from sales of long-term securities ......... 16,716 2,519 2,580
TACTICAL ASSET C.A.S.E. GLOBAL
ALLOCATION GROWTH SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities .................... $ 71,332 $ 21,245 $ 8,746
Proceeds from sales of long-term securities ......... 13,328 2,451 1,529
VALUE INTERNATIONAL U.S.
EQUITY EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Purchase of long-term securities .................... $ 69,688 $ 13,905 $ 33,124
Proceeds from sales of long-term securities ......... 6,530 2,545 6,868
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
23
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ........... 5,253,582.115062 3,055,304.507335 19,832,581.763517
Units issued ................................ 26,457,168.318053 3,754,132.232864 9,816,793.075188
Units redeemed .............................. 26,327,904.562316 2,007,692.277001 6,377,123.312835
----------------- ---------------- -----------------
Units balance - end of year ................. 5,382,845.870799 4,801,744.463198 23,272,251.525870
================= ================ =================
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 11,159,128.232837 12,770,553.738705 9,376,916.835961
Units issued ................................ 9,373,185.986939 5,550,942.020136 6,544,341.394624
Units redeemed .............................. 5,001,648.009884 3,197,198.726902 4,641,655.045572
----------------- ----------------- -----------------
Units balance - end of year ................. 15,530,666.209892 15,124,297.031939 11,279,603.185013
================= ================= =================
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 6,954,084.354037 2,385,500.177475 1,553,810.728349
Units issued ................................ 5,494,774.016914 1,449,305.357557 1,325,425.819180
Units redeemed .............................. 3,307,543.066245 678,451.551534 563,244.899766
----------------- ----------------- -----------------
Units balance - end of year ................. 9,141,315.304706 3,156,353.983498 2,315,991.647763
================= ================= =================
TACTICAL ASSET C.A.S.E. GLOBAL
ALLOCATION GROWTH SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 9,397,630.629186 1,164,233.311699 333,942.618296
Units issued ................................ 6,245,046.647926 2,141,602.077583 877,896.228903
Units redeemed .............................. 3,009,500.674397 687,551.420222 246,782.029591
----------------- ----------------- -----------------
Units balance - end of year ................. 12,633,176.602715 2,618,283.969060 965,056.817608
================= ================= =================
VALUE INTERNATIONAL U.S.
EQUITY EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Units balance - beginning of period ......... 2,118,820.411102 N/A N/A
Units issued ................................ 7,466,205.916025 1,505,190.895915 3,215,142.122881
Units redeemed .............................. 2,549,894.467369 454,206.407051 1,073,727.661846
----------------- ----------------- -----------------
Units balance - end of period ............... 7,035,131.859758 1,050,984.488864 2,141,414.461035
================= ================= =================
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
24
<PAGE>
WRL SERIES ANNUITY ACCOUNT
BELLWETHER, CONQUEROR, AND CREATOR
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 ................................ 59
Growth .............................. 50,768
Global .............................. 20,580
Strategic Total Return .............. 36,919
Emerging Growth ..................... 31,861
Aggressive Growth ................... 12,118
Balanced ............................ 3,532
Growth & Income ..................... 1,821
Tactical Asset Allocation ........... 13,003
C.A.S.E. Growth ..................... 201
Global Sector ....................... (407)
Value Equity ........................ 10,483
International Equity ................ (383)
U.S. Equity ......................... 83
</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.
(b) Exhibits
(1) Copy of resolution of the Board of Directors of Western
Reserve establishing the Series Account. 4/
(2) Not Applicable.
(3) Distribution of Contracts
(a) Form of Master Service and Distribution
Compliance Agreement. 4/
(b) Form of Broker/Dealer Supervisory and Service
Agreement. 4/
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract.
(b) Endorsements. (END00094, EA122, END00101,
END00102, END.88.07.90 and EA121) 4/
(5) Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract. 4/
(6) (a) Copy of Second Amended Articles of Incorporation
of Western Reserve. 4/
(b) Copy of Amended Code of Regulations of Western
Reserve. 4/
(7) Not Applicable.
(8) Not Applicable.
(9) Opinion and Consent of Thomas E. Pierpan, Esq. as to
Legality of Securities Being Registered. 2/
(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.
C-1
<PAGE>
(13) Schedules for Computation of Performance Quotations. 3/
(14) Not Applicable.
(15) (a) Powers of Attorney.
(b) Power of Attorney - James R. Walker 1/
- --------------
1/ This exhibit was previously filed on Post-Effective Amendment No. 7 to the
Form N-4 Registration Statement Dated December 23, 1996 (File No. 33-49556)
and is incorporated herein by reference.
2/ This exhibit was previously filed on Post-Effective Amendment No. 10 to the
Form N-4 Registration Statement dated December 22, 1997 (File No. 33-49550)
and is incorporated herein by reference.
3/ This exhibit was previously filed on Post-Effective Amendment No. 28 to the
Form N-1A Registration Statement Dated April 24, 1997 (File No. 33-507) and
is incorporated herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment No. 11 to the
Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49550) 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, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
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
C-2
<PAGE>
General Counsel
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
- --------------
(1) 201 Highland Avenue, Largo, Florida 33770
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
VERENGING AEGON Netherlands Membership Association
AEGON n.v. Netherlands Corporation (53.63%)
AEGON Netherland N.V. Netherlands Corporation (100%)
AEGON Nevark Holding B.V. Netherlands Corporation (100%)
Groninger Financieringen B.V. Netherlands Corporation (100%)
AEGON International N.V. Netherlands Corporation (100%)
Voting Trust - (Trustees - K.J. Storm, Donald J. Shepard, H.B. Van Wijk,
Dennis Hersch)
AEGON U.S. Holding Corporation (DE) (100%)
Short Hills Management Company (NJ) (100%)
CORPA Reinsurance Company (NY) (100%)
AEGON Management Company (IN) (100%)
RCC North America Inc. (DE) (100%)
AEGON USA, Inc. - Holding Co. (IA) (100%)
First AUSA Life Insurance Company - Insurance Holding Co. (MD) (100%)
AUSA Life Insurance Company, Inc. - Insurance (NY) (100%)
Life Investors Insurance Company of America - Insurance (IA) (100%)
Bankers United Life Assurance Company - Insurance (IA) (100%)
PFL Life Insurance Company - Insurance (IA) (100%)
Southwest Equity Life Insurance Company - Insurance (AZ) (100%)
Voting Common)
Iowa Fidelity Life Insurance Company - Insurance (AZ) (100% Voting
Common)
Western Reserve Life Assurance 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%)
C-3
<PAGE>
Massachusetts Fidelity Trust Company - Trust company (IA) (100%)
Money Services, Inc. - Provides financial counseling for employees
and agents of affiliated companies (DE) (100%)
Zahorik Company, Inc. - Broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
InterSecurities, Inc. - Broker-dealer (DE) (100%)
ISI Insurance Agency Inc. & its Subsidiaries - Insurance
agency (CA) (100%)
Associated Mariner Financial Group, Inc. - Holding company
management services (MI) (100%)
Mariner Financial Services, Inc. - Broker/Dealer (MI) (100%)
Mariner/ISI Planning Corporation - Financial planning (MI)
(100%)
Associated Mariner Agency, Inc. and its
Subsidiaries-Insurance agency (MI) (100%)
Mariner Mortgage Corporation - Mortgage origination (MI)
(100%)
Idex Investor Services, Inc. - Shareholder services (FL) (100%)
Idex Management, Inc. - Investment advisor (DE) (50%)
Idex Series Fund - Mutual fund (MA)
Transunion Casualty Company - Insurance (IA) (100%)
AUSA Institutional Marketing Group, Inc. - Insurance agency (MN)
(100%)
Colorado Annuity Agency, Inc. - Insurance agency (MN) (100%)
Diversified Investment Advisors, Inc. - Registered investment
advisor (DE) (100%)
Diversified Investors Securities Corporation - Broker-dealer
(DE) (100%)
AEGON USA Securities, Inc. - Broker-dealer (IA) (100%)
AEGON USA Managed Portfolios, Inc. - Mutual fund (MD)
American Forum for Fiscal Fitness, Inc. - Marketing (IA) (100%)
Supplemental Insurance Division, Inc. - Insurance (TN) (100%)
Creditor Resources, Inc. - Credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance
agency (Canada)
AEGON USA Investment Management, Inc. - Investment advisor (IA)
(100%)
AEGON USA Realty Advisors, Inc. - Provides real estate administrative
and real estate investment services (IA) (100%)
QUANTRA Corporation - (DE) (100%)
QUANTRA Software Corporation - (DE) (100%)
Landauer Realty Advisors, Inc. - Real estate counseling (IA)
(100%)
Landauer Associates, Inc. - Real estate counseling (DE) (100%)
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, 16,147 non-qualified contracts and 39,460 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.
C-4
<PAGE>
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:
(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;
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(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 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,
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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 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.
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(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.
(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.
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<PAGE>
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such
person may also be an agent of this corporation. The corporation may indemnify
such named fiduciaries of its employee benefit plans against all costs and
expenses, judgments, fines, settlements or other amounts actually and
reasonably incurred by or imposed upon said named fiduciary in connection with
or arising out of any claim, demand, action, suit or proceeding in which the
named fiduciary may be made a party by reason of being or having been a named
fiduciary, to the same extent it indemnifies an agent of the corporation. To
the extent that the corporation does not have the direct legal power to
indemnify, the corporation may contract with the named fiduciaries of its
employee benefit plans to indemnify them to the same extent as noted above.
The corporation may purchase and maintain insurance on behalf of such named
fiduciary covering any liability to the same extent that it contracts to
indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is
a creditor (and his heirs, executors and administrators) shall be indemnified
by the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Western
Reserve of expenses incurred or paid by a director, officer or controlling
person of Western Reserve in the successful defense of any action, suit or
proceeding) is asserted by such 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
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Chief Executive Officer
Thomas R. Moriarty (1) Senior Vice President
William H. Geiger (1) Secretary and Director
William G. Cummings (1) Vice President and Treasurer
- --------------
(1) 201 Highland Avenue, Largo, Florida 33770
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by the Registrant through Western Reserve, 201
Highland Avenue, Largo, Florida
33770.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
Western Reserve Life Assurance Co. of Ohio ("Western Reserve")
hereby represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by Western Reserve.
Item 33. SECTION 403(B)(11) REPRESENTATION
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986,
Registrant is relying on the no-action letter issued by the Office
of Insurance Products and Legal Compliance, Division of Investment
Management, to the American Council of Life Insurance dated November
28, 1988 (Ref. No. IP-6-88), and that the provisions of paragraphs
(1) - (4) thereof have been complied with.
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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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. 11 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 19th 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. 11 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 19, 1998
- ------------------------ Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
/s/ ALAN M. YAEGER Executive Vice President, April 19, 1998
- ------------------------ Actuary and Chief Financial
Alan M. Yaeger Officer
/s/ ALLAN J. HAMILTON Vice President, Treasurer April 19, 1998
- ------------------------ and Controller
Allan J. Hamilton
<PAGE>
/s/ PATRICK S. BAIRD Director April 19, 1998
- ------------------------
Patrick S. Baird */
/s/ LYMAN H. TREADWAY Director April 19, 1998
- ------------------------
Lyman H. Treadway */
/s/JACK E. ZIMMERMAN Director April 19, 1998
- ------------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director April 19, 1998
- ------------------------
James R. Walker */
*/ /s/ THOMAS E. PIERPAN
---------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
EXHIBIT 99A.9
Exhibit 4(a)
Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
(A STOCK COMPANY)
Home Office: Columbus, Ohio
Administrative Office: 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 APPLICABLE SUB-ACCOUNTS IN THE SEPARATE ACCOUNT. CONTRACT VALUES, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SUB-ACCOUNT OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
THE CONSIDERATION for this Contract is the application and the payment of the
Initial Payment.
THE ANNUITANT, OWNER, AND BENEFICIARY are as shown in the application unless
changed in accordance with the provisions of this Contract.
THE PROVISIONS on the following pages are part of this Contract.
IN WITNESS WHEREOF, we have signed this Contract at our Office in Clearwater,
Florida as of the Contract Date.
ABCD ABCD
Secretary President
- --------------------------------------------------------------------------------
RIGHT TO EXAMINE CONTRACT - The Owner may cancel this Contract at any time
within ten days after receipt by returning it to us at P.O. Box 5068,
Clearwater, Florida 34618. If the Contract is returned within this period, we
will pay to the Owner the sum of:
1. The purchase payments received; plus (or minus)
2. The accumulated gains (or losses), if any, in the Separate Account for this
Contract as of the date we receive the returned Contract.
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity
Monthly Annuity Commencing on Maturity Date
Non-Participating - No Dividends
<PAGE>
CONTRACT GUIDE
ENDORSEMENTS................................................................ 2
CONTRACT SCHEDULE........................................................... 3
DEATH BENEFIT PROVISIONS.................................................... 4
DEFINITIONS................................................................. 5
SEPARATE ACCOUNT PROVISIONS................................................. 6
GENERAL PROVISIONS.......................................................... 8
PURCHASE PAYMENT PROVISIONS................................................. 9
CONTRACT VALUE PROVISIONS................................................... 10
ANNUITY PROVISIONS.......................................................... 12
FIXED ACCOUNT ANNUITY PAYMENTS.............................................. 13
VARIABLE ACCOUNT ANNUITY PAYMENTS........................................... 14
- --------------------------------------------------------------------------------
ENDORSEMENTS
Page 2
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
CONTRACT SCHEDULE
OWNER JOHN DOE ANNUITANT JOHN DOE
ANNUITY OPTION D-10 YEAR CERTAIN CONTRACT NUMBER 01-12345678
INITIAL PAYMENT $ 100,000.00 CONTACT DATE JAN 01, 1992
MATURITY DATE JAN 01, 2037
ANTICIPATED PURCHASE PAYMENT PATTERN *
AMOUNT MODE YEARS PAYABLE
$1,000.00 ANNUAL 45 YEARS
* THE ANTICIPATED PURCHASE PAYMENT PATTERN IS BASED UPON SELECTION MADE IN THE
APPLICATION. THE AMOUNT AND MODE MAY BE CHANGED IN ACCORDANCE WITH THE PURCHASE
PAYMENT PROVISIONS ON PAGE 9.
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT: WRL SERIES ANNUITY ACCOUNT
MORTALITY AND EXPENSE CHARGE: .000038356
PURCHASE PAYMENT PROVISIONS
MAXIMUM ADDITIONAL PAYMENT: $1,000,000
MINIMUM ADDITIONAL PAYMENT: $50
CONTRACT VALUE PROVISIONS
MINIMUM ALLOCATION PERCENTAGE: 10%
ANNUAL CONTRACT CHARGE: $35
MINIMUM BALANCE: $5,000
WITHDRAWAL CHARGE PERIOD: 84 MONTHS FROM THE DATE OF EACH
PURCHASE PAYMENT
WITHDRAWAL CHARGE PERCENTAGE (AS A PERCENTAGE OF EACH RESPECTIVE PURCHASE
PAYMENT):
MONTHS SINCE DATE OF PAYMENT PERCENTAGE
12 MONTHS OR LESS 8%
13 MONTHS THROUGH 24 MONTHS 7%
25 MONTHS THROUGH 36 MONTHS 6%
37 MONTHS THROUGH 48 MONTHS 5%
49 MONTHS THROUGH 60 MONTHS 4%
61 MONTHS THROUGH 72 MONTHS 3%
73 MONTHS THROUGH 84 MONTHS 2%
85 MONTHS OR MORE 0%
Page 3
<PAGE>
DEATH BENEFIT PROVISIONS
DEATH OF ANNUITANT DURING THE ACCUMULATION PERIOD. If the Annuitant dies during
the Accumulation Period and the Owner is a natural person other than the
Annuitant, the Owner will automatically become the Annuitant and the Contract
will continue.
If the Annuitant dies during the Accumulation Period and the Owner is either (1)
the same individual as the Annuitant; or (2) other than a natural person, then
the Death Benefit Proceeds as calculated below are payable to the Beneficiary.
DEATH BENEFIT PROCEEDS. If the Annuitant dies during the Accumulation Period and
prior to the eighth contract year, the Death Benefit Proceeds, if payable, will
be the greater of:
1. The Cash Value as of the Death Report Day; or
2. Total purchase payments (less partial withdrawals), increased by 5% on each
contract anniversary prior to the Owner's age 80 (Annuitant's age 80 if the
Owner is not a natural person), up to an amount not to exceed 200% of the
purchase payments less partial withdrawals.
If the Annuitant dies during the Accumulation Period and after the seventh
contract year, the Death Benefit Proceeds, if payable, will be the greatest of:
1. The Cash Value as of the Death Report day; or
2. Total purchase payments (less partial withdrawals), increased by 5% on each
contract anniversary prior to the Owner's age 80 (Annuitant's age 80 if the
Owner is not a natural person), up to an amount not to exceed 200% of the
purchase payments less partial withdrawals; or
3. The Cash Value as of the seventh contract anniversary, less any amounts
withdrawn from the Contract after the seventh contract year to pay for
partial withdrawals.
ALTERNATIVE ELECTION. If the Beneficiary is entitled to receive the Death
Benefit Proceeds, the Beneficiary may elect in lieu of a lump sum payment, one
of the following options that provide for complete distribution and termination
of this Contract at the end of the distribution period:
1. Within 5 years of the date of death of the Annuitant; or
2. Over the lifetime of the Beneficiary; or
3. Over a period that does not exceed the life expectancy (as defined by the
Internal Revenue Code and Regulations adopted under the Code) of such
Beneficiary.
For subparagraphs (1) and (3), the Annuity Value as of the Death Report Day will
be adjusted to equal the Death Benefit Proceeds and this Contract will remain in
force as a deferred annuity until the end of the elected distribution period.
For subparagraph (2), the Maturity Date will be changed to the Death Report Day
and the Death Benefit Proceeds will be used to purchase annuity payments under
the Annuity Provisions of this Contract.
Subparagraphs (2) and (3) may be elected only if the Beneficiary is a natural
person and payments start within one year of the date of death of the Annuitant.
In addition, if the Beneficiary is entitled to receive the Death Benefit
Proceeds and is the spouse of the deceased Annuitant, then the Beneficiary may
elect to become the new Annuitant and Owner and keep the Contract in force in
lieu of receiving the Death Benefit Proceeds.
Page 4
<PAGE>
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<PAGE>
DEFINITIONS
ACCOUNTS. Allocation options including the Fixed Account and the Sub-Accounts of
the Separate Account.
ACCUMULATION PERIOD. The period between the Contract Date and the Maturity Date
while the Contract is in force.
ACCUMULATION UNIT VALUE. An accounting unit of measure used to calculate
Sub-Account values for the Contract during the Accumulation Period.
ANNUITANT. The person named on the application, or as subsequently changed, to
receive annuity payments. The Annuitant may be changed as provided in the Death
Benefit Provisions and Annuity Provisions.
ANNUITY PROCEEDS. The amount applied to purchase periodic annuity payments. Such
amount is the Annuity Value on the Maturity Date, less any applicable Premium
Tax.
ANNUITY UNIT VALUE. An accounting unit of measure used to calculate annuity
payments from a Sub-Account after the Maturity Date.
ANNUITY VALUE. The value as described in the Annuity Value section of the
Contract Value Provisions.
CASH VALUE. The value as described in the Cash Value section of the Contract
Value Provisions.
CONTINGENT BENEFICIARY. The new Beneficiary upon the current Beneficiary's
death.
CONTRACT DATE. The later of the date on which payments are first received and
the date the properly completed application is received by us at our Office.
DEATH BENEFIT PROCEEDS. The value as described in the Death Benefit Proceeds
section of the Death Benefit Provisions.
DEATH REPORT DAY. The Valuation Date coincident with or next following the day
on which we have received both: 1) due proof of death; and 2) a Written Notice
for an election of a) a single sum payment or b) an alternative election as
described under the Death Benefit Provisions.
FIXED ACCOUNT. An allocation option other than the Separate Account.
MATURITY DATE. The date on which the Accumulation Period ends and annuity
payments are to commence. The date may be changed as provided in the Annuity
Provisions.
PREMIUM TAX. Premium Tax levied by a state or other government entity. The
Premium Tax will be paid when due and charged either against the purchase
payment or the contract value.
SEC. The Securities and Exchange Commission.
SEPARATE ACCOUNT. A separate investment account composed of several Sub-Accounts
established to receive and invest net payments under the Contract and under
other variable annuity contracts issued by the Company.
SERIES FUND. A designated mutual fund from which a Sub-Account of the Separate
Account will buy shares.
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SUB-ACCOUNT. A Separate Account allocation option that is made available under
this Contract.
SURRENDER. The termination of the Contract at the option of the Owner.
VALUATION DATE. Each 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 during which a withdrawal charge
may be imposed as shown on Page 3. For each purchase payment, the period begins
on the date the payment is received by us.
WRITTEN NOTICE. Written Notice means a notice by the Owner to us requesting or
exercising a right of the Owner as provided in the Contract provisions. In order
for a notice to be considered a Written Notice, it must: be in writing, signed
by the Owner; be in a form acceptable to us; and contain the information and
documentation, as determined in our sole discretion, necessary for us to take
the action requested or for the Owner to exercise the right specified. A Written
Notice will not be considered complete until all necessary supporting
documentation required or requested by us has been received by us at our
Administrative Office.
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SEPARATE ACCOUNT PROVISIONS
The variable benefits under this Contract are provided through the Separate
Account referenced on Page 3. The assets of the Separate Account are our
property. Assets equal to the liabilities of the Separate Account will not be
charged with liabilities arising out of any other business we may conduct. If
the assets of the Separate Account exceed the liabilities arising under the
contracts supported by the Separate Account, then the excess may be used to
cover the liabilities of our general account. The assets of the Separate Account
shall be valued as often as any contract benefits vary, but at least monthly.
SUB-ACCOUNTS. The Separate Account has various Sub-Accounts. Each Sub-Account
invests exclusively in shares of one of the portfolios of an underlying Series
Fund. Assets invested after the Maturity Date may be invested in different
Sub-Accounts than assets invested during the Accumulation Period. We reserve the
right to add or remove any Sub-Account of the Separate Account. Income and
realized and unrealized gains and losses from assets in each Sub-Account are
credited to, or charged against, that Sub-Account without regard to income,
gains, or losses in other Sub-Accounts. Any amount charged against the contract
value for federal or state income taxes will be deducted from that Sub-Account.
TRANSFERS AMONG SUB-ACCOUNTS. During the Accumulation Period, the Owner may
transfer all or a portion of this Contract's value in its Sub-Accounts to other
Sub-Accounts or the Fixed Account. We reserve the right to charge a $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 ordinarily will take effect on the
first Valuation Date on or following the date notice is received at our Office.
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. We reserve the right to
transfer assets of the Separate Account, which we determine to be associated
with the class of contracts to which this Contract belongs, to another Separate
Account. If this type of transfer is made, the term "Separate Account", as used
in this Contract, shall then mean the Separate Account to which the assets were
transferred. We also reserve the right to add, delete, or substitute investments
held by any Sub-Account.
We reserve the right, when permitted by law, to:
1. Deregister the Separate Account under the Investment Company Act of 1940;
2. Manage the Separate Account under the direction of a committee at any time;
3. Restrict or eliminate any voting privileges of contractowners or other
persons who have voting privileges as to the Separate Account; and
4. Combine the Separate Account or any Sub-Account(s) with one or more other
separate accounts or sub-accounts.
CHANGE OF INVESTMENT OBJECTIVES. We reserve the right to change the investment
objective of any Sub-Account. If required by law or regulation, an investment
objective of the Separate Account, or of a Series Fund portfolio designated for
a Sub-Account, will not be materially changed unless a statement of the change
is filed with and approved by the appropriate insurance official of the state of
our domicile or deemed approved in accordance with such law or regulation. If
required, approval of or change of any investment objective will be filed with
the Insurance Department of the state where this Contract is delivered.
ACCUMULATION UNIT VALUE. Some of the contract values fluctuate with the
investment results of the Sub-Accounts. In order to determine how investment
results affect the contract values, an Accumulation Unit Value is determined for
each Sub-Account. The Accumulation Unit Value may increase or decrease from one
Valuation Period to the next. Accumulation Unit Values also will vary between
Sub-Accounts.
The Accumulation Unit Value of any Sub-Account at the end of a Valuation Period
is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Series Fund
portfolio owned by the Sub-Account times the net asset value per share; minus
2. The accrued charge for administration and adverse mortality and expense
experience. The daily amount of this charge is equal to the net assets of the
Sub-Account multiplied by the Mortality and Expense 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 Sub-Account; and the result
divided by
4. The number of outstanding units in the Sub-Account.
The use of the Accumulation Unit Value in determining contract values is
described in the Contract Value Provisions.
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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 shown on Page 3, or
as subsequently changed, may exercise all rights under this Contract including
the right to transfer ownership. These rights may be subject to the consent of
any assignee or irrevocable beneficiary.
SUCCESSOR OWNER. A Successor Owner can be named in the application or by Written
Notice. If the Owner is not the Annuitant, the Successor Owner will become the
new Owner should the Owner die before the Annuitant.
CHANGE OF OWNERSHIP UPON REQUEST. We will not be bound by any requested change
in the ownership designation unless it is made by Written Notice. The change
will be effective on the date the Written Notice is accepted by us. If we
request, this Contract must be returned to our Office for endorsement.
Changing the Owner or naming a new Successor Owner cancels any prior designation
of Successor Owner, but it does not change the Beneficiary or the Annuitant.
CHANGE OF OWNERSHIP UPON DEATH OF OWNER. Should the Owner die during
the Accumulation Period, we will be bound by the following:
1. If the Owner is the Annuitant, then the Death Benefit Proceeds are payable as
provided in the Death Benefit Provisions.
2. If the Owner is not the Annuitant and dies before the Annuitant:
(a) If no Successor Owner is named and alive, the Owner's estate will
become the new Owner. The Cash Value must be distributed within five
years of the former Owner's death; or
(b) If the Successor Owner is alive and is the Owner's spouse, this Contract
will continue with the spouse as the new Owner; or
(c) If the Successor Owner is alive and is not the Owner's spouse, the
Successor Owner will become the new Owner. The Cash Value must be
distributed either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person, with
payments beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined
by the Internal Revenue Code and Regulations adopted under the Code)
of the new Owner, if a natural person, with payments beginning within
one year of the former Owner's death.
ASSIGNMENT. This Contract may be assigned prior to the Maturity Date. We will
not be bound by any assignment unless made by Written Notice. The assignment
will be effective on the date the Written Notice is received at our Office and
accepted by us. We assume no responsibility for the validity of any assignment.
INCONTESTABILITY. This Contract is incontestable from the Contract Date.
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BENEFICIARY. The Beneficiary, as named in the application or subsequently
changed, is entitled to receive the Death Benefit Proceeds, if any, as provided
in the Death Benefit Provisions of this Contract. If no Beneficiary is alive,
the benefits payable to the Beneficiary will be paid to the Owner, if surviving,
otherwise to the Owner's estate.
CHANGE OF BENEFICIARY. We will not be bound by any change in the Beneficiary
designation unless it is made by Written Notice. The change will be effective on
the date the Written Notice was signed; however, no change will apply to any
payment we made before the Written Notice is received. If we request, this
Contract must be returned to our Office for endorsement.
AGE AND SEX. If a date of birth or sex has been misstated, any amount payable
will be adjusted to conform to the correct date of birth and sex.
CONTRACT YEARS. Contract years 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. We have
the right to postpone payments and transfers from the Fixed Account for up to
six months. All payments and transfers from the Sub-Accounts will be processed
as provided in this Contract unless one of the following situations 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.
PROTECTION OF PROCEEDS. Unless the Owner directs by filing Written Notice, no
Beneficiary may assign any payments under this Contract before the same are due.
To the extent permitted by law, no payments under this Contract will be subject
to the claims of creditors of any Beneficiary.
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PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS. Payments after the first are payable at our Office. The
amount of payment which may be paid during any contract year may not exceed the
Maximum Additional Payment shown on Page 3 without our consent. Payments will
not be accepted in an amount less than the Minimum Additional Payment shown on
Page 3 without our consent. Our acceptance of any payment shall not constitute a
waiver of these limits with respect to subsequent payments.
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CONTRACT VALUE PROVISIONS
NET PAYMENT. The net payment will be the payment received less Premium Tax, if
any.
ALLOCATION OF NET PAYMENTS. Net payments will be allocated to the Accounts on
the first Valuation Date on or following the date the payment is received at our
Office. With respect to the Initial Payment, the allocation will take place on
the Contract Date.
Any allocation to an 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 the date the request for change is recorded by us.
SUB-ACCOUNT VALUE. At the end of any Valuation Period, the Sub-Account value is
equal to the number of units that the Contract has in the Sub-Account,
multiplied by the Accumulation Unit Value of that Sub-Account.
The number of units that the Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional net payments are allocated to the
Sub-Account; plus
3. Units purchased through transfers from another Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, Premium Tax
and transfer fees, if any.
FIXED ACCOUNT. At the end of any Valuation Period, the value is equal to:
1. The sum of all net payments allocated to the Fixed Account; plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial withdrawals;
minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, Premium Tax and
transfer fees, if any.
Interest on the Fixed Account will be compounded daily at a minimum guaranteed
effective annual interest rate of 4% per year. We may declare from time to time
higher current interest rates. The interest rates we set will be credited for
increments of at least one year measured from each purchase payment or transfer
date.
On transfers from the Fixed Account to a Sub-Account, unless we otherwise
consent:
1. Written Notice must be within 30 days after a contract anniversary.
2. The transfer will ordinarily take place on the first Valuation Date on or
following the date we receive such Written Notice.
3. The amount that may be transferred is the greater of (a) 25% of the amount in
the Fixed Account; or (b) the amount transferred in the prior policy year
from the Fixed Account.
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We reserve the right to defer payment of any amounts from the Fixed Account for
no longer than six months after we receive such Written Notice.
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 Account values.
PARTIAL WITHDRAWAL. Prior to the Maturity Date, a partial withdrawal may be made
by the Owner without surrender of this Contract. Unless we otherwise consent:
1. The request must be made by Written Notice.
2. The partial withdrawal may not reduce the Cash Value to less than the Minimum
Balance shown on Page 3.
3. No partial withdrawal may be made during the first contract year.
4. No more than one partial withdrawal may be made during any contract year.
5. No amount from the Fixed Account may be withdrawn.
The amount payable will be the partial withdrawal less any applicable withdrawal
charge and Premium Tax. The Sub-Account(s) for the withdrawal may be specified.
If not specified, withdrawals will be based on the current allocation election.
CASH VALUE. This Contract may be surrendered by the Owner for its Cash Value
upon Written Notice at any time prior to the then current Maturity Date. The
Cash Value at any time equals the Annuity Value on the Valuation Date coincident
with or next following the date we receive Written Notice of surrender less any
applicable withdrawal charge and Premium Tax. Payment will usually be made
within seven days of Written Notice subject to the Contract Payment section of
the General Provisions and the Fixed Account section of these provisions.
WITHDRAWAL CHARGE. On the surrender or partial withdrawal of purchase payments
paid beyond the Withdrawal Charge Period shown on Page 3, no withdrawal charge
will be imposed.
On the partial withdrawal of purchase payments within the Withdrawal Charge
Period, the withdrawal charge will equal the purchase payment paid within the
Withdrawal Charge Period times the applicable Withdrawal Charge Percentage shown
on Page 3. However, for the first partial withdrawal during each contract year,
any withdrawal charge will be waived on the first 10% of the Annuity Value being
withdrawn.
On the surrender of purchase payments within the Withdrawal Charge Period, the
withdrawal charge will equal the purchase payment paid within the Withdrawal
Charge Period times the applicable Withdrawal Charge Percentage shown on Page 3.
No waiver of a withdrawal charge will be made for any portion of a surrender.
BASIS OF COMPUTATION. A detailed statement of the method of computation of
values has been filed with the insurance supervisory official of the
jurisdiction in which this Contract is delivered. All values for this Contract
are equal to or greater than the values required by statutes in such
jurisdiction.
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ANNUITY PROVISIONS
COMMENCEMENT OF ANNUITY PAYMENTS. Monthly annuity payments will begin as of the
Maturity Date shown on Page 3, unless another Maturity Date has been elected as
provided in these provisions.
MATURITY DATE. The Maturity Date shown on Page 3 may be changed to a different
Maturity Date, subject to all of the following:
1. Written Notice prior to the Maturity Date.
2. The new Maturity Date is at least 5 years after the Contract Date.
3. The attained age of the Annuitant as of the new Maturity Date is not greater
than 90.
ANNUITY OPTION. The Annuity Option shown on Page 3 may be changed to any other
option available upon Written Notice prior to the Maturity Date. If a variable
account annuity payment option is chosen, the Owner must include in the Written
Notice the Sub-Account allocation of the Annuity Proceeds as of the Maturity
Date.
CHANGE OF ANNUITANT. As of the Maturity Date and upon agreement with us, the
Owner may elect a different Annuitant or add a joint annuitant who will be a
joint payee under either Option C or Option E.
PAYEE. The Annuitant(s) on the Maturity Date will become the payee(s) and
receive the annuity payments.
AVAILABILITY. If the payee is not a natural person, an Annuity Option is only
available with our permission. No Annuity Option is available if:
1. The payee is an assignee; or
2. The periodic payment is less than $20.
AGE. Age, when required, means age nearest birthday on the effective date of the
option. We will furnish rates for ages or combination of ages not shown upon
request.
PROOF OF AGE AND SEX. Prior to making the first monthly annuity payment under
this Contract, we reserve the right to require satisfactory evidence of the
birthdate and the sex of any payee. If required by law to ignore differences in
sex of any payee, annuity payments will be determined using unisex rates.
PROOF OF SURVIVAL. Prior to making any payment under this Contract, we reserve
the right to require satisfactory evidence that the payee is:
1. Alive on the due date of such payment; and
2. Legally qualified to receive such payment.
DEATH BENEFIT AFTER THE MATURITY DATE. The death benefit after the Maturity Date
and after the commencement of annuity payments depend upon the annuity option
selected. If a payee dies on or after the commencement of annuity payments, the
remaining portion of any interest in the Contract will be distributed at least
as rapidly as under the method of distribution being used as of the date of the
payee's death.
RESTRICTIONS. After the Maturity Date, no additional purchase payments, partial
withdrawals, transfers, full surrenders, change of Annuitants nor Annuity
Options may be made under this Contract.
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FIXED ACCOUNT ANNUITY PAYMENTS
INTEREST AND MORTALITY. All Fixed Account annuity option payments are based on a
guaranteed interest rate of 3%. Mortality is based on the "1983 Table a"
mortality table with projection. Gender based mortality tables will be used
unless prohibited by law.
AMOUNT OF MONTHLY FIXED ACCOUNT ANNUITY PAYMENT. The amount of each monthly
annuity payment will be determined by multiplying:
1. The appropriate rate based on the guaranteed interest rate and, for Options B
and C, the mortality table for Fixed Account annuity payments; times
2. The Annuity Proceeds as of the Maturity Date.
FIXED ACCOUNT ANNUITY OPTIONS. The following options are available for payment
of Fixed Account monthly annuity payments. The rates shown are the guaranteed
rates for each $1,000 of Annuity Proceeds at selected ages. Any guaranteed rates
not shown for the options below will be available upon request. Higher current
rates may be available at the Maturity Date.
Option A - Fixed Period. The Annuity Proceeds will be paid in equal
installments. The installments will be paid over a fixed period determined from
the following table:
Fixed Period Rate
(in Months)
60 17.91
120 9.61
180 6.87
240 5.51
Option B - Life Income. The Annuity Proceeds will be paid in equal installments
determined from the following table. Such installments are payable:
1. during the payee's lifetime only (Life Annuity); or
2. during a 10 Year fixed period certain and for the payee's remaining lifetime
(Certain Period); or
3. until the sum of installments paid equals the Annuity Proceeds applied and
for the payee's remaining lifetime (Installment Refund).
Payee's Life Annuity Certain Period Installment Refund
Age Male Female Unisex Male Female Unisex Male Female Unisex
55 4.20 3.81 4.01 4.15 3.79 3.98 4.00 3.71 3.85
60 4.67 4.17 4.43 4.59 4.14 4.37 4.37 4.02 4.19
65 5.33 4.68 5.01 5.17 4.61 4.90 4.84 4.42 4.62
70 6.26 5.39 5.82 5.89 5.24 5.58 5.45 4.94 5.18
75 7.53 6.42 6.97 6.75 6.06 6.42 6.24 5.64 5.91
80 9.33 7.95 8.63 7.66 7.04 7.37 7.25 6.57 6.88
85 11.84 10.21 11.02 8.48 8.04 8.27 8.55 7.78 8.14
90 15.31 13.49 14.40 9.08 8.81 8.96 10.21 9.30 9.74
Option C - Joint and Survivor Life Income. The Annuity Proceeds will be paid in
equal installments during the joint lifetime of two payees and continuing upon
the death of the first payee for the remaining lifetime of the survivor.
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VARIABLE ACCOUNT ANNUITY PAYMENTS
ANNUITY UNIT VALUE. The Annuity Proceeds will be used to purchase variable
annuity units in the chosen Sub-Account(s). The Annuity Unit Value in any
Sub-Account will increase or decrease reflecting the investment experience of
that Sub-Account.
The Annuity Unit Value of any Sub-Account at the end of a Valuation Period is
equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the Annuity Unit Value for that Sub-Account at the end of the immediately
preceding Valuation Period;
(b) is the net investment factor for the Sub-Account for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation Period.
The Assumed Investment Return adjustment factor for the Valuation Period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of the Annuity Unit Value
in each Sub-Account for the Valuation Period is determined by dividing (d) by
(e) and subtracting (f) from the result, where:
(d) is the net result of:
(1) the net asset value of a Series Fund share held in that Sub-Account
determined as of the end of the current Valuation Period; plus
(2) the per share amount of any dividend or capital gain distributions made
by the Series Fund for shares held in that Sub-Account if the
ex-dividend date occurs during the Valuation Period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Sub-Account.
(e) is the net asset value of a Series Fund share held in the Sub-Account
determined as of the end of the immediately preceding Valuation Period.
(f) is a factor representing the mortality and expense risk fee, and
administrative charge. This factor is equal, on an annual basis, to 1.40% of
the daily net asset value of a Series Fund share held in the Separate
Account for that Sub-Account.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first variable
payment is determined by multiplying the Annuity Proceeds times the appropriate
rate from the variable option selected. The tables are based on the "1983 Table
a" mortality table with projection with a 5% effective annual Assumed Investment
Return and assuming a Maturity Date in the year 2000. Gender based mortality
tables will be used unless prohibited by law.
The amount of the first payment depends upon the adjusted age of the Annuitant.
The adjusted age is the Annuitant's actual age nearest birthday at the Maturity
Date, adjusted as follows:
Maturity Date Adjusted Age
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After the year 2040 as determined by us.
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DETERMINATION OF SUBSEQUENT VARIABLE PAYMENTS. The amount of variable annuity
payments after the first will increase or decrease according to the Annuity Unit
Value which reflects the investment experience of the selected Sub-Account(s).
Each variable annuity payment after the first will be equal to the number of
variable annuity units in each selected Sub-Account multiplied by the Annuity
Unit Value of that Sub-Account on the date the payment is processed. The number
of variable annuity units in any selected Sub-Account is determined by dividing
the first variable annuity payment allocated to that Sub-Account by the variable
Annuity Unit Value of that Sub-Account on the date the first annuity payment is
processed.
VARIABLE ACCOUNT ANNUITY OPTIONS. The following options are available for
payment of Variable Account monthly annuity payments. The rates shown are the
guaranteed rates for each $1,000 of Annuity Proceeds at selected ages. These
rates are used to determine the first variable payment under each option. Any
guaranteed rates not shown for the options below will be available upon request.
Option D - Variable Life Income. The Annuity Proceeds will be paid in
installments determined from the following table. Such installments are payable:
1. during the payee's lifetime only (Variable Life Annuity); or
2. during a 10 year fixed period certain and for the payee's remaining
lifetime (Variable Certain Period).
Adjusted Variable Life Annuity Variable Certain Period
Payee's Age Male Female Unisex Male Female Unisex
55 5.39 4.98 5.19 5.33 4.95 5.14
60 5.88 5.36 5.63 5.77 5.31 5.55
65 6.57 5.88 6.23 6.35 5.78 6.07
70 7.53 6.61 7.08 7.05 6.41 6.75
75 8.84 7.68 8.25 7.86 7.21 7.54
80 10.69 9.26 9.97 8.71 8.15 8.44
85 13.27 11.62 12.44 9.48 9.07 9.29
90 16.82 15.02 15.89 10.03 9.79 9.93
Option E - Variable Joint and Survivor Life Income. The Annuity Proceeds will be
paid in installments during the joint lifetime of two payees and continuing upon
the death of the first payee for the remaining lifetime of the survivor.
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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 99C.6
Exhibit 10(a)
Consent of Sutherland, Asbill & Brennan LLP
<PAGE>
S.A.B. letterhead
April 20, 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. 33-49558
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information contained in Post-Effective
Amendment No. 11 to the Registration Statement on Form N-4 (File No. 33-49558)
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.C1A
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. 11 to the
Registration Statement (Form N-4 No. 33-49558) and related Prospectus of WRL
Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 17, 1998
EXHIBIT 99.C1B
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 Conqueror Post-Effective Amendment No. 11
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
Bellwether, WRL Freedom Conqueror and WRL Freedom Wealth Creator 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 20, 1998
