As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. 333-_______/811-5672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 73 [X]
(Check appropriate box or boxes)
WRL SERIES ANNUITY ACCOUNT
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(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
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(Name of Depositor)
570 CARILLON PARKWAY
ST. PETERSBURG, FLORIDA 33716
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(727) 299-1800
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THOMAS E. PIERPAN, ESQ.
SENIOR VICE PRESIDENT, ASSISTANT SECRETARY AND GENERAL COUNSEL
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
570 CARILLON PARKWAY
ST. PETERSBURG, FLORIDA 33716
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(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. 20004-2415
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Title of securities being registered: Units of interest in the separate account
under flexible payment deferred variable annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PART A
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INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM ENHANCERSM
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
, 2000
This prospectus gives you important information about the WRL Freedom
Enhancer,SM a flexible premium variable accumulation deferred annuity contract.
Please read this prospectus and the fund prospectus before you invest and keep
them for future reference. This Contract is available to individuals as well as
to certain groups and individual retirement plans.
You can put your money into 24 investment choices: a fixed account and 23
subaccounts of the WRL Series Annuity Account. Money you put in a subaccount is
invested exclusively in a single mutual fund portfolio. Your investments in the
portfolios are not guaranteed. You could lose your money. Money you direct into
the fixed account earns interest at a rate guaranteed by Western Reserve.
The 23 portfolios we currently offer through the subaccounts under this
Contract are:
WRL SERIES FUND, INC.
<TABLE>
<S> <C>
WRL Janus Growth WRL Dean Asset Allocation
WRL Janus Global WRL C.A.S.E. Growth
WRL Alger Aggressive Growth WRL GE/Scottish Equitable International Equity
WRL VKAM Emerging Growth WRL GE U.S. Equity
WRL AEGON Balanced WRL Goldman Sachs Growth
WRL AEGON Bond WRL Goldman Sachs Small Cap
WRL LKCM Strategic Total Return WRL T. Rowe Price Dividend Growth
WRL Federated Growth & Income WRL T. Rowe Price Small Cap
WRL J.P. Morgan Money Market WRL Salomon All Cap
WRL J.P. Morgan Real Estate Securities WRL Pilgrim Baxter Mid Cap Growth
WRL Third Avenue Value WRL Dreyfus Mid Cap
WRL NWQ Value Equity
</TABLE>
If you would like more information about the WRL Freedom Enhancer,SM you
can obtain a free copy of the Statement of Additional Information (SAI) dated
, 2000. Please call us at 1-800-851-9777 or write us at: Western
Reserve, P.O. Box 9051, Clearwater, Florida 33758-9051. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. The SEC maintains a
web site
(http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference and other information. The table of contents of the
SAI is included at the end of this prospectus.
PLEASE NOTE THAT THE CONTRACT AND THE FUND:
o ARE NOT BANK DEPOSITS
o ARE NOT FEDERALLY INSURED
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
o INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PREMIUM THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
DEFINITIONS OF SPECIAL TERMS ..................................... 1
SUMMARY .......................................................... 3
ANNUITY CONTRACT FEE TABLE ....................................... 9
EXAMPLE .......................................................... 11
1. THE ANNUITY CONTRACT ....................................... 13
The Contract ................................................ 13
Other Contracts ............................................. 13
2. ANNUITY PAYMENTS (THE INCOME PHASE) ........................ 14
Annuity Payment Options Under the Contract .................. 14
Fixed Annuity Options ....................................... 15
Variable Annuity Options .................................... 16
Guaranteed Minimum Income Benefit Rider ..................... 17
3. PURCHASE ................................................... 20
Contract Issue Requirements ................................. 20
Premium Payments ............................................ 20
Initial Premium Requirements ................................ 20
Additional Premium Payments ................................. 21
Maximum Annual Premium Payments ............................. 21
Premium Enhancement ......................................... 21
Allocation of Premium Payments .............................. 22
Right to Cancel Period ...................................... 23
Annuity Value ............................................... 23
Accumulation Units .......................................... 24
4. INVESTMENT CHOICES ......................................... 25
The Separate Account ........................................ 25
The Fixed Account ........................................... 26
Transfers ................................................... 26
Dollar Cost Averaging Program ............................... 27
Asset Rebalancing Program ................................... 28
Telephone or Fax Transactions ............................... 28
Third Party Investment Services ............................. 29
5. EXPENSES ................................................... 29
Mortality and Expense Risk Charge ........................... 29
Administrative Charge ....................................... 30
Guaranteed Minimum Income Benefit Rider Charge .............. 30
Separate Account Annuitization Charge ....................... 30
Annual Contract Charge ...................................... 30
Transfer Charge ............................................. 31
Loan Processing Fee ......................................... 31
Change in Allocation Fee .................................... 31
Premium Taxes ............................................... 31
Federal, State and Local Taxes .............................. 31
Surrender Charge ............................................ 31
Portfolio Management Fees ................................... 35
Reduced or Waived Charges and Expenses to Employees ......... 35
</TABLE>
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<TABLE>
<S> <C>
6. TAXES .............................................................. 36
Annuity Contracts in General ........................................ 36
Qualified and Nonqualified Contracts ................................ 36
Partial and Complete Surrenders -- Nonqualified Contracts ........... 37
Multiple Contracts .................................................. 37
Diversification and Distribution Requirements ....................... 38
Partial Surrenders -- Qualified Contracts ........................... 38
Partial Surrenders -- 403(b) Contracts .............................. 38
Net Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) ......... 38
Partial and Complete Surrenders ..................................... 38
Taxation of Death Benefit Proceeds .................................. 39
Annuity Payments .................................................... 39
Transfers, Assignments or Exchanges of Contracts .................... 40
Possible Tax Law Changes ............................................ 40
7. ACCESS TO YOUR MONEY ............................................... 40
Partial and Complete Surrenders ..................................... 40
Delay of Payment and Transfers ...................................... 42
Partial Surrenders and Premium Enhancements ......................... 42
Systematic Partial Surrenders ....................................... 42
Contract Loans For Qualified Contracts .............................. 43
8. PERFORMANCE ........................................................ 45
9. DEATH BENEFIT ...................................................... 45
When We Pay A Death Benefit ......................................... 46
When We Do Not Pay A Death Benefit .................................. 46
Standard Death Benefit .............................................. 47
Compounding Minimum Death Benefit ................................... 47
Effect of Adjusted Partial Surrender on Certain Death Benefits ...... 48
Alternate Payment Elections ......................................... 48
10. OTHER INFORMATION .................................................. 49
Ownership ........................................................... 49
Annuitant ........................................................... 49
Beneficiary ......................................................... 49
Assignment .......................................................... 49
Western Reserve Life Assurance Co. of Ohio .......................... 49
The Separate Account ................................................ 50
Voting Rights ....................................................... 50
Distribution of the Contracts ....................................... 51
Non-Participating Contract .......................................... 51
Variations in Contract Provisions ................................... 51
Year 2000 Readiness Disclosure ...................................... 51
IMSA ................................................................ 52
Legal Proceedings ................................................... 52
Financial Statements ................................................ 52
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............. 53
APPENDIX A -- CONDENSED FINANCIAL INFORMATION ............................ 54
APPENDIX B -- HISTORICAL PERFORMANCE DATA ................................ 55
</TABLE>
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DEFINITIONS OF SPECIAL TERMS
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<TABLE>
<S> <C>
accumulation The period between the Contract date and the maturity date while the
period Contract is in force.
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accumulation An accounting unit of measure used to calculate subaccount values during the
unit value accumulation period.
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age The issue age is the annuitant's age on his/her birthday immediately preced-
ing the Contract date. Attained age is the issue age plus the number of
completed Contract years. When we use the term "age" in this prospectus, it
has the same meaning as "attained age" in the Contract.
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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 provision.
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annuity unit An accounting unit of measure used to calculate annuity payments from the
value subaccounts after the maturity date.
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annuity value The sum of the separate account value and the fixed account value.
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beneficiary(ies) The person(s) entitled to receive the death benefit proceeds under the Contract.
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cash value The annuity value less the annual Contract charge, any applicable premium
taxes, any surrender charge and any Guaranteed Minimum Income Benefit
Rider charge.
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Code The Internal Revenue Code of 1986, as amended.
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Contract date The later of the date on which the initial premium payment is received and the
date that the properly completed application is received at Western Reserve's
administrative office. It is also the date when, depending on your state of
residence, we allocate your premium payment(s) either to the reallocation
account or to the fixed account and the subaccounts you selected on your
application. We measure Contract years, Contract months and Contract
anniversaries from the Contract date.
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death report day The valuation date on which we receive proof of annuitant's death and your
beneficiary's election regarding payment.
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fixed account An allocation option under the Contract, other than the separate account, that
provides for accumulation of premium payments, and options for annuity
payments on a fixed basis. The fixed account may not be available in all states.
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fixed account During the accumulation period, a Contract's value allocated to the fixed
value account.
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fund WRL Series Fund, Inc., an investment company which is registered with the
U.S. Securities and Exchange Commission. We reserve the right to add other
registered investment companies to the Contract in the future.
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in force Condition under which the Contract is active and the owner is entitled to
exercise all rights under the Contract.
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maturity date The date on which the accumulation period ends and annuity payments begin.
The latest maturity date is the annuitant's 95th birthday. For Contracts issued in
conjunction with the Net Income Charitable Remainder Unitrust, the latest
maturity date is the annuitant's 100th birthday.
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</TABLE>
1
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<TABLE>
<S> <C>
NYSE New York Stock Exchange.
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nonqualified Contracts issued other than in connection with retirement plans.
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Contracts
owner (you, The person(s) entitled to exercise all rights under the Contract. The annuitant is
your) the owner unless the application states otherwise, or unless a change of
ownership is made at a later time. Joint owners may be named, provided the
joint owners are husband and wife.
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portfolio A separate investment portfolio of the fund.
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Premium Premium Enhancements are amounts added to your annuity value by Western
Enhancement Reserve. Premium Enhancements are not considered premiums.
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premium Amounts paid by an owner or on the owner's behalf to Western Reserve as
payments consideration for the benefits provided by the Contract. When we use the term
"premium payment" in this prospectus, it has the same meaning as "net
premium payment" in the Contract, which means the premium payment less
any applicable premium taxes.
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qualified Contracts issued in connection with retirement plans that qualify for special
Contracts federal income tax treatment under the Code.
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reallocation The WRL J.P. Morgan Money Market subaccount.
account
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reallocation date The date shown on the schedule page of your Contract when we reallocate all
annuity value held in the reallocation account to the fixed account and
subaccounts you selected. We place your premium in the reallocation account
only if your state requires us to return the full premium in the event you
exercise your right to cancel. In all other states, the reallocation date is the
Contract date.
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separate account WRL Series Annuity Account, a separate account composed of subaccounts
established to receive and invest premium payments not allocated to the fixed
account.
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separate account During the accumulation period, a Contract's value in the separate account,
value which equals the total value in each subaccount.
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subaccount A subdivision of the separate account that invests exclusively in the shares of a
specified portfolio and supports the Contracts. Subaccounts corresponding to
each applicable portfolio hold assets under the Contract during the accumula-
tion period. Other subaccounts corresponding to each applicable portfolio will
hold assets after the maturity date if a variable annuity option is selected.
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surrender The termination of a Contract at the option of the owner.
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valuation date Each day on which the NYSE is open for trading, except when a subaccount's
corresponding portfolio does not value its shares. Western Reserve is open for
business on each day that the NYSE is open.
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valuation period The period of time over which we determine the change in the value of the
subaccounts in order to price accumulation units and annuity units. Each valua-
tion period begins at the close of normal trading on the NYSE (currently 4:00
p.m. Eastern time on each valuation date) and ends at the close of normal trad-
ing of the NYSE on the next valuation date.
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</TABLE>
2
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SUMMARY
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- --------------------------------------------------------------------------------
THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THIS PROSPECTUS,
WHICH DISCUSS THE TOPICS IN MORE DETAIL. PLEASE READ THE ENTIRE PROSPECTUS
CAREFULLY.
1. THE ANNUITY CONTRACT
The WRL Freedom EnhancerSM is a flexible premium variable accumulation
deferred annuity contract (the "Contract") offered by Western Reserve Life
Assurance Co. of Ohio (Western Reserve, we, us). It is a contract between you,
as the owner, and Western Reserve, a life insurance company. The Contract
provides a way for you to invest on a tax-deferred basis in the subaccounts of
the separate account and the fixed account. We intend the Contract to be used
to accumulate money for retirement or other long-term investment purposes.
The Contract allows you to direct your money into any of the 23
subaccounts. Each subaccount invests exclusively in a single portfolio of the
fund. The money you invest in the subaccounts will fluctuate daily based on the
portfolio's investment results. The value of your investment in the subaccounts
is not guaranteed and may increase or decrease. You bear the investment risk
for amounts you invest in the subaccounts.
You can also direct money to the fixed account. Amounts in the fixed
account earn interest annually at a fixed rate that is guaranteed by us never
to be less than 3%, and may be more. We guarantee the interest, as well as
principal, on money placed in the fixed account.
You can transfer money between any of the investment choices during the
accumulation period, subject to the limit on transfers from the fixed account.
We credit a Premium Enhancement of 4.5% of your initial premium to your
annuity value on the Contract date. We may credit Premium Enhancements on
future premiums you pay, although we do not guarantee that we will do so. The
Contract also allows you to select a compounding minimum death benefit (see
page 47) and a Guaranteed Minimum Income Benefit Rider (see page 17).
The Contract, like all deferred annuity contracts, has two phases: the
"accumulation period" and the "income phase." During the accumulation period,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the Contract. The income phase starts on the maturity date
when you begin receiving regular payments from your Contract. The money you can
accumulate during the accumulation period, as well as the Contract's annuity
payment option you choose, will determine the amount of any income payments you
receive during the income phase.
3
<PAGE>
2. ANNUITY PAYMENTS (THE INCOME PHASE)
The Contract allows you to receive income under one of five annuity
payment options. You may choose from fixed payment options or variable payment
options. If you select a variable payment option, the dollar amount of the
payments you receive may go up or down depending on the investment results of
the portfolios you invest in at that time.
3. PURCHASE
You can buy this Contract with $10,000 ($1,000 for traditional or Roth
IRAs and $50 for other qualified Contracts) under most circumstances. You can
add as little as $50 at any time during the accumulation period.
We credit a Premium Enhancement of 4.5% of your initial premium to your
annuity value on the Contract date. Each premium payment you pay after the
initial premium may receive a Premium Enhancement that we add to your annuity
value. We may change the rate of the Premium Enhancement at any time. Under
certain circumstances, you might forfeit (that is, lose) the Premium
Enhancement we credited.
4. INVESTMENT CHOICES
You can invest your money in any of the 23 fund portfolios by directing it
to the corresponding subaccount. The portfolios are described in the fund
prospectus. The portfolios now available to you under the Contract are:
<TABLE>
<S> <C>
[ ] WRL Janus Growth [ ] WRL Dean Asset Allocation
[ ] WRL Janus Global [ ] WRL C.A.S.E. Growth
[ ] WRL Alger Aggressive Growth [ ] WRL GE/Scottish Equitable
[ ] WRL VKAM Emerging Growth International Equity
[ ] WRL AEGON Balanced [ ] WRL GE U.S. Equity
[ ] WRL AEGON Bond [ ] WRL Goldman Sachs Growth
[ ] WRL LKCM Strategic Total Return [ ] WRL Goldman Sachs Small Cap
[ ] WRL Federated Growth & Income [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL J.P. Morgan Money Market [ ] WRL T. Rowe Price Small Cap
[ ] WRL J.P. Morgan Real Estate Securities [ ] WRL Salomon All Cap
[ ] WRL Third Avenue Value [ ] WRL Pilgrim Baxter Mid Cap Growth
[ ] WRL NWQ Value Equity [ ] WRL Dreyfus Mid Cap
</TABLE>
Depending upon market conditions, you can make or lose money in any of
these subaccounts. We reserve the right to offer other investment choices in
the future.
You can also allocate your premium payments to the fixed account. Unless
otherwise required by state law, we will limit your allocations or transfers to
the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000. The fixed account may not be available in all
states. Residents of Washington, Oregon, New Jersey and Massachusetts may not
direct or transfer any money to the fixed account.
5. EXPENSES
We do not take any deductions from premium payments at the time you buy
the Contract. You invest the full amount of each premium payment in one or more
of the investment choices.
4
<PAGE>
During the accumulation period, we deduct a daily mortality and expense
risk charge of 1.25% (1.40% if you select the compounding minimum death
benefit) and a daily administrative charge of 0.40% each year from the money
you have invested in the subaccounts. During the income phase, we charge an
annual separate account annuitization charge of 1.40% in place of the mortality
and expense risk and administrative charges.
During the accumulation period, we deduct an annual Contract charge of $30
from the annuity value on each Contract anniversary and at the time of
surrender. We currently waive this charge if either your annuity value, or the
total premiums you have paid us, minus all partial surrenders, equals or
exceeds $50,000 on the Contract anniversary when this charge is payable.
We impose a $10 charge per transfer if you make more than 12 transfers
among the subaccounts per Contract year.
We will deduct state premium taxes, which currently range from 0% to
3.50%, if you surrender the Contract, or partially surrender its value, or if
we pay out death benefit proceeds, or if you begin to receive regular annuity
payments. We only charge you premium taxes in those states that require us to
pay premium taxes.
If you make a partial surrender or fully surrender your Contract, we will
deduct a surrender charge for premium payments surrendered within nine years
after we receive the premium payment. This charge is 8% of the amount withdrawn
if the surrender occurs within 36 months or less of our receipt of the premium
payment, and then declines gradually to 7% -- 37 through 48 months; 6% -- 49
through 60 months; 5% -- 61 through 72 months; 4% -- 73 through 84 months; 3%
- -- 85 through 96 months; 2% -- 97 through 108 months; and no surrender charge
- -- 109 months or more.
When we calculate surrender charges, we treat partial surrenders as coming
first from the oldest premium payment, then the next oldest and so forth. For
partial surrenders or systematic partial surrenders you make in any Contract
year, we will waive all or a portion of the surrender charge on partial
surrenders up to the maximum free amount. Partial surrenders in excess of the
maximum free amount will be subject to a surrender charge. We will deduct the
full surrender charge if you surrender your Contract completely. We waive this
charge under certain circumstances. See Expenses -- Surrender Charge (see page)
for how we calculate the surrender charge waived.
The portfolios deduct investment fees and expenses from amounts you have
invested in the portfolios. These charges range from % to % annually,
depending on the portfolio. See the Annuity Contract Fee Table (see page ) in
this prospectus and How The Fund Is Managed And Organized in the fund
prospectus.
If you select the Guaranteed Minimum Income Benefit Rider (the "Rider"),
there is an annual charge during the accumulation phase of 0.30% of the minimum
annuitization value. We deduct the Rider charge from your annuity value on each
Contract anniversary and on the termination date of the Rider. We waive the
Rider charge if your annuity value
5
<PAGE>
on any Contract anniversary exceeds the Rider charge waiver threshold
(currently 2.0) times the minimum annuitization value. If you annuitize under
the Rider, we will assess a daily separate account annuitization charge at an
annual rate of 2.50% of the daily net assets in the subaccounts; this charge
will be reflected in your variable payments. The separate account annuitization
charge is paid in place of the mortality and expense risk charge and the
administrative charge.
6. TAXES
The Contract's earnings are generally not taxed until you take them out.
For federal tax purposes, if you take money out during the accumulation period,
earnings come out first and are taxed as ordinary income. If you are younger
than 591/2 when you take money out, you may also be charged a 10% federal
penalty tax on the earnings. The annuity payments you receive during the income
phase are considered partly a return of your original investment so that part
of each payment is not taxable as income until the "investment in the contract"
has been fully recovered. Different tax consequences may apply for a Contract
used in connection with a qualified plan.
7. ACCESS TO YOUR MONEY
You can take some or all of your money out anytime during the accumulation
period. However, you may not take a partial surrender if it reduces the cash
value below $10,000. No partial surrenders may be made from the fixed account
without prior consent from us. For qualified Contracts issued under Code
Section 403(b), certain restrictions will apply. Surrender charges may apply.
You may also have to pay federal income tax and a penalty tax on any money you
take out.
Partial surrenders may reduce the death benefit (and certain values under
the Guaranteed Minimum Income Benefit Rider) by more than the amount
surrendered. Partial surrenders may also reduce the amount of future Premium
Enhancements. (See page .)
8. PERFORMANCE
The value of your Contract will vary up or down depending upon the
investment performance of the subaccounts you choose and will be reduced by
Contract fees and charges. We provide performance information in Appendix B and
in the SAI. Past performance does not guarantee future results.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income
phase begins, your beneficiary will receive a death benefit.
If you name different persons as owner and annuitant, you can affect
whether the death benefit is payable and who will receive it. Use care when
naming owners, annuitants and beneficiaries, and consult your agent if you have
questions.
6
<PAGE>
The death benefit will be the greatest of:
o the annuity value of your Contract on the death report day, reduced by
the amount of any Premium Enhancements credited to the annuity value
during the twelve month period before the death report day; or
o the total premium payments you make to the Contract, reduced by partial
surrenders; or
o the annual step-up reduced by the amount of any Premium Enhancements
credited to the annuity value during the twelve month period before the
death report day; or
o if selected, the compounding minimum death benefit.
10. OTHER INFORMATION
RIGHT TO CANCEL PERIOD. You may return your Contract for a refund within
10 days after you receive it. In most states, the amount of the refund will be
the total premium payments we have received, plus (or minus) any gains (or
losses) in the amounts you invested in the subaccounts. We will retain any
Premium Enhancement(s) we credited to your account value. You will keep any
gains, and bear any losses, on amounts, including any Premium Enhancements, you
invested. If state law requires, we will refund your original premium
payment(s). In those states, we will place your premium payment(s) in the
reallocation account until the reallocation date. We determine the value of the
refund as of the date we receive the returned Contract. We will pay the refund
within 7 days after we receive your written notice of cancellation and the
returned Contract. The Contract will then be deemed void. In some states you
may have more than 10 days and/or receive a different refund amount.
WHO SHOULD PURCHASE THE CONTRACT? We have designed this Contract for
people seeking long-term tax deferred accumulation of assets, generally for
retirement. This includes persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this Contract if you are looking for
a short-term investment or if you cannot take the risk of getting back less
money than you put in. If you are purchasing the Contract through a tax favored
arrangement, including IRAs and Roth IRAs, you should carefully consider the
costs and benefits of the Contract (including annuity income benefits) before
purchasing the Contract, since the tax favored arrangement itself provides tax
sheltered growth.
ADDITIONAL FEATURES. This Contract has additional features that might
interest you. These include the following:
o REDUCED MINIMUM INITIAL PREMIUM PAYMENT (FOR NONQUALIFIED CONTRACTS) --
You may make a minimum initial premium payment of $1,000, rather than
$10,000, if you indicate on your application that you anticipate making
minimum monthly payments of at least $100 by electronic funds transfer.
o SYSTEMATIC PARTIAL SURRENDERS -- You can arrange to have money
automatically sent to you while your Contract is in the accumulation
period. You may take systematic partial surrenders monthly, quarterly,
semi-annually or annually without paying surrender charges. Amounts you
receive may be included in your gross income and, in certain
circumstances, may be subject to penalty taxes.
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<PAGE>
o DOLLAR COST AVERAGING -- You can arrange to have a certain amount of
money automatically transferred monthly from one or any combination of
the fixed account, the WRL J.P. Morgan Money Market or WRL AEGON Bond
subaccounts to your choice of subaccounts. Dollar cost averaging does
not guarantee a profit and does not protect against a loss if market
prices decline.
o ASSET REBALANCING -- We will, upon your request, automatically transfer
amounts periodically among the subaccounts on a regular basis to
maintain a desired allocation of the annuity value among the various
subaccounts.
o TELEPHONE OR FAX TRANSACTIONS -- You may make transfers, partial
surrenders and/or change the allocation of additional premium payments
by telephone or fax.
o NURSING CARE FACILITY WAIVER -- If you are confined to a nursing care
facility, you may take partial surrenders or surrender your Contract
completely without paying the surrender charge, under certain
circumstances.
o TERMINAL CONDITION WAIVER -- Under a terminal condition waiver, if
certain medically-related circumstances occur, we will allow you to
fully or partially surrender your money without a surrender charge.
o CONTRACT LOANS -- If you own a qualified Contract, you can take out
Contract loans during the accumulation period, subject to certain
restrictions.
o GUARANTEED MINIMUM INCOME BENEFIT RIDER -- You may add this Rider for
an additional charge. It assures you of a minimum level of income in
the future, provided you satisfy certain conditions and annuitize under
the options available in the Rider. This rider is not available in all
states.
o COMPOUNDING MINIMUM DEATH BENEFIT -- You may add this feature for an
additional charge. You must select this feature on your application.
This option is not available to annuitants age 74 or older on the
Contract date. This feature ensures that any death benefit payable on
the death of the annuitant will be no less than total premium payments
paid for this Contract, plus the Premium Enhancement corresponding to
the initial premium only, plus interest at an effective annual rate of
5% (in most states) from the date of the premium payment to the date of
death, less any adjusted partial surrender(s), including interest on
any partial surrender at the 5% rate from the date of partial surrender
to the date of death. Interest is not credited after your 81st
birthday.
These features may not be available in all states and may not be suitable
for your particular situation.
Certain states place restrictions on access to the fixed account, on the
death benefit calculation and on other features of the Contract. Consult your
agent and the Contract for details.
11. INQUIRIES
If you need more information, please contact us at:
Western Reserve Life
Annuity Department
P.O. Box 9051
Clearwater, FL 33758-9051
1-800-851-9777
8
<PAGE>
ANNUITY CONTRACT FEE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES
<S> <C>
Sales Load On Premium Payments ........ None
Maximum Surrender Charge(1)(2)
(as a % of premium payments) ....... 8%
Transfer Charge ....................... $10 After 12 Per Year
Loan Processing Fee(3) ................ $30 Per Loan
Guaranteed Minimum Income
Benefit Rider Charge during the
accumulation period (optional)(4)... 0.30%
=============================================================
ANNUAL CONTRACT CHARGE(2)(6) .......... $30 Per Contract Year
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE SEPARATE ACCOUNT VALUE
DURING THE ACCUMULATION PERIOD)
- -----------------------------------------------------
<S> <C>
UNDER STANDARD DEATH BENEFIT:
Mortality and Expense Risk Charge(5) ......... 1.25%
Administrative Charge(5) ..................... 0.40%
----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES .................................. 1.65%
WITH COMPOUNDING MINIMUM DEATH BENEFIT
ADDED:
Mortality and Expense Risk Charge(5) ......... 1.40%
Administrative Charge(5) ..................... 0.40%
----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES .................................. 1.80%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO ANNUAL EXPENSES(7)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT ANNUAL
PORTFOLIO FEES OTHER EXPENSES EXPENSES
<S> <C> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL Janus Growth(10) 0.78% % %
WRL Janus Global(11) 0.80% % %
WRL Alger Aggressive Growth 0.80% % %
WRL VKAM Emerging Growth 0.80% % %
WRL AEGON Balanced 0.80% % %
WRL AEGON Bond 0.45% % %
WRL LKCM Strategic Total Return 0.80% % %
WRL Federated Growth & Income 0.75% % %
WRL J.P. Morgan Money Market 0.40% % %
WRL J.P. Morgan Real Estate Securities 0.80% % %
WRL Third Avenue Value 0.80% % %
WRL NWQ Value Equity 0.80% % %
WRL Dean Asset Allocation 0.80% % %
WRL C.A.S.E. Growth 0.80% % %
WRL GE/Scottish Equitable International Equity 1.00% % %
WRL GE U.S. Equity 0.80% % %
WRL Goldman Sachs Growth(12) 0.90% % %
WRL Goldman Sachs Small Cap(12) 0.90% % %
WRL T. Rowe Price Dividend Growth(12) 0.90% % %
WRL T. Rowe Price Small Cap(12) 0.75% % %
WRL Salomon All Cap(12) 0.90% % %
WRL Pilgrim Baxter Mid Cap Growth(12) 0.90% % %
WRL Dreyfus Mid Cap(12) 0.85% % %
</TABLE>
(1) The surrender charge decreases based on the number of years since each
premium payment was made, from 8% in the first three years after the
premium payment was made to 0% in the tenth year after the
9
<PAGE>
premium payment was made. To calculate surrender charges, the first premium
payment made is considered to come out first. This charge is waived under
certain circumstances.
(2) We may reduce or waive the surrender charge and the annual Contract charge
for Contracts sold to groups of employees with the same employer, including
our directors, officers and full-time employees, or other groups where
sales to the group reduce our administrative expenses.
(3) Loans are available for qualified Contracts only. This loan fee may not be
applicable in all states.
(4) This Rider is optional. You may add this Rider when we issue the Contract,
or within each 30-day period following each Contract anniversary. If you
add it, we will impose during the accumulation period an annual Rider
charge equal to 0.30% of the minimum annuitization value on each Contract
anniversary and on the termination date of the Rider (which includes
upgrades of the minimum annuitization value and Contract surrender). We may
change the Rider charge percentage in the future if you choose to upgrade
the minimum annuitization value, or for future issues of the Rider, but the
charge will never exceed 0.50% annually. We deduct the Rider charge from
the fixed account and from each subaccount in proportion to the amount of
the annuity value in each account. If the annuity value on any Contract
anniversary exceeds the Rider charge threshold (currently 2.0) times the
minimum annuitization value, we will waive the Rider charge otherwise
payable on that Contract anniversary. This Rider is not available in all
states.
If you later choose to annuitize under this Rider, we will impose a daily
separate account annuitization charge equal to an annual rate of 2.50% of
the daily net asset values in the subaccounts in place of the mortality and
expense risk and administrative charges. We may change this charge in the
future if you choose to upgrade the minimum annuitization value, or for
future issues of the Rider, but it will never be greater than 3.50%.
(5) These charges apply to each subaccount. They do not apply to the fixed
account. The mortality and expense risk charge of 1.25% applies when you
have selected the standard death benefit. If you select the compounding
minimum death benefit, then the mortality and expense risk charge will
increase to 1.40%. These charges apply during the accumulation period.
After the maturity date, we will charge a daily separate account
annuitization charge equal to an annual rate of 1.40% in place of the
mortality and expense risk and administrative charges. If you select the
Guaranteed Minimum Income Benefit Rider, and you choose to annuitize under
the Rider, then we will impose a daily separate account annuitization
charge equal to an annual rate of 2.50% of the daily net asset values in
the subaccounts, in place of the mortality and expense risk and
administrative charges.
(6) We currently waive this charge if either the annuity value, or the total
premium payments, minus all partial surrenders, equals or exceeds $50,000
on the Contract anniversary for which the charge is payable. However, we
will deduct this charge from your annuity value if you surrender your
Contract completely.
(7) The fee table information relating to the portfolios is for 1999 and was
provided to Western Reserve by the fund. Western Reserve has not
independently verified such information.
(8) Effective January 1, 1997, the fund's Board authorized the fund to charge
each portfolio of the fund an annual Rule 12b-1 fee of up to 0.15% of each
portfolio's average daily net assets. However, the fund will not deduct the
fee from any portfolio before April 30, 2000. You will receive advance
written notice if a Rule 12b-1 fee is to be deducted. See the fund
prospectus for more details. (9) WRL Investment Management, Inc. ("WRL
Management"), the investment adviser of the fund, has undertaken, until at
least April 30, 2000, to pay expenses on behalf of the portfolios of the
fund, to the extent normal total operating expenses of a portfolio exceed
the following percentage of a portfolio's average daily net assets: 0.70%
for WRL AEGON Bond and WRL J.P. Morgan Money Market; 1.00% for WRL Alger
Aggressive Growth, WRL Janus Growth, WRL Janus Global, WRL VKAM Emerging
Growth, WRL LKCM Strategic Total Return, WRL Federated Growth & Income, WRL
J.P. Morgan Real Estate Securities, WRL Third Avenue Value, WRL NWQ Value
Equity, WRL Dean Asset Allocation, WRL C.A.S.E. Growth, WRL Goldman Sachs
Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Small Cap, WRL T.
Rowe Price Dividend Growth, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap
Growth, WRL Dreyfus Mid Cap, and WRL AEGON Balanced; 1.50% for WRL
GE/Scottish Equitable International Equity; and 1.30% for WRL GE U.S.
Equity. In 1999, WRL Management reimbursed WRL
10
<PAGE>
J.P. Morgan Real Estate Securities in the amount of $ , WRL
GE/Scottish Equitable International Equity in the amount of $ , WRL
Goldman Sachs Growth in the amount of $ , WRL Goldman Sachs Small Cap
in the amount of $ , WRL T. Rowe Price Dividend Growth in the amount
of $ , WRL T. Rowe Price Small Cap in the amount of $ , WRL
Salomon All Cap in the amount of $ , WRL Pilgrim Baxter Mid Cap Growth
in the amount of $ , and WRL Dreyfus Mid Cap in the amount of $ .
Without such reimbursements, the total annual expenses during 1999 for WRL
J.P. Morgan Real Estate Securities, WRL GE/Scottish Equitable International
Equity, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth, and WRL Dreyfus Mid Cap would have been
%, %, %, %, %, % %, %, and %,
respectively. See the fund prospectus for a description of the expense
limitations that apply to each portfolio of the fund.
(10) WRL Janus Growth's advisory fee reflects 0.80% of the average daily net
assets for the period prior to May 1, 1998, and 0.775% of the first $3
billion of average daily net assets and 0.75% of the average daily net
assets in excess of $3 billion for the period May 1, 1998 to December 31,
1998. WRL Management currently waives 0.025% of its advisory fee for the
first $3 billion of the portfolio's average daily net assets (net fee --
0.775%); and 0.05% for the portfolio's average daily net assets above $3
billion (net fee -- 0.75%). This waiver is voluntary and may be terminated
at any time upon 90 days' written notice to the fund.
(11) For WRL Janus Global, WRL Management will waive 0.025% of its advisory fee
once portfolio average daily net assets reach $2 billion (net fee --
0.775%.) This waiver is voluntary and may be terminated at any time upon 90
days' written notice to the fund.
(12) Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap commenced
operations on May 3, 1999, the percentages set forth as "Other Expenses"
and "Total Portfolio Annual Expenses" are annualized.
After the maturity date, we will charge a daily separate account
annuitization charge equal to an annual rate of 1.40% in place of the mortality
and expense risk and administrative charges. If you select the Guaranteed
Minimum Income Benefit Rider, and you choose to annuitize under the Rider, then
we will impose a daily separate account annuitization charge equal to an annual
rate of 2.50% of the daily net asset values in the subaccounts, in place of the
mortality and expense risk and administrative charges.
EXAMPLE
You would pay the following expenses on a $10,000 investment (plus a 4.5%
Premium Enhancement), assuming a hypothetical 5% annual return on assets,
assuming the entire $10,000 is invested in the subaccount listed, and assuming
the Guaranteed Minimum Income Benefit Rider has been selected.
The expenses reflect mortality and expense risk and administrative charges
totaling 1.80% of account value (assuming that the compounding minimum death
benefit has been added), the $30 annual Contract charge, plus the Guaranteed
Minimum Income Benefit Rider charge of 0.30% of minimum annuitization value
(MAV). In the example, the annual Contract charge of $30 and the Guaranteed
Minimum Income Benefit Rider charge of 0.30% are charged at the end of every
Contract year.
11
<PAGE>
<TABLE>
<CAPTION>
IF YOU ANNUITIZE* OR REMAIN
INVESTED IN THE CONTRACT AT THE
IF YOU SURRENDER THE END OF THE APPLICABLE TIME PERIOD
CONTRACT AT THE END OF THE OR IF YOU DO NOT SURRENDER OR
SUBACCOUNTS APPLICABLE TIME PERIOD ANNUITIZE UNDER THE CONTRACT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------- -------- --------- --------- ---------
WRL Janus Growth $ $ $ $ $ $ $ $
WRL Janus Global
WRL Alger Aggressive Growth
WRL VKAM Emerging Growth
WRL AEGON Balanced
WRL AEGON Bond
WRL LKCM Strategic Total Return
WRL Federated Growth & Income
WRL J.P. Morgan Money Market
WRL J.P. Morgan Real Estate Securities
WRL Third Avenue Value
WRL NWQ Value Equity
WRL Dean Asset Allocation
WRL C.A.S.E. Growth
WRL GE/Scottish Equitable
International Equity
WRL GE U.S. Equity
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Salomon All Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Dreyfus Mid Cap
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
The table above will help you understand the costs of investing in the
subaccounts. The table reflects the 1999 expenses of the portfolios and the
subaccount fees and charges. The table does not reflect premium taxes which may
range up to 3.50%, depending on the jurisdiction.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND DOES NOT REPRESENT PAST OR FUTURE
ANNUAL RETURNS. ACTUAL RETURNS MAY BE GREATER OR LESS THAN THE ASSUMED RATE.
The example above assumes that no transfer charges have been assessed. In
addition, the $30 annual Contract charge is reflected as a charge of 0.30%,
based on an annuity value of $10,000. The Guaranteed Minimum Income Benefit
Rider charge has been calculated assuming a Rider charge of 0.30% of MAV and
assuming an MAV annual growth rate of 6%.
FINANCIAL INFORMATION. There is no financial history of the subaccounts in
this prospectus because the subaccounts have not commenced operations as of the
date of this prospectus. We will determine separate sets of accumulation unit
values that reflect the cost of the standard death benefit (total separate
account annual expenses of 1.65%) and the compounding minimum death benefit
(total separate account annual expenses of 1.80%).
12
<PAGE>
1. THE ANNUITY CONTRACT
THE CONTRACT
This prospectus describes the WRL Freedom EnhancerSM Variable Annuity
Contract offered by Western Reserve.
An annuity is a contract between you, the owner, and an insurance company
(in this case Western Reserve), where the insurance company promises to pay the
annuitant an income in the form of annuity payments. These payments begin after
the maturity date. (See Section 2.) Until the maturity date, your annuity is in
the accumulation period and the earnings are tax deferred. Tax deferral means
you generally are not taxed on your annuity until you take money out of your
annuity. After the maturity date, your annuity switches to the income phase.
The Contract is a flexible premium variable accumulation deferred annuity.
You can use the Contract to accumulate funds for retirement or other long-term
financial planning purposes.
It is a "flexible premium" Contract because after you purchase it, you can
generally make additional investments of $50 or more at any time, until the
maturity date. But you are not required to make any additional investments.
The Contract is a "variable" annuity because the value of your Contract
can go up or down based on the performance of your investment choices. If you
select the variable investment portion of the Contract, the amount of money you
are able to accumulate in your Contract during the accumulation period depends
upon the performance of your investment choices. If you elect to receive
variable annuity payments during the income phase of your Contract, the amount
of your annuity payments will also depend upon the investment performance of
your investment choices for the income phase.
The Contract also contains a fixed account. Unless otherwise required by
state law, we will limit your allocations or transfers to the fixed account if
the fixed account value following the allocation or transfer would exceed
$500,000. The fixed account offers an interest rate that is guaranteed by
Western Reserve to equal at least 3% per year. There may be different interest
rates for each payment or transfer you direct to the fixed account which are
greater than the guaranteed rate. The interest rates we set will be credited
for periods of at least one year measured from each payment or transfer date.
The fixed account may not be available in all states. Residents of
Washington, Oregon, New Jersey and Massachusetts may not direct or transfer any
money to the fixed account.
OTHER CONTRACTS
We offer other variable annuity contracts which also invest in the same
portfolios of the fund. These contracts may have different charges that could
affect subaccount performance, and may offer different benefits more suitable
to your needs. To obtain more information about these contracts, contact your
agent, or call us at 1-800-851-9777.
13
<PAGE>
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments under the Contract start. This
is the maturity date. You can change this date by giving us 30 days written
notice. The maturity date cannot be earlier than the end of the fifth Contract
year. The maturity date cannot be later than the Contract month following the
month in which the annuitant reaches age 95. The maturity date may be earlier
for qualified Contracts.
ELECTION OF ANNUITY PAYMENT OPTION. Before the maturity date, if the
annuitant is alive, you may choose an annuity payment option or change your
option. If you do not choose an annuity option by the maturity date, we will
make payments under Option D (see page 16) as a Variable Life Income with 10
years of guaranteed payments. You cannot change the annuity payment option
after the maturity date.
If you choose a variable payment option, you must specify how you want the
annuity proceeds divided among the subaccounts as of the maturity date. If you
do not specify, we will allocate the annuity proceeds in the same proportion as
the annuity value is allocated among the investment options on the maturity
date. After the maturity date, you may make transfers among the subaccounts,
but you may not make transfers from or to the fixed account; we may limit
subaccount transfers to one per Contract year.
Unless you specify otherwise, the annuitant named on the application will
receive the annuity payments. You can change the annuitant or add a joint
annuitant at any time before the maturity date, so long as we agree. If you do
not choose an annuitant, we will consider you to be the annuitant.
If you have added the Guaranteed Minimum Income Benefit Rider to your
Contract and choose to annuitize under the Rider, then you must select one of
the annuity payment options contained in the Rider.
SUPPLEMENTAL CONTRACT. Once you annuitize and if you have selected a fixed
annuity payment option, the Contract will end and we will issue a supplemental
Contract to describe the terms of the option you selected. The supplemental
Contract will name who will receive the annuity payments and describe when the
annuity payments will be made.
ANNUITY PAYMENT OPTIONS UNDER THE CONTRACT
The Contract provides five annuity payment options that are described
below. You may choose any annuity payment option under your Contract. You can
choose to receive payments monthly, quarterly, semi-annually, or annually.
We will use your "annuity proceeds" to provide these payments. The
"annuity proceeds" is your annuity value on the maturity date, less any premium
tax that may apply. If your annuity payment would be less than $20, then we
will pay you the annuity proceeds in one lump sum.
14
<PAGE>
Fixed Annuity Income Payments. If you choose annuity payment Option A, B
or C, the dollar amount of each annuity payment will be fixed on the maturity
date and guaranteed by us. The payment amount will depend on three things:
o The amount of the annuity proceeds on the maturity date;
o The interest rate we credit on those amounts (we guarantee a minimum
annual interest rate of 3%); and
o The specific payment option you choose.
Variable Annuity Income Payments Without the Guaranteed Minimum Income
Benefit Rider. If you choose variable annuity payment Option D or E, the dollar
amount of the first variable payment will be determined in accordance with the
annuity payment rates set forth in the applicable table contained in the
Contract. The dollar amount of each additional variable payment will vary based
on the investment performance of the subaccount(s) you invest in and the
Contract's assumed investment return of 5%. The dollar amount of each variable
payment after the first may increase, decrease or remain constant. If, after
all charges are deducted, the actual investment performance exactly matched the
Contract's assumed investment return of 5% at all times, then the amount of the
next variable annuity payment would remain the same. If actual investment
performance, after all charges are deducted, exceeds the assumed investment
return, then the amount of the variable annuity payments would increase. But,
if actual investment performance, less charges, is lower than the 5% assumed
investment return, then the amount of the variable annuity payments would
decrease. The portfolio in which you are invested must grow at a rate at least
equal to the 5% assumed investment return (plus the daily separate account
annuitization charge equal to an annual rate of 1.40% in place of the mortality
and expense risk and administrative charges) in order to avoid a decrease in
the dollar amount of variable annuity payments. For more information on how
variable annuity income payments are determined, see the SAI.
The annuity payment options are explained below. Options A, B, and C are
fixed only. Options D and E are variable only.
FIXED ANNUITY OPTIONS
PAYMENT OPTION A -- FIXED INSTALLMENTS. We will pay the annuity in equal
payments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
Payment Option B -- Life Income: Fixed Payments.
o NO PERIOD CERTAIN -- We will make level payments only during the
annuitant's lifetime; or
o 10 OR 20 YEARS CERTAIN -- We will make level payments for the longer
of the annuitant's lifetime or 10 or 20 years; or
o GUARANTEED RETURN OF ANNUITY PROCEEDS -- We will make level payments
for the longer of the annuitant's lifetime or until the total dollar
amount of payments we made to you equals the annuity proceeds.
15
<PAGE>
PAYMENT OPTION C -- JOINT AND SURVIVOR LIFE INCOME: FIXED PAYMENTS. We
will make level payments during the joint lifetime of the annuitant and a
co-annuitant of your choice. Payments will be made as long as either person is
living.
VARIABLE ANNUITY OPTIONS
PAYMENT OPTION D -- VARIABLE LIFE INCOME. The annuity proceeds are used to
purchase annuity units of the subaccounts you select. You may choose between:
o NO PERIOD CERTAIN -- We will make variable payments only during the
annuitant's lifetime; or
o 10 YEARS CERTAIN -- We will make variable payments for the longer of
the annuitant's lifetime or 10 years.
PAYMENT OPTION E -- VARIABLE JOINT AND SURVIVOR LIFE INCOME. We will make
variable payments during the joint lifetime of the annuitant and a co-annuitant
of your choice. Payments will be made as long as either person is living.
Other annuity payment options may be arranged by agreement with us.
NOTE CAREFULLY: The death benefit payable after the maturity date will be
affected by the annuity option you choose.
If:
o you choose Life Income with No Period Certain or a Joint and Survivor
Life Income (fixed or variable); and
o the annuitant(s) dies, for example, before the due date of the second
annuity payment;
Then:
o we may make only one annuity payment.
If:
o you choose Fixed Installments, Life Income with 10 or 20 Years
Certain, Life Income with Guaranteed Return of Annuity Proceeds, or
Variable Life Income with 10 Years Certain; and
o the person receiving payments dies prior to the end of the guaranteed
period;
Then:
o the remaining guaranteed payments will be continued to that person's
beneficiary, or their value (determined at the date of death) may be
paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity
payment checks if the postal or other delivery service is unable to deliver
checks to the payee's address of record. The payee is responsible to keep
Western Reserve informed of the payee's current address of record.
16
<PAGE>
GUARANTEED MINIMUM INCOME BENEFIT RIDER (THE "RIDER")
The Rider assures you of a minimum level of income in the future by
guaranteeing a minimum annuitization value (discussed below) after a waiting
period (currently, 10 years) from the date of purchasing or upgrading the
Rider. You may elect to purchase this Rider, which guarantees the total amount
you will have to apply ("minimum annuitization value") to a variable annuity
payment option specified in the Rider, and which guarantees a minimum dollar
payment once you begin receiving payments. By electing this Rider, you are
guaranteed a minimum level of income in the future based on the minimum
annuitization value, while you remain invested in the subaccounts.
To purchase the Rider, you must elect it at issue or within 30 days after
any Contract anniversary. The Rider will be added to the Contract on the
Contract date or the Contract anniversary date. In addition, so long as the
waiting period is 10 years, you must purchase the Rider as of a Contract
anniversary before your 85th birthday. If we increase the length of the waiting
period, you may be required to purchase the Rider on an earlier date. We will
notify you of any change in the length of the waiting period within 30 days of
the change.
MINIMUM ANNUITIZATION VALUE.
If you purchase the Rider at issue, the minimum annuitization value is:
o the initial annuity value (including any Premium Enhancement credited
with the initial premium payment only) on the date the Rider is
issued, plus
o any additional premiums paid after the Rider is issued (not including
any Premium Enhancements), minus
o an adjustment for any partial surrenders made after the date the Rider
is issued,
o accumulated at the annual growth rate.
If you purchase the Rider at a future Contract anniversary date, the
minimum annuitization value would be:
o the annuity value (including any Premium Enhancements credited with
the initial and subsequent premium payments) on the date the Rider is
issued, plus
o any additional premiums paid after the Rider is issued (not including
any Premium Enhancements), minus
o an adjustment for any partial surrenders made after the date the Rider
is issued,
o accumulated at the annual growth rate.
The annual growth rate is currently 6% per year. For Contracts issued in a
few states, this rate will be less than 6%. We may, at our discretion, change
the rate in the future for new riders, but the rate will never be less than 3%
per year. Once the Rider is added to your Contract, the annual growth rate, the
Rider charge, the Rider charge waiver threshold, the separate account
annuitization charge and the waiting period before you can annuitize under the
Rider will not change during the life of the Rider. Partial surrenders may
reduce the minimum annuitization value on a basis greater than
dollar-for-dollar. See the SAI for more information.
17
<PAGE>
The minimum annuitization value is used to calculate the annuity payments
and charges under the Rider and adjustments to partial surrenders. This value
does not establish or guarantee an annuity value or guarantee performance of
any subaccount. IF YOU CHOOSE TO ANNUITIZE UNDER THE RIDER, WE WILL USE YOUR
MINIMUM ANNUITIZATION VALUE (LESS ANY OUTSTANDING LOAN AMOUNT AND ANY LOAN
INTEREST YOU OWE) -- NOT YOUR CURRENT ANNUITY VALUE EVEN IF IT IS GREATER -- TO
DETERMINE THE AMOUNT OF YOUR VARIABLE ANNUITY PAYMENTS UNDER THE RIDER. The
minimum annuitization value may not be used to annuitize with any of the
annuity payment options under the Contract.
ANNUITY PAYMENT OPTIONS UNDER THE RIDER. The only payment options
available under the Rider are the following variable annuity options:
o LIFE INCOME -- An election may be made for "No Period Certain" or "10
Years Certain." Payments will be made as long as the annuitant is
living. In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will
be continued to the beneficiary.
o JOINT AND FULL SURVIVOR -- An election may be made for "No Period
Certain" or "10 Years Certain." Payments will be made as long as
either the annuitant or joint annuitant is living. In the event of the
death of both the annuitant and joint annuitant prior to the end of
the chosen period certain, the remaining period certain payments will
be continued to the beneficiary.
Both before and after you annuitize under the Rider, you may transfer
values from one subaccount to another. After the maturity date, no transfers
may be made to or from the fixed account. There are no limitations on transfers
among the subaccounts after you annuitize under the Rider.
MINIMUM ANNUITIZATION VALUE UPGRADE. With a 10 year waiting period, you
can elect, in writing, to upgrade the minimum annuitization value to the
current annuity value within 30 days after any Contract anniversary before your
85th birthday (earlier if required by your state). For your convenience, we
will put the last date to upgrade on page one of the Rider.
If you elect to upgrade, the current Rider will terminate, we will assess
the Rider charge, and a new rider will be issued. The new rider will have a new
rider date, a new waiting period before you can annuitize under the rider, and
new guaranteed benefits and charges. The benefits and charges under the new
rider may differ from the previous Rider's benefits and charges prior to
upgrading.
CONDITIONS TO ANNUITIZE UNDER THE RIDER. You can only annuitize under the
Rider within 30 days after the end of the waiting period (currently the tenth
Contract anniversary after you select the Rider) or on a later Contract
anniversary. In the case of an upgrade of the minimum annuitization value, you
can only annuitize at the end of the new rider's waiting period (currently the
tenth Contract anniversary following the upgrade) or on a later Contract
anniversary. We may, at our discretion, change the waiting period in the future
if you choose to upgrade the minimum annuitization value, or for new issues of
the Rider. You
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cannot, however, annuitize under the Rider after the 30-day period following
the Contract anniversary after your 94th birthday (earlier if required by your
state). For your convenience, we will put the first and last date to annuitize
using the Rider on page one of the Rider.
NOTE CAREFULLY -- You may only annuitize under the Rider at the times
indicated above.
GUARANTEED MINIMUM INCOME BENEFIT RIDER. We guarantee that future annuity
payments under the Rider to be never less than the initial variable annuity
payment. See the SAI for information concerning the calculation of the initial
variable annuity payment. We will also "stabilize" the payments (hold them
constant) during each Contract year. During the first Contract year after you
annuitize under the Rider, each payment will equal the initial payment. On each
Contract anniversary thereafter, the variable annuity payment will increase or
decrease (but never below the initial payment) depending on the performance of
the subaccounts you selected, and then be held constant at that amount for that
Contract year. The payments starting on each Contract anniversary will equal
the greater of the initial variable annuity payment or the payment that can be
supported by the number of annuity units in the subaccounts on the Contract
anniversary. We will calculate each subsequent payment using a 5% assumed
investment return. The portfolio in which you are invested must grow at a rate
greater than the 5% assumed investment return, plus the separate account
annuitization charge of 2.50%, in order to increase the dollar amount of
variable annuity payments. See the SAI for additional information concerning
how payments are determined under the Rider.
RIDER CHARGE. Prior to annuitization, a Rider charge, currently 0.30%
annually of the minimum annuitization value, is deducted from the annuity value
on each Contract anniversary and on the termination date of the Rider. We may
change the Rider charge percentage in the future if you choose to upgrade the
minimum annuitization value, or for future issues of the Rider, but it will
never be greater than 0.50% annually. We deduct the Rider charge from the fixed
account and from each subaccount in proportion to the amount of annuity value
in each account.
We will waive the Rider charge on any Contract anniversary if the annuity
value exceeds the Rider charge waiver threshold (currently 2.0) times the
minimum annuitization value. For instance, if your annuity value on the seventh
Contract anniversary is $100,000, your minimum annuitization value is $45,000
and the Rider charge waiver threshold is 2.0, we will waive the Rider charge on
that anniversary because $100,000 is greater than $90,000 ($45,000 x 2.0). We
may, at our discretion, change the Rider charge waiver threshold in the future
if you choose to upgrade the minimum annuitization value, or for future issues
of the Rider, but it will never be greater than 2.5 times the minimum
annuitization value.
SEPARATE ACCOUNT ANNUITIZATION CHARGE. If you annuitize under the Rider, a
daily separate account annuitization charge, equal to an annual rate of 2.50%
of the daily net asset values in the subaccounts, is reflected in the amount of
the variable payments you receive. We may change the separate account
annuitization charge in the future, if you choose to upgrade the minimum
annuitization value or for future issues of the Rider, but it will never
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be greater than 3.50%. The separate account annuitization charge is deducted in
place of the Contract's mortality and expense risk charge and the
administrative charge.
Termination. The Rider is irrevocable. You have the option not to
annuitize under the Rider but you will not receive a refund of any charges you
have paid and you will not be able to use the minimum annuitization value. The
Rider will terminate upon the earliest of the following:
o annuitization (once the guaranteed minimum payments begin);
o the date you elect to upgrade (although a new irrevocable rider will
be issued);
o the date your Contract terminates;
o 30 days following the Contract anniversary after your 94th birthday
(earlier if required by your state); or
o the date you change the annuitant (although a new irrevocable rider
will be issued).
THE GUARANTEED MINIMUM INCOME BENEFIT RIDER DOES NOT ESTABLISH OR
GUARANTEE ANNUITY VALUE OR GUARANTEE PERFORMANCE OF ANY SUBACCOUNT. Because
this Rider is based on conservative actuarial factors, the level of lifetime
income that it guarantees may be less than the level that might be provided by
application of the annuity value at the Contract's applicable annuity factors.
Therefore, the Guaranteed Minimum Income Benefit Rider should be regarded as a
safety net. The costs of annuitizing under the Rider include the separate
account annuitization charge, and also the lower levels inherent in the annuity
tables used for the minimum payouts. These costs should be balanced against the
benefits of a minimum payout level.
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
We will issue a Contract IF:
o we receive information we need to issue the Contract;
o we receive a minimum initial premium payment; and
o the annuitant is age 80 or younger.
PREMIUM PAYMENTS
You should make checks or drafts for premium payments payable only to
"Western Reserve Life" and send them to our administrative office. Your check
or draft must be honored in order for us to pay any associated payments and
benefits due under the Contract.
INITIAL PREMIUM REQUIREMENTS
The initial premium payment for nonqualified Contracts must be at least
$10,000. However, you may make a minimum initial premium payment of $1,000,
rather than $10,000, if you indicate on your application that you anticipate
making minimum monthly
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payments of at least $100 by electronic funds transfer. For traditional or Roth
IRAs the minimum initial premium payment is $1,000 and for qualified Contracts
other than traditional or Roth IRAs, the minimum initial premium payment is
$50.
We will credit your initial premium payment to your Contract within two
business days after the day we receive it and your complete Contract
information. If we are unable to credit your initial premium payment, we will
contact you within five business days and explain why. We will also return your
initial premium payment at that time unless you tell us to keep it. We will
credit your initial premium payment as soon as we receive all necessary
application information.
The date on which we credit your initial premium payment to your Contract
is the Contract date. The Contract date is used to determine Contract years,
Contract months and Contract anniversaries.
If you wish to make payments by bank wire, you should instruct your bank
to wire federal funds to us. Please contact us at 1-800-851-9777 for complete
wire instructions.
We may reject any application or premium payments for any reason permitted
by law.
ADDITIONAL PREMIUM PAYMENTS
You are not required to make any additional premium payments. However, you
can make additional premium payments as often as you like during the lifetime
of the annuitant and prior to the maturity date. Additional premium payments
must be at least $50 ($100 monthly in the case of nonqualified Contracts with a
$1,000 initial premium payment and $1,000 if by wire). We will credit
additional premium payments to your Contract as of the business day we receive
your premium payment and required information.
MAXIMUM ANNUAL PREMIUM PAYMENTS
We allow premium payments up to a total of $1,000,000 in any Contract year
without prior approval.
PREMIUM ENHANCEMENT
We will add an amount we call a Premium Enhancement (currently equal to
4.5% of the initial premium payment) to the annuity value on the Contract date.
The amount of the Premium Enhancement is not considered a premium payment. We
may credit the Premium Enhancement on subsequent premium payments. Such Premium
Enhancements may vary from premium to premium on subsequent premium payments,
but the percent credited will never be more than 8% and will vary based on the
annuitant's age, prior partial surrenders, and the Contract year at the time a
premium payment is paid. On any premium received after the initial premium, we
may calculate the Premium Enhancement on only a portion of the new premium, if
you have taken a partial surrender within the prior twelve months of the new
premium payment. (See page ). A confirmation will be sent advising you of the
amount of Premium Enhancement, if any, applicable to each subsequent premium
payment. No Premium Enhancement will be credited if the Contract is canceled
pursuant to the Right to Cancel provision.
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The Premium Enhancement is expressed and payable only as a percentage of
premium payments. Currently, the percentage is 4.5% for the initial premium. We
may change this percentage.
EXAMPLES. The following examples illustrate how a 4.5% credit works.
SUPPOSE YOU INVEST $10,000 IN A CONTRACT. WE IMMEDIATELY CREDIT AN
ADDITIONAL 4.5% OR $450, SO YOUR ANNUITY VALUE BEGINS AT $10,450. Assume that
in six months the annuity value increases by 5%, so it is $10,972.50 (($10,450
x 0.05 = $522.50) ($522.50 + $10,450 = $10,972.50)). At that point in time, the
death benefit would be $10,522.50 ($10.972.50 less the $450 credit), Note that
although the credit is not included in the death benefit, the $22.50 of
earnings on the credit is included. The cash surrender value would be
$10.972.50 minus the surrender charge of 8%, in addition to other applicable
deductions. ASSUME THAT AT THE END OF TWELVE MONTHS, THE ANNUITY VALUE HAS
INCREASED BY 10% SO IT IS $11,495 (($10,450 x 0.10 = $1,045) ($1,045 + $10,450
= 11,495)). The death benefit at that time would be the full annuity value of
$11,495 and the cash surrender value would be $11,495 minus the surrender
charge of 8% and other applicable deductions.
A DECREASE IN VALUE WORKS IN A SIMILAR MANNER. AGAIN SUPPOSE YOU INVEST
$10,000 AND WE CREDIT A 4.5%, OR $450 CREDIT, AND THE ANNUITY VALUE DECREASES
5% TO $9,950 ($10,450 MINUS $500). Your death benefit in six months time would
be $10,000 since it is never less than your premium payments, less any partial
surrenders and premium taxes. Your cash surrender value would be $9,950 minus
the surrender charge of 8% and other applicable deductions.
IN THE CASE OF MULTIPLE PREMIUM PAYMENTS, FOR PURPOSES OF THE CREDIT, THE
MOST RECENT PREMIUM PAYMENT IS DEEMED TO BE WITHDRAWN FIRST. SUPPOSE YOU MAKE A
$10,000 PREMIUM PAYMENT IN JUNE 2000 (GETTING A $450 CREDIT) AND A $20,000
PREMIUM PAYMENT IN DECEMBER 2000 (GETTING A $900 CREDIT). If you die in August
2001 (more than 12 months after the June 2000 premiuum payment, but less than
12 months after the December 2000 premium payment), the $900 credit for the
December premium payment has not vested (since it is less than 12 months old)
so the full $900 is deducted in calculating the death benefit. However, the
death benefit would include any earnings/loss attributable to that credit. The
$450 credit for the June payment is over 12 months old so it (and any
earnings/loss on it) is included in the death benefit.
ALLOCATION OF PREMIUM PAYMENTS
When you purchase a Contract, we will allocate your premium payment (plus
the Premium Enhancement) to the investment choices you selected on your
application, or we will place your premium payment(s) in the reallocation
account until the reallocation date. Your allocation must be in whole
percentages which must total 100%. We will allocate additional premium payments
(plus any Premium Enhancements, if any) as you selected on your application,
unless you request a different allocation.
Unless otherwise required by state law, we will limit allocations and
transfers to the fixed account if the fixed account value following the
allocation or transfer would exceed $500,000.
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You may change allocations for future additional premium payments by
sending written instructions or by telephone, subject to the limitations
described under Telephone or Fax Transactions on page 28. The allocation change
will apply to premium payments received after the date we receive the change
request. In the future we may charge a fee of $25 for each change in allocation
that you make, if you make more than one change in a Contract quarter.
You should review periodically how your payments are divided among the
subaccounts because market conditions and your overall financial objectives may
change.
RIGHT TO CANCEL PERIOD
You may return your Contract for a refund within 10 days after you receive
it. In most states, the amount of the refund will be the total premium payments
we have received (less any Premium Enhancement) plus (or minus) any gains (or
losses) in the amounts you invested in the subaccounts. The refund will not
include any Premium Enhancements we credited to your annuity value. You will
keep any gains, and bear any losses, on amounts (including any Premium
Enhancements) that you invested in the subaccounts. We determine the value of
the refund as of the date we receive the returned Contract. We will pay the
refund within 7 days after we receive your written notice of cancellation and
the returned Contract. The Contract will then be deemed void. In some states
you may have more than 10 days and/or receive a different refund amount.
If your state requires us to return your initial premium in the event you
exercise your right to cancel, we will allocate the initial premium on the
Contract date to the reallocation account until the reallocation date. While
held in the reallocation account, your premium will be credited with gains and
losses of the WRL J.P. Morgan Money Market subaccount. The premium will remain
in the reallocation account for the number of days in your state's right to
cancel period plus five days. Please contact your agent for details concerning
the right to cancel period for your state.
On the first valuation date on or after the reallocation date, we will
reallocate all annuity value (including the Premium Enhancement) from the
reallocation account to the fixed account and/or subaccounts you selected on
your application.
For states which do not require a full refund of the initial premium, the
reallocation date is the same as the Contract date; and we will allocate your
initial premium on the Contract date to the fixed account and/or subaccounts in
accordance with the instructions you gave us on your application.
ANNUITY VALUE
You should expect your annuity value to change from valuation period to
valuation period to reflect the investment performance of the portfolios, the
interest credited to your value in the fixed account, and the fees and charges
we deduct. A valuation period begins at the close of business on each valuation
date and ends at the close of business on the next succeeding valuation date. A
valuation date is any day the NYSE is open. Our business day
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closes at the close of normal trading on the NYSE, usually 4:00 p.m. Eastern
time. We observe the same holidays as the NYSE.
ACCUMULATION UNITS
We measure the value of your Contract during the accumulation period by
using a unit called an accumulation unit. During the income phase, we use a
measurement called an annuity unit. When you direct money into a subaccount, we
credit your Contract with accumulation units for that subaccount. We determine
how many accumulation units to credit by dividing the dollar amount you direct
to the subaccount by the subaccount's accumulation unit value as of the end of
that valuation date. If you partially surrender or transfer out of a
subaccount, or if we assess a transfer charge, annual Contract charge, any
surrender charge or Guaranteed Minimum Income Benefit Rider charge, or a change
in allocation fee, we subtract accumulation units from the subaccounts using
the same method.
Each subaccount's accumulation unit value was set at $10 when the
subaccount started. We recalculate the accumulation unit value for each
subaccount at the close of each valuation date. The new value reflects the
investment performance of the underlying portfolio and the daily deduction of
the mortality and expense risk charge and the administrative charge. For a
detailed discussion of how we determine accumulation unit values, see the SAI.
We will determine separate sets of accumulation unit values that reflect
the cost of the standard death benefit and the compounding minimum death
benefit.
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4. INVESTMENT CHOICES
THE SEPARATE ACCOUNT
The separate account currently consists of 23 subaccounts.
The Fund. Each subaccount invests exclusively in one portfolio of the
fund. The portfolios and their sub-adviser(s) are listed below.
<TABLE>
<CAPTION>
SUB-ADVISER PORTFOLIO
----------- ---------
<S> <C>
JANUS CAPITAL CORPORATION WRL Janus Growth
WRL Janus Global
FRED ALGER MANAGEMENT, INC. WRL Alger Aggressive Growth
VAN KAMPEN ASSET MANAGEMENT INC. WRL VKAM Emerging Growth
AEGON USA INVESTMENT MANAGEMENT, INC. WRL AEGON Balanced
WRL AEGON Bond
LUTHER KING CAPITAL MANAGEMENT CORPORATION WRL LKCM Strategic Total Return
FEDERATED INVESTMENT COUNSELING WRL Federated Growth & Income
J.P. MORGAN INVESTMENT MANAGEMENT INC. WRL J.P. Morgan Money Market
WRL J.P. Morgan Real Estate Securities
EQSF ADVISERS, INC. WRL Third Avenue Value
NWQ INVESTMENT MANAGEMENT COMPANY, INC. WRL NWQ Value Equity
DEAN INVESTMENT ASSOCIATES WRL Dean Asset Allocation
C.A.S.E. MANAGEMENT, INC. WRL C.A.S.E. Growth
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT WRL GE/Scottish Equitable International Equity
LIMITED AND GE INVESTMENT MANAGEMENT
INCORPORATED
GE INVESTMENT MANAGEMENT INCORPORATED WRL GE U.S. Equity
GOLDMAN SACHS ASSET MANAGEMENT WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
T. ROWE PRICE ASSOCIATES, INC. WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
SALOMON BROTHERS ASSET MANAGEMENT INC WRL Salomon All Cap
PILGRIM BAXTER & ASSOCIATES, LTD. WRL Pilgrim Baxter Mid Cap Growth
THE DREYFUS CORPORATION WRL Dreyfus Mid Cap
</TABLE>
The general public may not purchase these portfolios. Their investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds will be comparable to those portfolios offered by
this prospectus.
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THERE IS NO ASSURANCE THAT A PORTFOLIO WILL ACHIEVE ITS STATED
OBJECTIVE(S). MORE DETAILED INFORMATION, INCLUDING AN EXPLANATION OF EACH
PORTFOLIO'S INVESTMENT OBJECTIVE, MAY BE FOUND IN THE FUND'S CURRENT
PROSPECTUS. YOU SHOULD READ THE FUND PROSPECTUS CAREFULLY BEFORE YOU INVEST.
THE FIXED ACCOUNT
Premium payments (and any Premium Enhancements) allocated and amounts
transferred to the fixed account become part of the general account of Western
Reserve. Interests in the general account have not been registered under the
Securities Act of 1933 (the "1933 Act"), nor is the general account registered
as an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts.
Western Reserve has been advised that the staff of the SEC has not reviewed the
disclosure in this prospectus which relates to the fixed account.
We guarantee that the interest credited to the fixed account will not be
less than 3% per year. We have no formula for determining fixed account current
interest rates. We establish the interest rate, at our sole discretion, for
each premium payment or transfer into the fixed account. Rates are guaranteed
for at least one year.
If you select the fixed account, your money will be placed with the other
general assets of Western Reserve. All assets in our general account are
subject to the general liabilities of our business operations. The amount of
money you are able to accumulate in the fixed account during the accumulation
period depends upon the total interest credited. The amount of annuity payments
you receive during the income phase under a fixed annuity option will remain
level for the entire income phase. You may not transfer money between the fixed
account and the subaccounts during the income phase.
When you request a transfer or partial surrender from the fixed account,
we will account for it on a first-in, first-out ("FIFO") basis, for purposes of
crediting your interest. This means that we will take the deduction from the
oldest money you have put in the fixed account. You may not make partial
surrenders from the fixed account unless we consent.
Unless otherwise required by state law, we will limit allocations and
transfers to the fixed account if the fixed account value following the
allocation or transfer would exceed $500,000.
The fixed account may not be available in all states. Residents of
Washington, Oregon, New Jersey and Massachusetts may not direct or transfer any
money to the fixed account.
TRANSFERS
During the accumulation period, you or your agent/registered
representative of record may make transfers from any subaccount. However, if
you elect the dollar cost averaging, asset rebalancing or systematic partial
surrender program, you may not make any transfers if you want to continue in
the program. A transfer would automatically cancel your participation in the
program. We may also limit "substantive transfers" as discussed below.
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Transfers from the fixed account are allowed only once each Contract year.
We must receive written notice within 30 days after a Contract anniversary. The
amount that may be transferred is the greater of (1) 25% of the dollar amount
in the fixed account, or (2) the amount you transferred out of the fixed
account in the previous Contract year.
During the income phase of your Contract, you may transfer values from one
subaccount to another. No transfers may be made to or from the fixed account.
The minimum amount that can be transferred during this phase is the lesser of
$10 of monthly income, or the entire monthly income of the variable annuity
units in the subaccount from which the transfer is being made. We may limit
subaccount transfers to one per Contract year.
The fixed account may not be available in all states. Residents of
Washington, Oregon, New Jersey and Massachusetts may not transfer any of their
Contract value to the fixed account.
Transfers may be made by telephone or fax, subject to limitations
described under Telephone or Fax Transactions on page 28.
If you make more than 12 transfers from the subaccounts in any Contract
year, we will charge you $10 for each additional transfer you make during that
year. Currently, there is no charge for transfers from the fixed account.
The Contract's transfer privilege is not intended to afford owners a way
to speculate on short-term movements in the market. Excessive use of the
transfer privilege can potentially disrupt the management of the portfolios and
increase transaction costs. Accordingly, we have established a policy of
limiting excessive transfer activity. We will limit transfer activity to two
substantive transfers (at least 30 days apart) from each portfolio, except from
WRL J.P. Morgan Money Market, during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations, or a series of movements between
portfolios. We will not limit non-substantive transfers.
We may, at any time, discontinue transfer privileges, modify our
procedures, or limit the number of transfers we permit. We will effect
transfers from subaccounts at accumulation unit values next determined after we
receive the transfer request.
DOLLAR COST AVERAGING PROGRAM
Dollar cost averaging allows you to transfer systematically a specific
amount each month from the fixed account, the WRL J.P. Morgan Money Market
subaccount, the WRL AEGON Bond subaccount or any combination of these accounts,
to a different subaccount. You may specify the dollar amount to be transferred
monthly; however, you must transfer at least $100 monthly. To qualify, a
minimum of $5,000 must be in each subaccount from which we make transfers.
There is no charge for this program. These transfers do count towards the 12
free transfers allowed during each Contract year.
If you make dollar cost averaging transfers from the fixed account, each
month you may transfer no more than 1/10th of the dollar amount in the fixed
account on the date you start dollar cost averaging.
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By transferring a set amount on a regular schedule instead of transferring
the total amount at one particular time, you may reduce the risk of investing
in the portfolios only when the price is high. Dollar cost averaging does not
guarantee a profit and it does not protect you from loss if market prices
decline.
We reserve the right to discontinue offering dollar cost averaging 30 days
after we send notice to you. Dollar cost averaging is not available if you have
elected the asset rebalancing program or systematic partial surrenders or if
you request any other transfer.
ASSET REBALANCING PROGRAM
During the accumulation period you can instruct us to rebalance
automatically the amounts in your subaccounts to maintain your desired asset
allocation. This feature is called asset rebalancing and can be started and
stopped at any time free of charge. However, we will not rebalance if you are
in the dollar cost averaging program, if you take systematic partial
surrenders, or if you request any other transfer. Asset rebalancing ignores
amounts in the fixed account. You can choose to rebalance monthly, quarterly,
semi-annually, or annually.
To qualify for asset rebalancing, a minimum annuity value of $10,000 for
an existing Contract, or a minimum initial premium payment of $10,000, for a
new Contract, is required. Asset rebalancing does not guarantee gains, nor does
it assure that any subaccount will not have losses.
Each reallocation which occurs under asset rebalancing will be counted
towards the 12 free transfers allowed during each Contract year.
We reserve the right to discontinue, modify or suspend the asset
rebalancing program at any time.
TELEPHONE OR FAX TRANSACTIONS
You may make transfers, request partial surrenders and change the
allocation of additional premium payments by telephone. Telephone partial
surrenders are not allowed in the following situations:
o for qualified retirement accounts (except IRAs);
o if the amount you want to withdraw is greater than $50,000; or
o if the address of record has been changed within the past 10 days.
Upon instructions from you, the registered representative/agent of record
for your Contract may also make telephone transfers or partial surrenders for
you. If you do not want the ability to make transfers or partial surrenders by
telephone, you should notify us in writing.
You may make telephone transfers or request partial surrenders by calling
our toll-free number: 1-800-851-9777. You will be required to provide certain
information for identification purposes when you request a transaction by
telephone. We may also require written confirmation of your request. We will
not be liable for following telephone requests that we believe are genuine.
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You may also fax your transfer or partial surrender request to us at
727-299-1648. We will not be responsible for transmittal problems which are not
reported to us within five business days. Any reports must be accompanied by
proof of the faxed transmittal.
Telephone or fax requests must be received before 4:00 p.m. Eastern time
to assure same-day pricing of the transaction. We may discontinue this option
at any time.
THIRD PARTY INVESTMENT SERVICES
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties you authorize to conduct
transfers on your behalf, or who provide recommendations as to how your
subaccount values should be allocated. This includes, but is not limited to,
transferring subaccount values among subaccounts in accordance with various
investment allocation strategies that these third parties employ. Such
independent third parties may or may not be appointed Western Reserve agents
for the sale of Contracts.
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 YOUR
BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE
BY SUCH PARTIES.
Western Reserve does not currently charge you any additional fees for
providing these support services. Western Reserve reserves the right to
discontinue providing administrative and support services to owners utilizing
independent third parties who provide investment allocation and transfer
recommendations.
5. EXPENSES
There are charges and expenses associated with your Contract that reduce
the return on your investment in the Contract. Unless we indicate otherwise,
the expenses below apply only during the accumulation period.
MORTALITY AND EXPENSE RISK CHARGE
We charge a fee as compensation for bearing certain mortality and expense
risks under the Contract. Examples of our risks include a guarantee of annuity
rates, the death benefits, certain Contract expenses, and assuming the risk
that the current charges will be insufficient in the future to cover costs of
administering the Contract. The mortality and expense risk charge is equal, on
an annual basis, to 1.25% of the average daily net assets that you have
invested in each subaccount. If you add the compounding minimum death benefit,
the mortality and expense risk charge increases to 1.40%. This charge is
deducted daily from the subaccounts during the accumulation period. During the
income phase, we charge an annual separate account annuitization charge of
1.40% in place of the mortality and expense risk and administrative charges. If
you annuitize under the Guaranteed Minimum Income Benefit Rider, we charge a
separate account annuitization charge, currently 2.50%, not to exceed 3.50%, in
place of the mortality and expense risk and administrative charges.
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If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge more than covers actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
ADMINISTRATIVE CHARGE
We deduct an annual administrative charge to cover the costs of
administering the Contracts. This charge is assessed daily and is equal to
0.40% per year of the average daily net assets that you have invested in each
subaccount. This charge is deducted from the subaccounts during the
accumulation period.
GUARANTEED MINIMUM INCOME BENEFIT RIDER CHARGE
Prior to annuitization, a Rider charge, currently 0.30% annually of the
minimum annuitization value, is deducted on each Contract anniversary and on
the termination date of the Rider (including Contract surrender and upgrades of
minimum annuitization value). We may change the Rider charge percentage in the
future if you choose to upgrade the minimum annuitization value, or for future
issues of the Rider, but it will never be greater than 0.50% annually. We
deduct the Rider charge from the fixed account and from each subaccount in
proportion to the amount of annuity value in each account.
We will waive the Rider charge on any Contract anniversary if the annuity
value exceeds the Rider charge waiver threshold (currently 2.0) times the
minimum annuitization value. For instance, if your annuity value on the seventh
Contract anniversary is $100,000, your minimum annuitization value is $45,000
and the Rider charge waiver threshold is 2.0, we will waive the Rider charge on
that anniversary because $100,000 is greater than $90,000 ($45,000 x 2.0). We
may, at our discretion, change the Rider charge waiver threshold in the future
if you choose to upgrade the minimum annuitization value, or for future issues
of the Rider, but it will never be greater than 2.5 times the minimum
annuitization value.
SEPARATE ACCOUNT ANNUITIZATION CHARGE
If you annuitize under the Rider, a daily separate account annuitization
charge, equal to an annual rate of 2.50% of the daily net asset values in the
subaccounts, is reflected in the amount of the variable payments you receive.
We may change the separate account annuitization charge in the future if you
choose to upgrade the minimum annuitization value, or for future issues of the
Rider, but it will never be greater than 3.50%. The separate account
annuitization charge is deducted in place of the Contract's mortality and
expense risk charge and the administrative charge.
ANNUAL CONTRACT CHARGE
We deduct an annual Contract charge of $30 from your annuity value on each
Contract anniversary and at surrender. We deduct this charge from the fixed
account and each subaccount in proportion to the amount of annuity value in
each account. We deduct this charge to cover our costs of administering the
Contracts. We currently waive this charge if either the annuity value, or the
total premium payments, minus all partial surrenders (including any surrender
charges), equals or exceeds $50,000 on the Contract anniversary for which the
charge is payable.
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TRANSFER CHARGE
You are allowed to make 12 free transfers per Contract year. If you make
more than 12 transfers per Contract year, we charge $10 for each additional
transfer. We deduct the charge from the amount transferred. Dollar cost
averaging and asset rebalancing transfers are considered transfers. All
transfer requests made on the same day are treated as a single request. We
deduct the charge to compensate us for the cost of processing the transfer.
LOAN PROCESSING FEE
If you take a Contract loan, we will impose a $30 loan processing fee. You
have the option to either send us a $30 check for this fee or to have us deduct
the $30 from the loan amount. This fee may not be applicable for all states.
This fee covers loan processing and other expenses associated with establishing
and administering the loan reserve. Only qualified Contracts can take Contract
loans.
CHANGE IN ALLOCATION FEE
You may change the allocation of future premium payments. The request for
a change of allocations must be in a manner satisfactory to us. We reserve the
right to charge a fee of $25 for each change of allocation in excess of one per
Contract quarter. The allocation change will be effective on the date the
request for a change is recorded by us.
PREMIUM TAXES
Some states assess premium taxes on the premium payments you make.
Currently, we do not deduct these taxes at the time you make a premium payment.
However, we will deduct the total amount of premium taxes, if any, from the
annuity value when:
o you elect to begin receiving annuity payments;
o you surrender the Contract;
o you request a partial surrender; or
o a death benefit is paid.
Generally, premium taxes range from 0% to 3.50%, depending on the state.
FEDERAL, STATE AND LOCAL TAXES
We may in the future deduct charges from the Contract for any taxes we
incur because of the Contract. However, no deductions are being made at the
present time.
SURRENDER CHARGE
During the accumulation period, you may surrender part or all of the
annuity value. We impose a surrender charge to help us recover sales expenses,
including broker-dealer compensation and printing, sales literature and
advertising costs. We deduct this charge from your annuity value at the time
you request the partial or complete surrender.
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If you take a partial surrender or if you surrender your Contract
completely, we will deduct a surrender charge of up to 8.0% of premium payments
surrendered within nine years after we receive a premium payment. We calculate
the surrender charge on the full amount we must withdraw from your annuity
value in order to pay the surrender, including the surrender charge. To
calculate surrender charges, we treat surrenders as coming first from the
oldest premium payment, then the next oldest and so forth.
The following schedule shows the surrender charges that apply during the
nine years following each premium payment:
NUMBER OF MONTHS SINCE SURRENDER
PREMIUM PAYMENT DATE CHARGE
---------------------- ---------
12 or less 8%
13 through 24 8%
25 through 36 8%
37 through 48 7%
49 through 60 6%
61 through 72 5%
73 through 84 4%
85 through 96 3%
97 through 108 2%
109 or more 0%
Keep in mind that partial and complete surrenders may be taxable, and if
made before age 591/2, may be subject to a 10% federal penalty tax. For tax
purposes, partial and complete surrenders are considered to come from earnings
first.
There are two ways that you may make a partial surrender and we will not
deduct the full surrender charge:
1. Partial Surrenders Up to the Free Amount. During any Contract year, you
may request a partial surrender and we will not impose a surrender charge on
any amount up to the maximum free amount. However, if you later completely
surrender your Contract while surrender charges still apply, we will deduct
from your annuity value the charge we would have deducted if there had been no
free amount. For the first partial surrender under the Contract, the maximum
free amount you can partially surrender without a surrender charge is the
greater of (A) earnings in the Contract, or (B) 10% of premiums. For all
subsequent partial surrenders, the maximum free amount you can partially
surrender without a surrender charge is (A) or (B), adjusted to reflect prior
partial surrenders, according to the following formula:
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(A) is calculated as:
(i) the annuity value on the date of the partial surrender; plus
(ii) the net amount of any previous partial surrenders; minus
(iii) the total of all premiums you have paid; minus
(iv) the total of any Premium Enhancement amounts; minus
(v) any amounts previously surrendered under (A).
and
(B) is equal to:
(i) 10% of the annuity value on the date of the partial surrender; minus
(ii) any amounts you partially surrendered during the Contract year in
which the partial surrender was requested.
If the partial surrender is less than the value of (A), the partial
surrender will be taken completely from (A). If the partial surrender is in
excess of (A), but less than the value of (B), the partial surrender will be
taken first from (A), with the excess taken from (B). If (A) is ever less than
or equal to zero, the partial surrender will be taken entirely from (B).
For example, assume that you make a $100,000 premium payment to your
Contract at issue, receive a Premium Enhancement of $4,500, and make no more
premium payments. Also assume at the end of the 13th Contract month there is an
annuity value of $120,000 before a partial surrender of $15,500 is taken out
surrender charge free (the greater of $15,500 under (A) ($120,000 - $100,000 -
$4,500), or $12,000 under (B) ($120,000 x 10%)).
If, at the end of the 19th Contract month, there is an annuity value of
$106,000 before a partial surrender of $20,000 is taken out, the surrender
charge on this partial surrender will be calculated as follows:
(A)(i) $106,000 is the annuity value on the date of the partial
surrender; and is added to
(A)(ii) $15,500 is the net amount of the partial surrender that
occurred in the 13th month; minus
(A)(iii) $100,000 is the total of all premiums paid; minus
(A)(iv) $4,500 is the total of any Premium Enhancement amounts; minus
(A)(v) $15,500 is the total of any growth in the Contract previously
surrendered.
The total for (A) is: $106,000 + $15,500 - $100,000 - $4,500 - $15,500 =
$1,500
OR
(B)(i) $10,600 is 10% of the annuity value; minus
(B)(ii) $15,500.
The total for (B) is: $10,600 - $15,500 = $-4,900.
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The maximum amount of this partial surrender available without a surrender
charge is $1,500 (A).
The portion of this partial surrender which is subject to a surrender
charge is $20,000 - $1,500 = $18,500.
The surrender charge is calculated to be $1,608.70 (8% of $20,108.70).
[$20,108.70 - $1,608.70 = $18,500]
The total amount we will deduct from your annuity value for the surrender
will be $21,608.70 which includes the surrender charge. You will receive
$20,000.
2. Systematic Partial Surrenders. During any Contract year, you may make a
systematic partial surrender on a monthly, quarterly, semi-annual or annual
basis without a surrender charge. Systematic partial surrenders must be at
least $50. The amount of the systematic partial surrender may not exceed 10% of
the annuity value at the time the surrender is made, divided by the number of
surrenders made per calendar year. We reserve the right to discontinue
systematic partial surrenders if any surrender would reduce your annuity value
below $10,000.
You may elect to begin or discontinue systematic partial surrenders at any
time. However, we must receive written notice at least 30 days prior to the
date systematic partial surrenders are to be discontinued. (See Systematic
Partial Surrenders on p. 42.)
Nursing Care Facility Waiver. If your Contract contains a nursing care
facility waiver, we will waive the surrender charge, provided:
o you (or any joint owner) have been confined to a nursing care facility
for 30 consecutive days or longer;
o your confinement began after the Contract date; and
o you provide us with satisfactory written evidence of your confinement,
including dates, at the time you make each request for partial
surrender or complete surrender.
We will waive the surrender charge under the provision only for partial
and complete surrenders made during your confinement or within two months after
your confinement ends. This waiver may not be available in all states.
If you take a partial or complete surrender under the nursing care
facility waiver, the amount of your surrender value will be reduced by the
total Premium Enhancements we credited to your annuity value during the twelve
months before the partial or complete surrender.
Terminal Condition Waiver. If your Contract contains a terminal condition
waiver, we will waive the surrender charge upon a complete or partial
surrender, provided:
o You (or any joint owner) is diagnosed with a terminal condition after
the Contract date;
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o you (or any joint owner) provide a written statement acceptable to us
and signed by a physician;
o the written statement provides the physician's diagnosis and prognosis
of your (or any joint owner's) non-correctable medical condition; and
o the written statement says with reasonable medical certainty that the
non-correctable medical condition will result in death within 12 months
from the date of the written statement, taking into consideration
ordinary and reasonable medical care, advice and treatment available in
the same or similar communities.
We will waive all surrender charges upon receipt of a complete or partial
surrender request if you include such a written statement from a physician with
your request. The minimum amount that you may partially surrender under this
waiver is $1,000. If you request a complete surrender, or a partial surrender
for an amount that reduces the annuity value below the minimum balance required
under your Contract, we will pay you the Contract's complete annuity value and
your Contract will terminate. This waiver may not be available in all states
The surrender value will be reduced by the total Premium Enhancements we
credited to your annuity value during the twelve months before the complete or
partial surrender under the terminal condition waiver provision
NIMCRUT Contracts. The Contract may be utilized to fund a Net Income
Makeup Charitable Remainder Unitrust (NIMCRUT). If an owner of a NIMCRUT takes
a partial surrender from a NIMCRUT Contract, we will deduct surrender charges.
However, once each calendar quarter, the NIMCRUT owner may surrender from the
NIMCRUT Contract any portion of the annuity value that is greater than the
total premium payments made, then we will not deduct surrender charges on such
surrenders.
If the NIMCRUT owner surrenders the Contract completely within the
surrender charge period, we will deduct surrender charges as specified above.
The surrender charges will be applied to total premium payments made, less any
previous surrenders on which you paid surrender charges. See Taxes--Net Income
Makeup Charitable Remainder Unitrusts NIMCRUTs) page .
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount is reduced by the fees and
expenses paid by the portfolios. A description of these expenses is found in
the fund prospectus and in the Annuity Contract Fee Table (see page ) in this
prospectus.
REDUCED OR WAIVED CHARGES AND EXPENSES TO EMPLOYEES
We may reduce or waive the surrender charge and annual Contract charge for
Contracts sold to large groups of full-time employees of the same employer,
including
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directors, officers and full-time employees of Western Reserve or its
affiliates, or other groups where sales to the group reduce our administrative
expenses.
6. TAXES
NOTE: Western Reserve has prepared the following information on federal
income taxes as a general discussion of the subject. It is not intended as tax
advice to any individual. You should consult your own tax advisor about your
own circumstances. We believe that the Contract qualifies as an annuity
contract for federal income tax purposes and the following discussion assumes
it so qualifies. We have included an additional discussion regarding taxes in
the SAI.
ANNUITY CONTRACTS IN GENERAL
Deferred annuity contracts are a way of setting aside money for future
needs like retirement. Congress recognized how important saving for retirement
is and provided special rules in the Code for annuities.
Simply stated, these rules provide that you will not be taxed on the
earnings, if any, on the money held in your annuity Contract until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
Contract -- qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your Contract until a
distribution occurs - either as a partial or complete surrender or as annuity
payments.
When a non-natural person (e.g., corporation or certain other entities
other than tax-qualified trusts) owns a nonqualified Contract, the Contract
will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NONQUALIFIED CONTRACTS
If you purchase the Contract under an individual retirement annuity, a
403(b) plan, 457 plan, or pension or profit sharing plan, your Contract is
referred to as a qualified Contract.
If you purchase the Contract as an individual and not under a qualified
Contract, your Contract is referred to as a nonqualified Contract.
Because variable annuity contracts provide tax deferral whether purchased
as a qualified Contract or nonqualified Contract, you should consider whether
the features and benefits unique to variable annuities are appropriate for your
needs when purchasing a qualified Contract.
A qualified Contract may be used in connection with the following plans:
o Individual Retirement Annuity (IRA): A traditional IRA allows
individuals to make contributions, which may be deductible, to the
Contract. A Roth IRA
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also allows individuals to make contributions to the Contract, but it
does not allow a deduction for contributions. Roth IRA distributions
may be tax-free if the owner meets certain rules.
o Tax-Sheltered Annuity Plan (403(b) Plan): A 403(b) plan may be made
available to employees of certain public school systems and tax-exempt
organizations and permits contributions to the Contract on a pre-tax
basis.
o Corporate Pension, Profit-Sharing and H.R. 10 Plans: Employers and
self-employed individuals can establish pension or profit-sharing plans
for their employees or themselves and make contributions to the
Contract on a pre-tax basis.
o Deferred Compensation Plan (457 Plan): Certain governmental and
tax-exempt organizations can establish a plan to defer compensation on
behalf of their employees through contributions to the Contract.
There are limits on the amount of annual contributions you can make to
these plans. Other restrictions may apply. The terms of the plan may limit your
rights under a qualified Contract. You should consult your legal counsel or tax
advisor if you are considering purchasing a Contract for use with any
retirement plan. We have provided more detailed information on these plans and
the tax consequences associated with them in the SAI.
PARTIAL AND COMPLETE SURRENDERS -- NONQUALIFIED CONTRACTS
If you make a partial surrender from your Contract, the Code treats that
surrender as first coming from earnings and then from your premium payments.
When you make a partial surrender you are taxed on the amount of the surrender
that is earnings. When you make a complete surrender you are generally taxed on
the amount that your surrender proceeds exceeds your premiums paid. Loans and
pledges or assignments are taxed in the same manner as surrenders. The Premium
Enhancement(s) will be considered earnings. Different rules apply for annuity
payments.
The Code also provides that surrendered earnings may be subject to a
penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some surrenders will be exempt from the penalty. They
include any amounts:
o paid on or after the taxpayer reaches age 591/2;
o paid after the taxpayer dies;
o paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
o paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
o paid under an immediate annuity; or
o which come from premium payments made prior to August 14, 1982.
MULTIPLE CONTRACTS
All nonqualified, deferred annuity Contracts entered into after October
21, 1988 that we issue (or our affiliates issue) to the same owner during any
calendar year are to be
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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. You should consult a
competent tax advisor before purchasing more than one Contract or other annuity
contracts.
DIVERSIFICATION AND DISTRIBUTION REQUIREMENTS
The Code provides that the underlying investments for a nonqualified
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. Nonqualified and qualified Contracts must
meet certain distribution requirements upon an owner's death in order to be
treated as an annuity contract. A qualified Contract (except a Roth IRA) must
also meet certain distribution requirements during the owner's life. These
diversification and distribution requirements are discussed in the SAI. We may
modify the Contract to attempt to maintain favorable tax treatment.
PARTIAL SURRENDERS -- QUALIFIED CONTRACTS
The above information describing the taxation of nonqualified Contracts
does not apply to qualified Contracts. There are special rules that govern
qualified Contracts, including rules restricting when amounts can be paid from
the Contracts and providing that a penalty tax may be assessed on amounts
partially surrendered from the Contract prior to the date you reach age 591/2,
unless you meet one of the exceptions to this rule. We have provided more
information in the SAI.
PARTIAL SURRENDERS -- 403(B) CONTRACTS
The Code limits partial surrenders of premium payments from certain 403(b)
Contracts. Partial surrenders generally can only be made when an owner:
o reaches age 591/2;
o leaves his/her job;
o dies;
o becomes disabled (as that term is defined in the Code); or
o in the case of hardship. However, in the case of hardship, the owner
can only partially surrender the premium payments and not any earnings.
NET INCOME MAKEUP CHARITABLE REMAINDER UNITRUSTS (NIMCRUTS)
Issues arising in connection with the ownership of certain annuity
products by charitable remainder trusts are currently under extensive study by
the Internal Revenue Service. You should consult a competent legal or tax
advisor before you purchase a Contract by, or transfer a Contract to, a
charitable remainder trust.
PARTIAL AND COMPLETE SURRENDERS
In the case of a partial surrender, systematic partial surrender, or
complete surrender distributed to a participant or beneficiary under a
qualified Contract (other than a Roth IRA
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or a qualified Contract 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 premium 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 surrender, systematic partial
surrender, or complete surrender under a nonqualified Contract before the
maturity date, amounts received are first treated as taxable income to the
extent that the annuity value immediately before the partial surrender,
systematic partial surrender, or complete surrender exceeds the "investment in
the contract" at that time. Any additional amount partially surrendered,
applied to a systematic partial surrender or complete surrender is not taxable.
In the event of a partial surrender or systematic partial surrender from, or
complete surrender of, a nonqualified Contract, we 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.
Loans and pledges or assignment of nonqualified Contracts are taxed in the
same manner as partial surrenders from such Contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
We may distribute amounts from the Contract because of the death of an
owner or the annuitant. Generally, such amounts are includable in the income of
the recipient:
o if distributed in a lump sum, these amounts are taxed in the same
manner as a complete surrender; or
o if distributed under an annuity payment option, these amounts are taxed
in the same manner as annuity payments.
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 generally the total premium payments, less amounts received which were
not includable in gross income. The Premium Enhancement(s) that we add to your
annuity value are not included in the "investment in the contract."
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment
option you select, in general, for nonqualified and certain qualified
Contracts, only a portion of the annuity payments you receive will be
includable in your gross income.
The excludable portion of each annuity payment you receive generally will
be determined as follows:
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o FIXED PAYMENTS -- by dividing the "investment in the contract" on the
maturity date by the total expected value of the annuity payments for
the term of the payments. This is the percentage of each annuity
payment that is excludable.
o VARIABLE PAYMENTS -- by dividing the "investment in the contract" on
the maturity date by the total number of expected periodic payments.
This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once
the "investment in the contract" has been fully recovered, the full amount of
any additional annuity payments is includable in gross income.
If we permit you to select more than one annuity payment option, special
rules govern the allocation of the Contract's entire "investment in the
contract" to each such option, for purposes of determining the excludable
amount of each payment received under that option. We advise you to consult a
competent tax advisor as to the potential tax effects of allocating amounts to
any particular annuity payment option.
If, after the maturity date, annuity payments stop because of an
annuitant's death, the excess (if any) of the "investment in the contract" as
of the maturity date over the aggregate amount of annuity payments received
that was excluded from gross income is generally allowable as a deduction for
your last tax return.
It is unclear whether your annuity payments under the Guaranteed Minimum
Income Benefit Rider will be treated as fixed payments or as variable payments,
for federal tax purposes. You should consult a competent tax advisor with
respect to this issue.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS
If you transfer your ownership or assign a Contract, designate an
annuitant or other beneficiary who is not also the owner, select certain
maturity dates, or change annuitants, you may trigger certain income or gift
tax consequences that are beyond the scope of this discussion. If you
contemplate any such transfer, assignment, selection, or change, you should
contact a competent tax advisor with respect to the potential tax effects of
such a transaction.
POSSIBLE TAX LAW CHANGES
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 otherwise. You should consult a tax advisor with respect to
legislative developments and their effect on the Contract.
7. ACCESS TO YOUR MONEY
PARTIAL AND COMPLETE SURRENDERS
You can have access to the money in your Contract in several ways:
o by making either a partial or complete surrender; or
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o by taking annuity payments.
If you want to surrender your Contract completely, you will receive the
cash value, which equals the annuity value of your Contract, minus:
o any surrender charges;
o any premium taxes;
o any loans;
o the annual Contract charge; and
o the Guaranteed Minimum Income Benefit Rider charge, if applicable.
No partial surrender is permitted if it would reduce the cash value below
$10,000. You may not make partial surrenders from the fixed account unless we
consent. Unless you tell us otherwise, we will take the partial surrender from
each of the investment choices in proportion to the cash value.
Unless we otherwise consent, the minimum amount available each time you
request a partial surrender is $500.
Remember that any partial surrender you make will reduce the annuity
value. Under some circumstances, a partial surrender will reduce the death
benefit (and the minimum annuitization value under the Guaranteed Minimum
Income Benefit Rider) by more than the dollar amount of the partial surrender.
See Section 9, Death Benefit, and the SAI for more details. Partial surrenders
will also reduce the amount of future Premium Enhancements.
Income taxes, federal tax penalties and certain restrictions may apply to
any partial or complete surrender you make.
We must receive a properly completed surrender request which must contain
your original signature. If you live in a community property state, your spouse
must also sign the surrender request. We will accept fax or telephone requests
for partial surrenders as long as the surrender proceeds are being sent to the
address of record. The maximum amount you may request by fax or telephone is
$50,000.
When we incur extraordinary expenses, such as overnight mail expenses, for
expediting delivery of your partial or complete surrender payment, we will
deduct that charge from the payment. We charge $20 for an overnight delivery.
For your protection, we will require a signature guarantee for:
o all requests for partial or complete surrenders over $500,000; or
o where the partial or complete surrender proceeds will be sent
to an address other than the address of record.
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All signature guarantees must be made by:
o a national or state bank;
o a member firm of a national stock exchange; or
o any institution that is an eligible guarantor under SEC rules and
regulations.
Notarization is not an acceptable form of signature guarantee.
If the Contract's owner is not an individual, additional information may
be required. If you own a qualified Contract, the Code may require your spouse
to consent to any surrender. Other restrictions will apply to Section 403(b)
qualified Contracts and Texas Optional Retirement Program Contracts. For more
information, call us at 1-800-851-9777.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the separate account for a partial or
complete surrender, a death benefit, or the death of the owner of a
nonqualified Contract, will generally occur within seven business days from the
date all required information is received by us. We may be permitted to defer
such payment from the separate account if:
o the NYSE is closed for other than usual weekends or holidays or trading
on the Exchange is otherwise restricted; or
o an emergency exists as defined by the SEC or the SEC requires that
trading be restricted; or
o the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred
under these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right
to defer payment of transfers, partial or complete surrenders and loan amounts
from the fixed account for up to six months.
PARTIAL SURRENDERS AND PREMIUM ENHANCEMENTS
[ADD DESCRIPTION AND EXAMPLE]
SYSTEMATIC PARTIAL SURRENDERS
You can elect to receive regular payments from your Contract without
paying surrender charges by using systematic partial surrenders. You can
partially surrender up to 10% of your cash value annually (or up to 10% of your
initial premium payment if a new Contract), in equal monthly, quarterly,
semi-annual or annual payments of at least $50. Your initial premium payment,
if a new Contract, or your annuity value, if an existing Contract, must equal
at least $25,000. We will not process a systematic partial surrender if the
cash value for the entire Contract would be reduced below $10,000. No
systematic partial surrenders are permitted from the fixed account without our
prior consent.
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You may stop systematic partial surrenders at any time but we must receive
written notice at least 30 days prior to the date systematic partial surrenders
are to be discontinued. We reserve the right to discontinue offering systematic
partial surrenders 30 days after we send you written notice. Systematic partial
surrenders are not available if you have elected the dollar cost averaging or
asset rebalancing program.
Income taxes, federal tax penalties and other restrictions may apply to
any systematic partial surrender you receive.
CONTRACT LOANS FOR QUALIFIED CONTRACTS
You can take Contract loans during the accumulation period when the
Contract:
o is used in connection with a Tax-Sheltered Annuity Plan under Section
403(b) of the Code;
o is purchased by a pension, profit-sharing, or other similar plan under
Section 401(a) of the Code (including Section 401(k) plans); and
o has been in force for at least 10 days.
The maximum amount you may borrow against the Contract is the lesser of:
o 50% of the annuity value; or
o $50,000 reduced by the highest outstanding loan balance during the one
year period immediately prior to the loan date. However, if the annuity
value is less than $20,000, the maximum you may borrow against the
Contract is the lesser of 80% of the annuity value or $10,000.
The minimum loan amount is $1,000 (unless otherwise required by state
law). You are responsible for requesting and repaying loans that comply with
applicable tax requirements, and other laws, such as the Employment Retirement
Income Security Act of 1974 ("ERISA"). Accordingly, you should consult a
competent tax advisor before requesting a Contract loan.
The loan amount will be withdrawn from your investment choices and
transferred to the loan reserve. The loan reserve is part of the fixed account
and is used as collateral for all Contract loans. We reserve the right to
postpone distributing the loan amount from the fixed account for up to six
months, if required.
On each Contract anniversary we will compare the amount of the Contract
loan to the amount in the loan reserve. If all Contract loans and unpaid
accrued interest due on the loan exceed the amount in the loan reserve, we will
withdraw the difference and transfer it to the loan reserve. If the amount of
the loan reserve exceeds the amount of the outstanding Contract loan, we will
withdraw the difference from the loan reserve and transfer it in accordance
with your current premium payment allocation. We reserve the right to transfer
the excess to the fixed account if the amount used to establish the loan
reserve was transferred from the fixed account.
If all Contract loans and unpaid interest due on the loan exceeds the cash
value, we will mail to your last known address and to any assignee of record a
notice stating the
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amount due in order to reduce the loan amount so that the loan no longer
exceeds the cash value. If the excess amount is not paid within 31 days after
we mail the notices, the Contract will terminate without value.
You can repay any Contract loan in full:
o while the Contract is in force, and
o during the accumulation period.
NOTE CAREFULLY: If you do not repay your Contract loan, we will subtract
the amount of the unpaid loan balance plus interest from:
o the amount of any death benefit proceeds; or
o the amount we pay upon a partial or complete surrender; or
o the amount we apply on the maturity date to provide annuity payments;
or
o the minimum annuitization value if you selected the Guaranteed Minimum
Income Benefit Rider and elect to annuitize under the Rider.
You must pay interest on the loan at the rate of 6% per year. We deduct
interest in arrears. Amounts in the loan reserve will earn interest at a
minimum guaranteed effective annual interest rate of 4%. Principal and interest
must be repaid:
o in level quarterly or monthly payments over a 5-year period; or
o over a 10, 15 or 20-year period, if the loan is used to buy
your principal residence.
An extended repayment period cannot go beyond the year you turn 701/2.
If:
o a repayment is not received within 31 days from the original due date;
Then:
o a distribution of all Contract loans and unpaid accrued interest, and
any applicable charges, including any surrender charge, will take
place.
This distribution will be reported as taxable to the Internal Revenue
Service, may be subject to income and penalty tax, and may cause the Contract
not to qualify under Section 403(b) of the Code.
You may fax your loan request to us at 727-299-1620.
The loan date is the date we process the loan request. We charge a $30 fee
to cover loan processing and expenses associated with establishing and
administering the loan reserve. We reserve the right to limit the number of
Contract loans to one per Contract year.
Contract loans may not be available in all states.
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8. PERFORMANCE
We periodically advertise performance of the subaccounts and investment
portfolios. We may disclose at least four different kinds of performance.
First, we may disclose standardized total return figures for the
subaccounts that reflect the deduction of all charges assessed during the
accumulation period under the Contract, including the mortality and expense
risk charges, the administrative charge, the annual Contract charge, the
Guaranteed Minimum Income Benefit Rider charge and the surrender charge. THESE
FIGURES ARE BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE SUBACCOUNTS SINCE
THEIR INCEPTION.
Second, we may disclose total return figures on a non-standardized basis.
This means that the data may be presented for different time periods and
different dollar amounts. The data will not be reduced by the surrender charge
currently assessed under the Contract. We will only disclose non-standardized
performance data if it is accompanied by standardized total return data.
Third, we may present historic performance data for the portfolios since
their inception reduced by some or all fees and charges under the Contract.
Such adjusted historic performance includes data that precedes the inception
dates of the subaccounts, but is designed to show the performance that would
have resulted if the Contract had been available during that time.
Fourth, we may include in our advertising and sales materials,
tax-deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax-deferred investment programs,
based on selected tax brackets.
The fund prospectus presents the total return of certain existing
SEC-registered funds that are managed by sub-advisers to the portfolios. These
funds have investment objectives, policies and strategies that are
substantially similar to those of certain portfolios. We call the funds the
"Similar Sub-Advised Funds." None of the fees and charges under the Contract
has been deducted from the performance data of the Similar Sub-Advised Funds.
If Contract fees and charges were deducted, the investment returns would be
lower. The Similar Sub-Advised Funds are not available for investment under the
Contract.
Appendix B contains performance information that you may find useful. It
is divided into various parts, depending upon the type of performance
information shown. Future performance will vary and future results will not be
the same as the results shown.
9. DEATH BENEFIT
We will pay a death benefit to the beneficiary, under certain
circumstances, if you are both the owner and the annuitant, and you die during
the accumulation period. (If you are not the annuitant, a death benefit may or
may not be paid. See below.) The beneficiary may choose an annuity payment
option, or may choose to receive a lump sum.
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WHEN WE PAY A DEATH BENEFIT
BEFORE THE MATURITY DATE. We will pay a death benefit to your beneficiary
IF:
o you are both the annuitant and the owner of the Contract; and
o you die before the maturity date.
If the only beneficiary is your surviving spouse, then he or she may elect
to continue the Contract as the new annuitant and owner, instead of receiving
the death benefit.
Federally prescribed mandatory distribution requirements apply to the
annuity value upon the death of any owner or annuitant. These restrictions are
detailed in the SAI.
After the Maturity Date. The death benefit payable, if any, on or after
the maturity date depends on the annuity payment option selected. See Fixed
Annuity Options and Variable Annuity Options on pages 15 and 16 for a
description of the annuity payment options. Please note that not all payment
options provide for a death benefit.
If:
o you are not the annuitant; and
o you die on or after the maturity date; and
o the entire interest in the Contract has not been paid to you;
Then:
o any remaining value in the Contract will be distributed at least as
rapidly as under the method of distribution being used as of the date
of the owner's death.
WHEN WE DO NOT PAY A DEATH BENEFIT
NO DEATH BENEFIT IS PAID IN THE FOLLOWING CASES:
If:
o you are not the annuitant; and
o the annuitant dies prior to the maturity date;
Then:
o you will become the new annuitant and the Contract will continue.
If:
o you are not the annuitant; and
o you die prior to the maturity date;
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Then:
o if there is a surviving joint owner, then that person becomes the new
owner. The new owner generally must surrender the Contract for the
annuity value within five years of your death.
NOTE CAREFULLY: If the owner does not name a successor owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or
other instrument, unless we receive written notice of the trust as a successor
owner signed prior to the owner's death, that trust may not exercise ownership
rights to the Contract. It may be necessary to open a probate estate in order
to exercise ownership rights to the Contract if no successor owner is named in
a written notice received by us.
STANDARD DEATH BENEFIT
Death benefit provisions may differ from state to state. The death benefit
may be paid as a lump sum or as annuity payments but in all events will be paid
in accordance with any applicable federal (or state) laws, rules or
regulations. If the annuitant dies during the accumulation period, the standard
death benefit will be the greatest of:
o ANNUITY VALUE -- on the death report day, reduced by the amount of
any Premium Enhancements credited to the annuity value during the
twelve month period before the death report day; or
o RETURN OF PREMIUM -- total premium payments (not including Premium
Enhancements), less partial surrenders; or
o ANNUAL STEP-UP -- on each Contract anniversary before the annuitant's
81st birthday, a new "stepped-up" death benefit is determined. The
stepped-up death benefit is equal to:
o the highest annuity value on any Contract anniversary before the
annuitant's 81st birthday. If the Contract anniversary with the
highest annuity value occurs during the twelve month period before
the death report day, then the highest annuity value will be
reduced by the amount of any Premium Enhancements credited to the
annuity value from the beginning of this twelve month period to
that Contract anniversary. The highest annuity value will be
increased for any premium payments you have made, but not
increased for the Premium Enhancements applicable to those
premiums, and decreased for any adjusted partial surrenders we
have paid to you, following the Contract anniversary on which the
highest annuity value occurs.
COMPOUNDING MINIMUM DEATH BENEFIT
On the Contract application, you may select the compounding minimum death
benefit to the Contract for an additional charge. This option is not available
to annuitants age 74 or older on the Contract date. You may not select this
option after the Contract has been issued.
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This option provides the greater of:
o the standard death benefit; or
o the compounding minimum death benefit. This benefit equals total
premium payments paid plus the Premium Enhancement corresponding to the
initial premium payment only, plus interest at an effective annual rate
of 5% (in most states) from the date of the premium payment to the date
of death, less any adjusted partial surrender(s), including interest on
any partial surrender at the 5% rate from the date of partial surrender
to the date of death. Interest is not credited after your 81st
birthday. If you select this option, then the mortality and expense
risk charge will increase to 1.40%.
EFFECT OF ADJUSTED PARTIAL SURRENDER ON CERTAIN DEATH BENEFITS
When you request a partial surrender, we will reduce certain death
benefits under the Contract by an "adjusted partial surrender." Adjusted
partial surrenders will reduce:
o the compounding minimum death benefit, if selected; and
o the annual step-up death benefit.
A partial surrender will reduce the compounding minimum death benefit, if
selected, and the annual step-up death benefit, by the amount of the partial
surrender times the ratio of:
o the amount of the compounding minimum death benefit (and/or annual
step-up death benefit) immediately before the partial surrender, to
o the annuity value immediately before the partial surrender.
We have included a more detailed explanation of this adjustment in the
SAI.
If the compounding minimum death benefit or the annual step-up death
benefit is greater than the annuity value prior to the partial surrender, the
adjusted partial surrender may be more than the amount of your request. For
this reason, if a death benefit is paid after you have made a partial
surrender, then the total amount paid as the death benefit could be less than
the total premium payments.
ALTERNATE PAYMENT ELECTIONS
The beneficiary may elect to receive the death benefit in a lump sum
payment, or (if not your surviving spouse) to receive payment:
1. within 5 years of the date of the annuitant's death;
2. over a specific number of years, not to exceed the beneficiary's life
expectancy, with payments starting within one year of the annuitant's
death; or
3. under a life annuity payout option, with payments starting within one
year of the annuitant's death.
If the beneficiary chooses 1 or 2 above, this Contract remains in effect
and remains in the accumulation period until it terminates at the end of the
elected period. The death benefit
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<PAGE>
becomes the new annuity value. If the beneficiary chooses 3 above, the Contract
remains in effect, but moves into the annuity phase with the beneficiary
receiving payments under a life annuity payout option. Special restrictions
apply to 1 above. See the SAI for more details.
10. OTHER INFORMATION
OWNERSHIP
You, as owner of the Contract, exercise all rights under the Contract
including the right to transfer ownership. You can change the owner at any time
by notifying us in writing. An ownership change may be a taxable event. Joint
owners may be named provided they are husband and wife.
ANNUITANT
The annuitant is the person named in the application to receive annuity
payments. If no person is named, the owner will be the annuitant. As of the
maturity date, and upon our agreement, the owner may change the annuitant or,
if either annuity Option C or Option E has been selected, add a co-annuitant.
On the maturity date, the annuitant(s) will become the payee(s) and receive the
annuity payments.
BENEFICIARY
The beneficiary is the person who receives the death benefit proceeds upon
the death of the annuitant when the owner is a natural person other than the
annuitant. The beneficiary will become the new owner when the owner is not the
same person as the annuitant and the owner dies before the annuitant. You may
change the beneficiary during the lifetime of the annuitant, subject to the
rights of any irrevocable beneficiary. Any change must be made in writing and
received by us at our administrative office and, if accepted, will be effective
as of the date on which the request was signed by the owner. Prior to the
maturity date, if no beneficiary survives the annuitant, the owner, if living,
or the owner's estate will be the beneficiary. In the case of certain qualified
Contracts, the Treasury Regulations prescribe certain limitations on the
designation of a beneficiary. See the SAI for more details on the beneficiary.
ASSIGNMENT
You can also assign the Contract any time during your lifetime. Western
Reserve will not be bound by the assignment until we receive written notice of
the assignment. Western Reserve will not be liable for any payment or other
action we take in accordance with the Contract before we receive notice of the
assignment. An assignment may be a taxable event. There may be limitations on
your ability to assign a qualified Contract, and such assignments may be
subject to tax penalties and taxed as distributions under the Code.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was incorporated under the laws of Ohio on October 1,
1957. It is engaged in the business of writing life insurance policies and
annuity contracts. Western
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Reserve is wholly-owned by First AUSA Life Insurance Company, a stock life
insurance company which is wholly-owned by AEGON USA, Inc. ("AEGON USA"), which
conducts most of its operations through subsidiary companies engaged in the
insurance business or in providing non-insurance financial services. All of the
stock of AEGON USA is indirectly owned by AEGON N.V. of the Netherlands, the
securities of which are publicly traded. AEGON N.V., a holding company,
conducts its business through subsidiary companies engaged primarily in the
insurance business. Western Reserve is licensed in the District of Columbia,
Guam, Puerto Rico and in all states except New York.
THE SEPARATE ACCOUNT
Western Reserve established a separate account, called the WRL Series
Annuity Account, under the laws of the State of Ohio on April 12, 1988. The
separate account is divided into subaccounts, each of which invests exclusively
in shares of a mutual fund portfolio. Currently, there are 23 subaccounts
offered through this Contract. Western Reserve may add, delete or substitute
subaccounts or investments held by the subaccounts, and reserves the right to
change the investment objective of any subaccount, subject to applicable law as
described in the SAI. In addition, the separate account may be used for other
variable annuity contracts issued by Western Reserve.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the policies of the separate account or Western
Reserve.
The assets of the separate account are held in Western Reserve's name on
behalf of the separate account and belong to Western Reserve. However, the
assets underlying the Contracts are not chargeable with liabilities arising out
of any other business Western Reserve may conduct. The income, gains and
losses, realized and unrealized, from the assets allocated to each subaccount
are credited to and charged against that subaccount without regard to the
income, gains and losses from any other of our accounts or subaccounts.
Information about the separate account can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a web site (http://www.sec.gov)
that contains other information regarding the separate account.
VOTING RIGHTS
Western Reserve will vote all shares of the portfolios in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in proportion to those instructions. We will
vote shares for which no timely instructions were received in the same
proportion as the voting instructions we received. However, if we determine
that we are permitted to vote the shares in our own right, we may do so. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate portfolio. More information on voting
rights is provided in the SAI.
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DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("AFSG") is the principal underwriter of the
Contracts. Like Western Reserve, it is an indirect wholly-owned subsidiary of
AEGON USA. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG is registered as a broker/dealer under the Securities Exchange
Act of 1934. It is a member of the National Association of Securities Dealers,
Inc.
The Contracts are offered to the public through broker-dealers licensed
under the federal securities laws and state insurance laws and who have entered
into written sales agreements with AFSG. Western Reserve will generally pay
broker-dealers sales commissions in an amount equal to 4.25% of premium
payments. In addition, broker-dealers may receive trail commissions of 0.90% of
the annuity value in each Contract year, starting at the end of the first
quarter of the ninth Contract year, provided the Contract has an annuity value
of $10,000 or more in the subaccounts. These commissions are not deducted from
premium payments. Certain production, persistency and managerial bonuses may
also be paid. Alternatively, compensation schedules may be structured to pay
lower compensation amounts on premium payments with trail commissions starting
at an earlier duration. 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 the
Contracts is continuous and Western Reserve does not anticipate discontinuing
the offering of the Contracts. However, Western Reserve reserves the right to
do so.
NON-PARTICIPATING CONTRACT
The Contract does not participate or share in the profits or surplus
earnings of Western Reserve. No dividends are payable on the Contract.
VARIATIONS IN CONTRACT PROVISIONS
Certain provisions of the Contracts may vary from the descriptions in this
prospectus in order to comply with different state laws. See your Contract for
variations since any such state variations will be included in your Contract or
in riders or endorsements attached to your Contract.
The fixed account may not be available in all states. Residents of
Washington, Oregon, New Jersey and Massachusetts may not direct or transfer any
money to the fixed account.
YEAR 2000 READINESS DISCLOSURE
We have in place a Year 2000 Project Plan (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 compliant. As of the
date of this prospectus, all of our mission-critical systems are Year 2000
compliant and ready. The Plan is continuing as scheduled, as we continue with
the validation of our mission-critical and non-mission-critical
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systems, including revalidation testing in 1999. In addition, we have
undertaken aggressive initiatives to test all systems that interface with any
third parties and other business partners. All of these steps are aimed at
allowing current operations to remain unaffected by the Year 2000 date change.
As of the date of this prospectus, we have identified and made available
what we believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
Our actions under the Plan are intended to reduce significantly our risk
of a material business interruption based on the Year 2000 issues. Resolving
the Year 2000 computer problem is complex and multifaceted. We cannot know
conclusively whether a response plan is successful until the Year 2000 arrives
(or an earlier date if the systems or equipment address Year 2000 data prior to
the Year 2000). In spite of our efforts or results, our 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 prospectus for information on its preparation for Year 2000.
This statement is a Year 2000 Readiness Disclosure pursuant to Section
3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C.
Section 1 (1998).
IMSA
We are a charter member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
LEGAL PROCEEDINGS
Western Reserve, like other life insurance companies, is involved in
lawsuits. We are not aware of any class action lawsuits naming us as a
defendant or involving the separate 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, we believe that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the separate account, AFSG or Western Reserve.
FINANCIAL STATEMENTS
The financial statements of Western Reserve and the separate account are
included in the SAI. The financial statements of the separate account are not
fully representative of the subaccounts listed in this prospectus, as the
subaccounts have not yet commenced operations.
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Definitions of Special Terms
The Contract -- General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
Administration
Records and Reports
Distribution of the Contracts
Other Products
Custody of Assets
Legal Matters
Independent Accountants
Other Information
Financial Statements
Inquiries and requests for an SAI should be directed to:
Western Reserve Life
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
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APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The subaccounts available under this Contract have not yet commenced
operations. Therefore, there is no history of accumulation unit values for
these subaccounts.
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APPENDIX B
HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STANDARDIZED PERFORMANCE DATA
We may advertise historical yields and total returns for the subaccounts
of the separate account. These figures are based on historical earnings and
will be calculated according to guidelines from the SEC. They do not indicate
future performance.
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT. The yield of the WRL J.P. Morgan
Money Market subaccount is the annualized income generated by an investment in
the subaccount over a specified seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period, not including
capital changes or income other than investment income, is generated each
seven-day period over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but we assume that the
income earned is reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
OTHER SUBACCOUNTS. The YIELD of a subaccount of the separate account,
other than the WRL J.P. Morgan Money Market subaccount, refers to the
annualized income generated by an investment under a Contract in the subaccount
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment.
The TOTAL RETURN of a subaccount assumes that an investment has been held
in the subaccount for various periods of time including a period measured from
the date the subaccount began operations. When a subaccount has been in
operation for 1, 5, and 10 years, the total return for these periods will be
provided, adjusted to reflect current subaccount charges. The total return
quotations will represent the average annual compounded rates of return of
investment of $10,000 in the subaccount as of the last day of each period.
The yield and total return calculations are not reduced by any premium
taxes. For additional information regarding yields and total returns, please
refer to the SAI.
Based on the method of calculation described in the SAI, the standardized
average annual total returns of the subaccounts for periods from inception of
the subaccounts investing in the underlying portfolios to December 31, 1999,
and for the one and five year periods ended December 31, 1999 are shown in
Tables 1 and 2 below. Although the Contract did not exist during the periods
shown in Tables 1 and 2, the returns of the subaccounts shown have been
adjusted to reflect current subaccount charges imposed under the Contract.
Total returns shown in Table 1 reflect deductions of 1.25% for the mortality
and expense risk charge, 0.40% for the administrative charge, $30 for the
annual Contract charge and the applicable surrender charge (based on an annuity
value of $10,000, the annual Contract charge translates into a charge of
0.30%). Total returns shown in Table 2 reflect the standardized total returns
of Table 1, adjusted to reflect 1.40% for the mortality and expense risk charge
(assuming addition of the compounding minimum death benefit), 0.40% for
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the administrative charge, 0.30% for the Guaranteed Minimum Income Benefit
Rider, and $30 for the annual Contract charge. The Guaranteed Minimum Income
Benefit Rider charge has been calculated assuming a Rider charge of 0.30% of
minimum annuitization value ("MAV") and assuming an MAV annual growth rate of
6%. Total returns also assume a complete surrender of the Contract at the end
of the period; therefore, the surrender charge is deducted.
<TABLE>
<CAPTION>
TABLE 1
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT SELECTION OF ANNUAL EXPENSES: 1.65%)
1 YEAR 5 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99 12/31/99*** DATE***
---------- -------- -------- --------------- ----------
<S> <C> <C> <C> <C>
WRL Janus Growth % % % 12/03/92
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % % 12/03/92
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % % 12/03/92
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/96
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** One year data has not been annualized.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
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<TABLE>
<CAPTION>
TABLE 2
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.80%)
1 YEAR 5 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99 12/31/99*** DATE***
---------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C>
WRL Janus Growth % % % 12/03/92
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % % 12/03/92
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % % 12/03/92
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/96
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** One year data has not been annualized.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
57
<PAGE>
NON-STANDARDIZED PERFORMANCE DATA
In addition to the standardized data discussed above, similar performance
data for other periods may also be shown.
We may from time to time also advertise or disclose average annual total
return or other performance data in non-standardized formats for the
subaccounts. The non-standardized performance data may make different
assumptions regarding the amount invested, the time periods shown, or the
effect of partial surrenders or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data as shown in Tables 1 and 2, is also disclosed.
For additional information regarding the calculation of other performance data,
please refer to the SAI.
ADJUSTED HISTORICAL PERFORMANCE DATA. We may disclose 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 subaccounts investing in
the underlying portfolios. This data is designed to show the performance that
would have resulted if the Contract had been in existence during that time,
based on the portfolio's performance. This data assumes that the subaccounts
available under the Contract were in existence for the same period as the
portfolio with a level of charges equal to those currently assessed under the
Contract. This data is not intended to indicate future performance.
Based on the method of calculation described in the SAI, the adjusted
historic average annual total returns for the portfolios for periods from
inception of the portfolios to December 31, 1999, and for the one, five and ten
year periods ended December 31, 1999 are shown in Tables 3 and 4 below. The
total returns of the portfolios have been reduced by all charges currently
assessed under the Contract, as if the Contract had been in existence since the
inception of the portfolio. In Table 3, adjusted total returns for the
portfolios reflect deductions of the 1.25% mortality and expense risk charge,
the administrative charge of 0.40% and the annual Contract charge of $30.
Adjusted total returns shown in Table 4 reflect deductions of 1.40% for the
mortality and expense risk charge (assuming addition of the compounding minimum
death benefit), 0.40% for the administrative charge, 0.30% for the Guaranteed
Minimum Income Benefit Rider and $30 for the annual Contract charge (based on
an annuity value of $10,000, the annual Contract charge translates into a
charge of 0.30%). The Guaranteed Minimum Income Benefit Rider charge has been
calculated assuming a Rider charge of 0.30% of MAV and assuming an MAV annual
growth rate of 6%. Tables 3 and 4 assume a complete surrender of the Contract
at the end of the period, and therefore the surrender charge is deducted.
Tables 5 and 6 assumes that the Contract is not surrendered, and therefore the
surrender charge is not deducted.
58
<PAGE>
The following information is also based on the method of calculation
described in the SAI. The adjusted historical average annual total returns for
periods ended 12/31/99 were as follows:
<TABLE>
<CAPTION>
TABLE 3
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
--------- ------ ------- ------------ --------------
<S> <C> <C> <C> <C>
WRL Janus Growth % % %/dagger/ 10/02/86
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % %/dagger/ 10/02/86
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % %/dagger/ 10/02/86
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/95
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
** One year data has not been annualized.
/dagger/ This percentage represents ten year performance data, rather than data
since portfolio inception.
59
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.80%)
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
--------- ------ ------- ------------ --------------
<S> <C> <C> <C> <C>E
WRL Janus Growth % % %/dagger/ 10/02/86
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % %/dagger/ 10/02/86
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % %/dagger/ 10/02/86
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/95
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
** One year data has not been annualized.
/dagger/ This percentage represents ten year performance data, rather than data
since portfolio inception.
60
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
--------- ------ ------- ------------ --------------
<S> <C> <C> <C> <C>
WRL Janus Growth % % %/dagger/ 10/02/86
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % %/dagger/ 10/02/86
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % %/dagger/ 10/02/86
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/95
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
** One year data has not been annualized.
/dagger/ This percentage represents ten year performance data, rather than data
since portfolio inception.
61
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.80%)
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
--------- ------ ------- ------------ --------------
<S> <C> <C> <C> <C>
WRL Janus Growth % % %/dagger/ 10/02/86
WRL Janus Global % % % 12/03/92
WRL AEGON Bond % % %/dagger/ 10/02/86
WRL AEGON Balanced % % % 03/01/94
WRL Alger Aggressive Growth % % % 03/01/94
WRL VKAM Emerging Growth % % % 03/01/93
WRL LKCM Strategic Total Return % % % 03/01/93
WRL Federated Growth & Income % % % 03/01/94
WRL J.P. Morgan Money Market* % % %/dagger/ 10/02/86
WRL J.P. Morgan Real Estate Securities % N/A % 05/01/98
WRL Third Avenue Value % N/A % 01/02/98
WRL NWQ Value Equity % N/A % 05/01/96
WRL Dean Asset Allocation % % % 01/03/95
WRL C.A.S.E. Growth % N/A % 05/01/95
WRL GE/Scottish Equitable International Equity % N/A % 01/02/97
WRL GE U.S. Equity % N/A % 01/02/97
WRL Goldman Sachs Growth** % N/A % 05/03/99
WRL Goldman Sachs Small Cap** % N/A % 05/03/99
WRL T. Rowe Price Dividend Growth** % N/A % 05/03/99
WRL T. Rowe Price Small Cap** % N/A % 05/03/99
WRL Salomon All Cap** % N/A % 05/03/99
WRL Pilgrim Baxter Mid Cap Growth** % N/A % 05/03/99
WRL Dreyfus Mid Cap** % N/A % 05/03/99
</TABLE>
* Yield more closely reflects current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
** One year data has not been annualized.
/dagger/ This percentage represents ten year performance data, rather than data
since portfolio inception.
62
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM ENHANCER
VARIABLE ANNUITY
Issued through
WRL SERIES ANNUITY ACCOUNT
Offered by
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
570 Carillon Parkway
St. Petersburg, Florida 33716
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the WRL Freedom EnhancerSM Variable Annuity offered by
Western Reserve Life Assurance Co. of Ohio. You may obtain a copy of the
prospectus dated _____________, 2000, by calling 1-800-851-9777, or by writing
to the administrative office, Western Reserve Life, Annuity Department, P.O. Box
9051, Clearwater, Florida 33758-9051. The prospectus sets forth information that
a prospective investor should know before investing in a Contract. Terms used in
the current prospectus for the Contract are incorporated in this Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND SHOULD
BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT AND THE WRL
SERIES ANNUITY ACCOUNT.
DATED: ______________, 2000
WRL00351-5/2000
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS................................................ 1
THE CONTRACT--GENERAL PROVISIONS............................................ 2
Owner.................................................................. 2
Entire Contract........................................................ 2
Misstatement of Age or Gender.......................................... 2
Addition, Deletion or Substitution of Investments...................... 2
Annuity Payment Options................................................ 3
Death Benefit.......................................................... 3
Assignment............................................................. 6
Proof of Age, Gender and Survival...................................... 6
Non-Participating...................................................... 6
Employee and Agent Purchases........................................... 6
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................... 6
Tax Status of the Contract............................................. 6
Taxation of Western Reserve............................................ 9
INVESTMENT EXPERIENCE....................................................... 9
Accumulation Units..................................................... 9
Accumulation Unit Value................................................ 9
Annuity Unit Value and Annuity Payment Rates........................... 10
Guaranteed Minimum Income Benefit Rider - Hypothetical Illustrations... 11
HISTORICAL PERFORMANCE DATA ................................................ 12
Money Market Yields.................................................... 12
Other Subaccount Yields................................................ 13
Total Returns.......................................................... 13
Other Performance Data................................................. 14
Advertising and Sales Literature....................................... 14
PUBLISHED RATINGS........................................................... 15
ADMINISTRATION.............................................................. 15
RECORDS AND REPORTS......................................................... 15
DISTRIBUTION OF THE CONTRACTS............................................... 15
OTHER PRODUCTS.............................................................. 15
CUSTODY OF ASSETS........................................................... 15
LEGAL MATTERS............................................................... 15
INDEPENDENT ACCOUNTANTS..................................................... 16
OTHER INFORMATION........................................................... 16
FINANCIAL STATEMENTS........................................................ 16
<PAGE>
DEFINITIONS OF SPECIAL TERMS
- ---------------------------- --------------------------------------------------
accumulation period The period between the Contract date and the
maturity date while the Contract is in force.
- ---------------------------- ---------------------------------------------------
accumulation unit value An accounting unit of measure used to calculate
subaccount values during the accumulation period.
- ---------------------------- ---------------------------------------------------
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
provision.
- ---------------------------- ---------------------------------------------------
annuity unit value An accounting unit of measure used to calculate
annuity payments from the subaccounts after the
maturity date.
- ---------------------------- ---------------------------------------------------
annuity value The sum of the separate account value and the fixed
account value.
- ---------------------------- ---------------------------------------------------
age The issue age is the annuitant's age on his/her
birthday immediately preceding the Contract date.
Attained age is the issue age plus the number of
completed Contract years. When we use the term
"age" in this SAI, it has the same meaning as
"attained age" in the Contract.
- ---------------------------- ---------------------------------------------------
beneficiary(ies) The person(s) entitled to receive the death benefit
proceeds under the Contract.
- ---------------------------- ---------------------------------------------------
cash value The annuity value less the annual Contract charge,
any applicable premium taxes, any surrender
charge and any Guaranteed Minimum Income Benefit
Rider charge.
- ---------------------------- ---------------------------------------------------
Code The Internal Revenue Code of 1986, as amended.
- ---------------------------- ---------------------------------------------------
Contract date The later of the date on which the initial premium
payment is received and the date that the properly
completed application is received at Western
Reserve's administrative office. It is also the
date when, depending on your state of residence, we
allocate your premium payment(s) either to the
reallocation account or to the fixed account and
the subaccounts you selected on your application.
We measure Contract years and Contract
anniversaries from the Contract date.
- ---------------------------- ---------------------------------------------------
death report day The valuation date on which we receive proof of
annuitant's death and your beneficiary's election
regarding payment.
- ---------------------------- ---------------------------------------------------
fixed account An allocation option under the Contract, other than
the separate account, that provides for
accumulation of premium payments, and options for
annuity payments on a fixed basis. The fixed
account may not be available in all states.
- ---------------------------- ---------------------------------------------------
fixed account value During the accumulation period, a Contract's value
allocated to the fixed account.
- ---------------------------- ---------------------------------------------------
fund WRL Series Fund, Inc., an investment company which
is registered with the U.S. Securities and Exchange
Commission. We reserve the right to add other
registered investment companies to the Contract in
the future.
- ---------------------------- ---------------------------------------------------
in force Condition under which the Contract is active and
the owner is entitled to exercise all rights under
the Contract.
- ---------------------------- ---------------------------------------------------
maturity date The date on which the accumulation period ends and
annuity payments begin. The latest maturity date is
the annuitant's 95th birthday. For Contracts issued
in conjunction with the Net Income Charitable
Remainder Unitrust, the latest maturity date is the
annuitant's 100th birthday.
- ---------------------------- ---------------------------------------------------
NYSE New York Stock Exchange.
- ---------------------------- ---------------------------------------------------
nonqualified Contracts Contracts issued other than in connection with
retirement plans.
- ---------------------------- ---------------------------------------------------
owner (you, your) 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. Joint owners may
be named, provided the joint owners are husband and
wife.
- ---------------------------- ---------------------------------------------------
portfolio A separate investment portfolio of the fund.
- ---------------------------- ---------------------------------------------------
Premium Enhancement Premium Enhancements are amounts added to your
annuity value by Western Reserve. Premium
Enhancements are not considered premiums.
- ---------------------------- ---------------------------------------------------
premium payments Amounts paid by an owner or on the owner's behalf
to Western Reserve as consideration for the
benefits provided by the Contract. When we use the
term "premium payment" in this SAI, it has the
same meaning as "net premium payment" in the
Contract, which means the premium payment less any
applicable premium taxes.
- ---------------------------- ---------------------------------------------------
qualified Contracts Contracts issued in connection with retirement
plans that qualify for special federal income tax
treatment under the Code.
- ---------------------------- ---------------------------------------------------
reallocation account The WRL J.P. Morgan Money Market subaccount.
- ---------------------------- ---------------------------------------------------
reallocation date The date shown on the schedule page of your
Contract when we reallocate all annuity value held
in the reallocation account to the fixed account
and subaccounts you selected. We place your premium
in the reallocation account only if your state
requires us to return the full premium in the event
you exercise your right to cancel. In all other
states, the reallocation date is the Contract date.
- ---------------------------- ---------------------------------------------------
separate account WRL Series Annuity Account, a separate account
composed of subaccounts established to receive and
invest premium payments not allocated to the fixed
account.
- ---------------------------- ---------------------------------------------------
separate account value During the accumulation period, a Contract's value
in the separate account, which equals the total
value in each subaccount.
- ---------------------------- ---------------------------------------------------
Subaccount A subdivision of the separate account that invests
exclusively in the shares of a specified portfolio
and supports the Contracts. Subaccounts
corresponding to each applicable portfolio hold
assets under the Contract during the accumulation
period. Other subaccounts corresponding to each
applicable portfolio will hold assets after the
maturity date if a variable annuity option is
selected.
- ---------------------------- ---------------------------------------------------
Surrender The termination of a Contract at the option of the
owner.
- ---------------------------- ---------------------------------------------------
Valuation date Each day on which the NYSE is open for trading,
except when a subaccount's corresponding portfolio
does not value its shares. Western Reserve is open
for business on each day that the NYSE is open.
- ---------------------------- ---------------------------------------------------
Valuation period The period of time over which we determine the
change in the value of the subaccounts in order to
price accumulation units and annuity units. Each
valuation period begins at the close of normal
trading on the NYSE (currently 4:00 p.m. Eastern
time on each valuation date) and ends at the close
of normal trading of the NYSE on the next valuation
date.
- ---------------------------- ---------------------------------------------------
1
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about Western Reserve and the Contract, which may be of
interest to a prospective purchaser.
THE CONTRACT--GENERAL PROVISIONS
OWNER
The Contract shall belong to the owner upon issuance of the Contract after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the Contract; (2) surrender
the Contract; (3) amend or modify the Contract with Western Reserve's consent;
(4) receive annuity payments or name a payee to receive the payments; and (5)
exercise, receive and enjoy every other right and benefit contained in the
Contract. The exercise of these rights may be subject to the consent of any
assignee or irrevocable beneficiary; and of the owner's spouse in a community or
marital property state.
A joint owner may only be a spouse and may be named in the Contract application
or in a written notice. The surviving joint owner will become the new owner upon
the other joint owner's death, if one joint owner dies before the annuitant. If
the surviving joint owner dies before the annuitant, the surviving joint owner's
estate will become the owner.
NOTE CAREFULLY. If the surviving joint owner's estate becomes the new owner, and
if no probate estate is opened because the surviving joint owner has precluded
the opening of a probate estate by means of a trust or other instrument, unless
Western Reserve has received written notice of the trust as a successor owner
signed prior to the surviving joint owner's death, that trust may not exercise
ownership rights to the Contract. It may be necessary to open a probate estate
in order to exercise ownership rights to the Contract if the necessary written
notice has not been received by Western Reserve.
The owner may change the ownership of the Contract in a written notice. When
this change takes effect, all rights of ownership in the Contract will pass to
the new owner. A change of ownership may have tax consequences.
When there is a change of owner, the change will take effect as of the date
Western Reserve accepts the written notice. We assume 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. Changing the
owner cancels any prior choice of owner, but does not change the designation of
the beneficiary or the annuitant.
ENTIRE CONTRACT
The Contract and any endorsements thereon and the Contract application
constitute the entire contract between Western Reserve and the owner. All
statements in the application are representations and not warranties. No
statement will cause the Contract to be void or to be used in defense of a claim
unless contained in the application.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the annuitant has been misstated, Western Reserve will
change the annuity benefit payable to that which the premium payments would have
purchased for the correct age or gender. The dollar amount of any underpayment
Western Reserve makes shall be paid in full with the next payment due such
person or the beneficiary. The dollar amount of any overpayment made by Western
Reserve due to any misstatement shall be deducted from payments subsequently
accruing to such person or beneficiary. Any underpayment or overpayment will
include interest at 5% per year, from the date of the wrong payment to the date
of the adjustment. The age of the annuitant may be established at any time by
the submission of proof Western Reserve finds satisfactory.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held by
the separate account or that the separate account may purchase. We reserve the
right to eliminate the shares of any 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 our judgment further investment in any portfolio should
become inappropriate in view of the purposes of the separate account. We will
not, however, substitute shares attributable to an owner's interest in a
subaccount without notice to, and prior approval of, the Securities and Exchange
Commission (the "SEC") to the extent required by the Investment Company Act of
1940, as amended (the "1940 Act"), or other applicable law.
We also reserve the right to establish additional subaccounts, 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 subaccounts may be
established when, in the sole discretion of Western Reserve, marketing, tax,
investment or other conditions warrant, and any new subaccounts will be made
2
<PAGE>
available to existing owners on a basis to be determined by Western Reserve. We
may also eliminate one or more subaccounts if, in our sole discretion,
marketing, tax, investment or other conditions warrant.
In the event of any such substitution or change, we 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 us to be in the best interests
of persons having voting rights under the Contracts, the separate account may be
operated as a management company under the 1940 Act, or subject to any required
approval, it may be deregistered under the 1940 Act in the event such
registration is no longer required.
We reserve the right to change the investment objective of any subaccount.
Additionally, if required by law or regulation, we will not materially change an
investment objective of the separate account or of a portfolio designated for a
subaccount unless a statement of 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.
ANNUITY PAYMENT OPTIONS
During the lifetime of the annuitant and prior to the maturity date, the owner
may choose an annuity payment option or change the election. If no election is
made prior to the maturity date, annuity payments will be made under Payment
Option D as Variable Life Income with 10 years of guaranteed payments.
Thirty days prior to the maturity date, we 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 separate account annuity option is
chosen, the owner must include in the written notice the subaccount allocation
of the annuity proceeds as of the maturity date. If we do not receive that form
or other written notice acceptable to us 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 $20 per period. If none of these is possible, a lump sum
payment will be made.
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 Scale G 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 variable payment depends upon the gender (if
consideration of gender is allowed under state law) and 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 2040 As determined by Western Reserve
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
DETERMINATION OF ADDITIONAL 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 subaccount(s).
Each variable annuity payment after the first will be equal to the number of
units attributable to the Contract in each selected subaccount multiplied by the
annuity unit value of that subaccount on the date the payment is processed. The
number of such units is determined by dividing the first payment allocated to
that subaccount by the annuity unit value of that subaccount on the date the
first annuity payment is processed.
DEATH BENEFIT
ADJUSTED PARTIAL SURRENDER. A partial surrender will reduce the amount of your
annual step-up death benefit or compounding minimum death benefit, if selected,
by an amount called the adjusted partial surrender. The reduction depends on the
relationship between the annual step-up death benefit (or compounding minimum
death benefit), and annuity value. The adjusted partial surrender is the amount
of a partial surrender times the ratio of [(a) divided by (b)] where:
(a) is the amount of either death benefit prior to the excess partial surrender;
and
(b) is the annuity value prior to the excess partial surrender.
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<PAGE>
THE FOLLOWING EXAMPLES DESCRIBE THE EFFECT OF SURRENDER ON THE ANNUAL STEP-UP
DEATH BENEFIT OR COMPOUNDING MINIMUM DEATH BENEFIT, AND ANNUITY VALUE.
- --------------------------------------------------------------------------------
EXAMPLE 1
(Assumed Facts for Example)
- --------------------------------------------------------------------------------
$75,000 current annual step-up death benefit (ASUDB) or compounding
minimum death benefit (CMDB) before surrender
- ---------------- ---------------------------------------------------------------
$50,000 current annuity value before surrender
- ---------------- ---------------------------------------------------------------
$75,000 current death benefit (larger of annuity value and ASUDB or
CMDB)
- ---------------- ---------------------------------------------------------------
6% current surrender charge percentage
- ---------------- ---------------------------------------------------------------
$15,000 requested partial surrender
- ---------------- ---------------------------------------------------------------
$10,000 surrender charge-free amount
- ---------------- ---------------------------------------------------------------
$5,000 excess partial surrender-EPS (amount subject to surrender
charge)
- ---------------- ---------------------------------------------------------------
$319.15 surrender charge on EPS = 0.06*(5,319.15)
- ---------------- ---------------------------------------------------------------
$5,319.15 reduction in annuity value due to excess partial surrender =
5000 + 319.15
- ---------------- ---------------------------------------------------------------
$22,500 adjusted partial surrender = $15,000* (75,000/50,000)
- ---------------- ---------------------------------------------------------------
$52,500 new ASUDB or CMDB (after partial surrender) = 75,000 - 22,500
- ---------------- ---------------------------------------------------------------
$34,680.85 new annuity value (after partial surrender) =
50,000 - 10,000 - 5,319.15
- ---------------- ---------------------------------------------------------------
SUMMARY:
Reduction in ASUDB or CMDB = $22,500.00
Reduction in annuity value = $15,319.15
NOTE: The ASUDB or CMDB is reduced more than the annuity value since the ASUDB
or CMDB was greater than the annuity value just prior to the partial surrender.
- --------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
- ---------------- ---------------------------------------------------------------
$50,000 current annual step-up death benefit (ASUDB) or compounding
minimum death benefit (CMDB) before surrender
- ---------------- ---------------------------------------------------------------
$75,000 current annuity value before partial surrender
- ---------------- ---------------------------------------------------------------
$75,000 current death benefit (larger of annuity value and ASUDB or
CMDB)
- ---------------- ---------------------------------------------------------------
6% current surrender charge percentage
- ---------------- ---------------------------------------------------------------
$15,000 requested partial surrender
- ---------------- ---------------------------------------------------------------
$11,250 surrender charge-free amount
- ---------------- ---------------------------------------------------------------
$3,750 excess partial surrender-EPS (amount subject to surrender
charge)
- ---------------- ---------------------------------------------------------------
$239.36 surrender charge on EPS less EIA = 0.06* (3,989.36)
- ---------------- ---------------------------------------------------------------
$3,989.36 reduction in annuity value due to EPS = 3750 + 239.36
- ---------------- ---------------------------------------------------------------
$15,000 adjusted partial surrender = $15,000* (75,000/75,000)
- ---------------- ---------------------------------------------------------------
$35,000 new ASUDB or CMDB (after partial surrender) = 50,000 -15,000
- ---------------- ---------------------------------------------------------------
$59,760.64 new annuity value (after partial surrender) =
75,000 -11,250 - 3,989.36
- ---------------- ---------------------------------------------------------------
SUMMARY:
Reduction in ASUDB or CMDB = $15,000.00
Reduction in annuity value = $15,239.36
NOTE: The ASUDB or CMDB and annuity value are reduced by the same amount since
the annuity value was higher than the ASUDB or AMDB just prior to the partial
surrender.
4
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DEATH OF OWNER. Federal tax law requires that if any owner (including any
surviving joint owner who has become a current owner) dies before the maturity
date, then the entire value of the Contract must generally be distributed within
five years of the date of death of such owner. Special rules apply where (1) the
spouse of the deceased owner is the sole beneficiary, (2) the owner is not a
natural person and the primary annuitant dies or is changed, or (3) any owner
dies after the maturity date. See Certain Federal Income Tax Consequences for a
detailed description of these rules. Other rules may apply to qualified
Contracts.
If the owner (or a surviving joint owner) is not the annuitant and dies before
the annuitant:
o if no beneficiary is named and alive, the owner's estate will become the
new owner. The cash value must be distributed within five years of the
former owner's death;
o if the beneficiary is alive and is the owner's spouse, the Contract will
continue with the spouse as the new owner; or o if the beneficiary is alive
and is not the owner's spouse, the beneficiary will become the new owner.
The cash value must be distributed either:
o within five years of the former owner's death; or
o over the lifetime of the new owner, if a natural person, with payments
beginning within one year of the former owner's death; or
o over a period that does not exceed the life expectancy (as defined by
the 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.
DEATH OF ANNUITANT. Due proof of death of the annuitant is proof that the
annuitant who is an owner died prior to the commencement of annuity payments.
Upon receipt of this proof and an election of a method of settlement and return
of the Contract, the death benefit generally will be paid within seven days, or
as soon thereafter as we have sufficient information about the beneficiary to
make the payment. The beneficiary may receive the amount payable in a lump sum
cash benefit, or, subject to any limitation under any state or federal law,
rule, or regulation, under one of the annuity payment options unless a
settlement agreement is effective at the owner's death preventing such election.
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 this Contract will continue. In the event of joint owners, the
younger joint owner will automatically become the new annuitant and this
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 are payable to the
beneficiary. However, in the event of joint owners, if the annuitant dies during
the accumulation period and is the same individual as one of the joint owners,
the surviving joint owner will automatically become the annuitant and this
Contract will continue.
If the annuitant was an owner, and the beneficiary was not the deceased
annuitant's spouse, (1) the death benefit must be distributed within five years
of the date of the annuitant/deceased owner's death, or (2) payments must begin
no later than one year after the annuitant/deceased owner's death and must be
made for the beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the beneficiary's life expectancy). Death
proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of the annuitant/deceased owner's
death. If the sole beneficiary is the annuitant/deceased owner's surviving
spouse, such spouse may elect to continue the Contract as the new annuitant and
owner instead of receiving the death benefit. (See Certain Federal Income Tax
Consequences on page 6.)
If the beneficiary elects to receive the death benefit proceeds under option
(1), then: (a) we will allow the beneficiary to make only ONE partial surrender
during the five-year period. That surrender must be made at the time option (1)
is elected. No surrender charges will apply to this surrender; (b) we will allow
the beneficiary to make ONE transfer to and from the subaccounts and the fixed
account during the five-year period. That transfer must be made at the time
option (1) is elected; (c) we will deduct the annual Contract charge each year
during the five-year period; (d) we will not apply any surrender charges to the
total distribution of the Contract; (e) we will not permit annuitization at the
end of the five-year period; and (f) if the beneficiary dies during the
five-year period, we will pay the remaining value of the Contract first to the
contingent beneficiary named by the owner. If no contingent beneficiary is
named, then we will make payments to the beneficiary's estate. The beneficiary
is not permitted to name his or her own beneficiary.
If there are joint owners, the annuitant is not the owner, and the one joint
owner dies prior to the maturity date, the surviving joint owner may surrender
the Contract at any time for the amount of the adjusted annuity value.
BENEFICIARY. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary during the
annuitant's lifetime by sending written notice to us. The beneficiary's consent
to such change is not required unless the beneficiary was irrevocably designated
or law requires consent. (If an irrevocable beneficiary dies, the owner may then
designate a new beneficiary.) The change will take effect as of the date the
owner signs the written notice. We will not be liable for any payment made
before the written notice is received. Unless we receive written notice from the
owner to
5
<PAGE>
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.
ASSIGNMENT
During the annuitant's lifetime and prior to the maturity date (subject to any
irrevocable beneficiary's rights) the owner may assign any rights or benefits
provided by a nonqualified Contract. The assignment of a Contract will be
treated as a distribution of the annuity value for federal tax purposes. Any
assignment must be made in writing and accepted by us. An assignment will be
effective as of the date the request is received at our office and is accepted
by us. We assume 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 assignment.
With regard to qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties, taxation
as a distribution, or even prohibition under the Code, and must be permitted
under the terms of the underlying retirement plan.
PROOF OF AGE, GENDER AND SURVIVAL
We may require proper proof of age and gender of any annuitant or co-annuitant
prior to making the first annuity payment. Prior to making any payment, we 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
gender of any payee, annuity payments will be determined using unisex rates.
NON-PARTICIPATING
The Contract will not share in Western Reserve's surplus earnings; no dividends
will be paid.
EMPLOYEE AND AGENT PURCHASES
The Contract may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the Contract or by their spouse or minor
children, or by an officer, director, trustee or bona fide full-time employee of
Western Reserve or its affiliated companies or their spouse or minor children.
In such a case, we may credit an amount equal to a percentage of each premium
payment to the Contract due to lower acquisition costs we experience on those
purchases. The credit will be reported to the Internal Revenue Service ("IRS")
as taxable income to the employee or registered representative. We may offer, in
our discretion, certain employer sponsored savings plans, reduced or waived fees
and charges including, but not limited to, the surrender charge and the annual
Contract charge, for certain sales under circumstances which may result in
savings of certain costs and expenses. In addition, there may be other
circumstances of which we are not presently aware which could result in reduced
sales or distribution expenses. Credits to the Contract or reductions in these
fees and charges will not be unfairly discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY DOES NOT CONSTITUTE TAX ADVICE. IT IS A GENERAL DISCUSSION
OF CERTAIN OF THE EXPECTED FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN AND
DISTRIBUTIONS WITH RESPECT TO A CONTRACT BASED ON THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, PROPOSED AND FINAL TREASURY REGULATIONS THEREUNDER, JUDICIAL
AUTHORITY, AND CURRENT ADMINISTRATIVE RULINGS AND PRACTICE. THIS SUMMARY
DISCUSSES ONLY CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO "UNITED STATES
PERSONS," AND DOES NOT DISCUSS STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES. UNITED
STATES PERSONS MEANS CITIZENS OR RESIDENTS OF THE UNITED STATES, DOMESTIC
CORPORATIONS, DOMESTIC PARTNERSHIPS AND TRUSTS OR ESTATES THAT ARE SUBJECT TO
UNITED STATES FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF THEIR INCOME.
TAX STATUS OF THE CONTRACT
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under section 817(h) (Treas. Reg. (ss.) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the fund and its portfolios, intends to
comply with the diversification requirements of the Treasury.
6
<PAGE>
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 below) 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 nonqualified contracts
as well as qualified contracts.
OWNER CONTROL. 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. Several years ago, the IRS
stated in published rulings that a variable 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. More recently, the Treasury Department 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, rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which contract owners
may direct their investments to particular subaccounts without being treated as
owners of 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 one or more subaccounts in which to
allocate premiums and annuity values, and may be able to transfer among these
accounts more frequently than in such rulings. These differences could result in
owners being treated as the owners of the assets of the separate account. In
addition, we do 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. We therefore reserve the right to modify the Contracts as necessary to
attempt to prevent the owners from being considered the owners of a pro rata
share of the assets of the separate account.
DISTRIBUTION REQUIREMENTS. The Code also requires that nonqualified contracts
contain specific provisions for distribution of contract proceeds upon the death
of an owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such contracts provide that 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 such owner's death. If any
owner dies before the maturity date, the entire interest in the contract must
generally be distributed within five years after such owner's date of death or
be applied to provide an immediate annuity under which payments will begin
within one year of such 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. However, if such owner's death occurs prior to the maturity date,
and such owner's surviving spouse is named beneficiary, then the contract may be
continued with the surviving spouse as the new owner. If any owner is not a
natural person, then for purposes of these distribution requirements, the
primary annuitant shall be treated as an owner and any death or change of such
primary annuitant shall be treated as the death of the owner. The Contract
contains provisions intended to comply with these requirements of the Code. No
regulations interpreting these requirements of the Code have yet been issued and
thus no assurance can be given that the provisions contained in the Contracts
satisfy all such Code requirements. The provisions contained in the Contracts
will be reviewed and modified if necessary to maintain their compliance with the
Code requirements when clarified by regulation or otherwise.
WITHHOLDING. The portion of any distribution under a Contract that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld
and properly notifies us. For certain qualified Contracts, certain distributions
are subject to mandatory withholding. The withholding rate varies according to
the type of distribution and the owner's tax status. For qualified Contracts,
"eligible rollover distributions" from section 401(a) plans and section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion of
any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
QUALIFIED CONTRACTS. The qualified Contract is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary according
to the type of plan and the terms and conditions of the plan. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. 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 Contract comply with
applicable law.
7
<PAGE>
For qualified plans under sections 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the Contract
that satisfy applicable tax rules.
We make no attempt to provide more than general information about use of the
Contract with the various types of retirement plans. Purchasers of Contracts for
use with any retirement plan should consult their legal counsel and tax advisor
regarding the suitability of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as a traditional individual
retirement annuity ("IRA") under section 408(b) of the Code, a Contract must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
Contract generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a contingent owner or assign the Contract as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a rollover
amount or contribution under sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3)
of the Code; (iv) annuity payments or partial surrenders must begin no later
than April 1 of the calendar year following the calendar year in which the
annuitant attains age 70 1/2; (v) an annuity payment option with a period
certain that will guarantee annuity payments beyond the life expectancy of the
annuitant and the beneficiary may not be selected; (vi) certain payments of
death benefits must be made in the event the annuitant dies prior to the
distribution of the annuity value; and (vii) the entire interest of the owner is
non-forfeitable. Contracts intended to qualify as traditional IRAs under section
408(b) of the Code contain such provisions. Amounts in the IRA (other than
nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for an IRA may
be invested in a life insurance contract, but the regulations thereunder allow
such funds to be invested in an annuity contract that provides a death benefit
that equals the greater of the premiums paid or the cash value for the contract.
The Contract provides an enhanced death benefit that could exceed the amount of
such a permissible death benefit, but it is unclear to what extent such an
enhanced death benefit could disqualify the Contract under section 408 of the
Code. The IRS has not reviewed the Contract for qualification as an IRA, and has
not addressed in a ruling of general applicability whether an enhanced death
benefit provision, such as the provision in the Contract, comports with IRA
qualification requirements.
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
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax advisor
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made five tax years after the first contribution to any Roth IRA and made
after attaining age 59 1/2, or to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000), or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
SECTION 403(B) PLANS. Under section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase Contracts 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. The Contract includes a death benefit that in some cases may
exceed the greater of the premium payments or the annuity value. The 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 death
benefit may exceed this limitation, employers using the Contract in connection
with such plans should consult their tax advisor. 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, (ii) earnings on those contributions, and (iii) earnings on
amounts attributed to elective contributions held as of the end of the last year
beginning before January 1, 1989. Distributions of such amounts will be allowed
only upon the death of the employee, on or after attainment of age 59 1/2,
separation from service, disability, or financial hardship, except that income
attributable to elective contributions may not be distributed in the case of
hardship.
8
<PAGE>
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10 PLANS. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the Contract
is assigned or transferred to any individual as a means to provide benefit
payments. The Contract includes a death benefit that in some cases may exceed
the greater of the premium payments or the annuity value. The death benefit
could be characterized as an incidental benefit, the amount of which is limited
in a pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax advisor.
DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is used in the Code), 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. The Contracts can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her participation
will be made. For non-governmental section 457 plans, all such investments,
however, are owned by the sponsoring employer, and are subject to the claims of
the general creditors of the sponsoring employer. Depending on the terms of the
particular plan, a non-governmental employer may be entitled to draw on deferred
amounts for purposes unrelated to its section 457 plan obligations. In general,
all amounts received under a section 457 plan are taxable and are subject to
federal income tax withholding as wages.
TAXATION OF WESTERN RESERVE
Western Reserve at present is taxed as a life insurance company under Part I of
Subchapter L of the Code. The separate account is treated as part of us and,
accordingly, will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. We do not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the Contract. Based on this expectation, it is anticipated that no charges will
be made against the separate account for federal income taxes. If, in future
years, any federal income taxes are incurred by us with respect to the separate
account, we may make a charge to the separate account.
INVESTMENT EXPERIENCE
ACCUMULATION UNITS
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the fund less any applicable charges or fees.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. At the end of
any valuation period, a subaccount's value is equal to the number of units that
your Contract has in the subaccount, multiplied by the accumulation unit value
of the subaccount.
The number of units that your Contract has in each subaccount is equal to:
1. The initial units purchased on the Contract date; plus
2. Units purchased at the time additional premium payments are allocated to
the subaccount; plus
3. Units purchased by the Premium Enhancement payment on
initial or additional premium payments; plus
4. Units purchased through transfers from another subaccount or the fixed
account; minus
5. Any units that are redeemed to pay for partial surrenders; minus
6. Any units that are redeemed as part of a transfer to another subaccount or
the fixed account; minus
7. Any units that are redeemed to pay the annual Contract charge, any premium
taxes, any Guaranteed Minimum Income Benefit Rider charge and any transfer
charge.
The value of an accumulation unit was arbitrarily established at $10.00 at the
inception of each subaccount. Thereafter, the value of an accumulation unit is
determined as of the close of the regular session of business on the NYSE, on
each day the NYSE is open.
9
<PAGE>
ACCUMULATION UNIT VALUE
The accumulation unit value will vary from one valuation period to the next
depending on the investment returns experienced by each subaccount. The
accumulation unit value for each subaccount at the end of a valuation period is
the result of:
1. The total value of the assets held in the subaccount. This value is
determined by multiplying the number of shares of the designated fund
portfolio owned by the subaccount times the portfolio's net asset value per
share; minus
2. The accrued daily percentage for the mortality and expense risk charge and
the administrative charge multiplied by the net assets of the subaccount;
minus
3. The accrued amount of reserve for any taxes that are determined by us to
have resulted from the investment operations of the subaccount; divided by
4. The number of outstanding units in the subaccount.
During the accumulation period, 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 (1.40% if the compounding minimum death benefit is added) and compensates
us for certain mortality and expense risks. The administrative charge is
deducted at an annual rate of 0.40% of net assets for each day in the valuation
period and compensates us for certain administrative expenses. The accumulation
unit value may increase, decrease, or remain the same from valuation period to
valuation period.
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The discussion in this section assumes the Guaranteed Minimum Income Benefit
Rider (the "Rider") is not included in the Contract.
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
(that is, the portfolio performance minus subaccount fees and charges) exceeds
the assumed interest rate of 5% annually. Conversely, annuity unit values fall
if the net investment performance of the subaccount is less than the assumed
rate. The value of a variable annuity unit in each subaccount was established at
$10.00 on the date operations began for that subaccount. The value of a variable
annuity unit on any subsequent business day is equal to (a) multiplied by (b)
multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment return adjustment factor for the valuation
period.
The investment return adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
The net investment factor for the Contract used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a portfolio share held in that
subaccount determined at the end of the current
valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the portfolio for shares held
in that subaccount 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 subaccount.
(ii) is the net asset value of a portfolio share held in that
subaccount determined as of the end of the immediately
preceding valuation period.
(iii) is a factor representing the separate account annuitization
charge. This factor is equal, on an annual basis, to 1.40% of
the daily net asset value of the subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
gender and adjusted age of the annuitant at the maturity date. The Contract also
contains a table for determining the adjusted age of the annuitant.
10
<PAGE>
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = ABC
Where: A = Annuity unit value for the immediately preceding valuation
period.
Assume....................................................... = $ X
B = Net investment experience factor for the valuation period
for which the annuity unit value is being calculated.
Assume........................................................ = Y
C = A factor to neutralize the assumed interest rate of 5% built
into the annuity tables used.
Assume........................................................ = Z
Then, the annuity unit value is:....$ XYZ = $Q
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First monthly variable annuity payment = A B
-------
$1,000
Where: A = The annuity value as of the maturity date.
Assume....................................................... = $ X
B = The annuity purchase rate per $1,000 based upon the option
selected, the gender and adjusted age of the annuitant
according to the tables contained in the Contract.
Assume....................................................... = $ Y
Then, the first monthly variable annuity payment = $XY = $Z
--------
1,000
FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY UNITS
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of annuity units = A
-----
B
Where: A = The dollar amount of the first monthly variable annuity
payment.
Assume....................................................... = $ X
B = The annuity unit value for the valuation date on which the
first monthly payment is due.
Assume....................................................... = $ Y
Then, the number of annuity units = $ X = Z
---
$ Y
GUARANTEED MINIMUM INCOME BENEFIT RIDER- HYPOTHETICAL ILLUSTRATIONS
This discussion assumes the Rider is included in the Contract.
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the Rider for a $100,000 premium when annuity payments do not
begin until the Contract anniversary indicated in the left-hand column. These
figures assume that there were no subsequent premium payments or partial
surrenders, that there were no premium taxes and that the $100,000 premium is
annuitized under the Rider. Six different annuity payment options are
illustrated: a male annuitant, a female annuitant and a joint and survivor
annuity, each on a life only and a life with 10-year certain basis. These
hypothetical illustrations assume that the annuitant is (or both annuitants are)
60 years old when the Contract is issued, that the annual growth rate is 6.0%
(once established, an annual growth rate will not change during the life of the
Rider), and that there was no upgrade of the
11
<PAGE>
minimum annuitization value. The figures below are based on an assumed
investment return of 3%. Subsequent payments will never be less than the amount
of the first payment (although subsequent payments will be calculated using a 5%
assumed investment return and a 2.50% daily separate account annuitization
charge, provided no upgrade in minimum annuitization value has occurred).
Illustrations of guaranteed minimum monthly payments based on other assumptions
will be provided upon request.
<TABLE>
<CAPTION>
- -------------------------- --------------------------------- -------------------------------- -----------------------------------
RIDER ANNIVERSARY AT
EXERCISE DATE MALE FEMALE JOINT & SURVIVOR
- -------------------------- ----------------- --------------- --------------- ---------------- --------------- -------------------
LIFE ONLY LIFE 10 LIFE ONLY LIFE 10 LIFE ONLY LIFE 10
- -------------------------- ----------------- --------------- --------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $ 1,135 $ 1,067 $ 976 $ 949 $ 854 $ 852
- -------------------------- ----------------- --------------- --------------- ---------------- --------------- -------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- -------------------------- ----------------- --------------- --------------- ---------------- --------------- -------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
- -------------------------- ----------------- --------------- --------------- ---------------- --------------- -------------------
</TABLE>
Life Only = Life Annuity with No Period Certain
Life 10 = Life Annuity with 10 Years Certain
These hypothetical illustrations should not be deemed representative of past or
future performance of any underlying variable investment option.
Partial surrenders will affect the minimum annuitization value as follows: Each
Contract year, partial surrenders up to the limit of the minimum annuitization
value on the last Contract anniversary multiplied by the annual growth rate
reduce the minimum annuitization value on a dollar-for-dollar basis. Partial
surrenders over this limit will reduce the minimum annuitization value by an
amount equal to the excess partial surrender amount multiplied by the ratio of
the minimum annuitization value immediately prior to the excess partial
surrender to the annuity value immediately prior to the excess partial
surrender.
The amount of the first payment provided by the Rider will be determined by
multiplying each $1,000 of minimum annuitization value by the applicable annuity
factor shown on Schedule I of the Rider. The applicable annuity factor depends
upon the annuitant's (and joint annuitant's, if any) gender (or without regard
to gender if required by law), age, and the Rider payment option selected and is
based on a guaranteed interest rate of 3% and the "1983 Table A" mortality table
improved to the year 2000 with projection Scale G. Subsequent payments will be
calculated as described in the Rider using a 5% assumed investment return.
Subsequent payments may fluctuate annually in accordance with the investment
performance of the subaccounts. However, subsequent payments are guaranteed to
never be less than the initial payment.
The scheduled payment on each subsequent Contract anniversary after
annuitization using the Rider will equal the greater of the initial payment or
the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a Contract year is
greater than the scheduled payment for that Contract year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a Contract year is less than the scheduled
payment for that Contract year, then there will be a reduction in the number of
annuity units credited to the Contract to fund the deficiency. In the case of a
reduction, you will not participate as fully in the future investment
performance of the subaccounts you selected since fewer annuity units are
credited to your Contract. Purchases and reductions of annuity units will be
allocated to each subaccount on a proportionate basis.
We bear the risk that we will need to make payments if all annuity units have
been used in an attempt to maintain the scheduled payment at the initial payment
level. In such an event, we will make all future payments equal to the initial
payment. Once all the annuity units have been used, the amount of your payment
will not increase or decrease and will not depend upon the performance of any
subaccounts. To compensate us for this risk, the separate account annuitization
charge will be deducted.
12
<PAGE>
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
YIELD - The yield quotation set forth in the prospectus for the WRL J.P. Morgan
Money Market subaccount is for the seven days ended on the date of the most
recent balance sheet of the separate 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 WRL J.P. Morgan Money
Market subaccount 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 WRL J.P. Morgan Money
Market subaccount set forth in the prospectus is for the seven days ended on the
date of the most recent balance sheet of the separate 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 subaccount having a balance of one unit
in the WRL J.P. Morgan Money Market subaccount 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 subaccount at
the beginning of the base period to obtain the base period return, which is then
compounded by adding 1. Next, the sum is raised to a power equal to 365 divided
by 7, and 1 is subtracted from the result. The following formula describes the
computation:
EFFECTIVE YIELD = ({BASE PERIOD RETURN + 1} 365/7) - 1
The effective yield is shown at least to the nearest hundredth of one
percent.
HYPOTHETICAL CHARGE - For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all owner accounts in proportion to the length of the base period.
Such fees and charges include the $30 annual Contract charge, calculated on the
basis of a separate account value per Contract of $10,000, which converts that
charge to an annual rate of 0.30% of the separate 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 surrender charge that may be assessed at the time of surrender in an
amount ranging up to 8% of the requested amount. The specific surrender charge
percentage applicable to a particular surrender depends on the length of time
premium payments have been held under the Contract and whether surrenders have
been made previously during that Contract year. (See Expenses--Surrender Charge
on page 31 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 WRL J.P. Morgan Money Market subaccount and the fund are
excluded from the calculation of yield.
The yield on amounts held in the WRL J.P. Morgan Money Market subaccount
normally will fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The WRL J.P. Morgan Money Market subaccount actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the WRL J.P. Morgan Money Market, the types and quality of
portfolio securities held by the WRL J.P. Morgan Money Market and its operating
expenses. For the seven days ended December 31, 1999, the yield of the WRL J.P.
Morgan Money Market subaccount was ______%, and the effective yield was ______%,
assuming no surrender and selection of the standard death benefit without the
Rider.
OTHER SUBACCOUNT YIELDS
The yield quotations for all of the subaccounts, except the WRL J.P. Morgan
Money Market subaccount, representing the accumulation period set forth in the
prospectus is based on the 30-day period ended on the date of the most recent
balance sheet of the separate 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:
YIELD = 2[ (A-B + 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
subaccount.
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.
13
<PAGE>
For purposes of the yield quotations for all of the subaccounts, except the WRL
J.P. Morgan Money Market subaccount, the calculations take into account all fees
that are charged to all owner accounts during the accumulation period. Such fees
include the $30 annual Contract charge, calculated on the basis of a separate
account value per Contract of $10,000, which converts that charge to an annual
rate of 0.30% of the separate account value. The calculations do not take into
account any premium taxes or any transfer or surrender charges.
Premium taxes currently range from 0% to 3.5% of premium payments depending upon
the jurisdiction in which the Contract is delivered. A surrender charge may be
assessed at the time of surrender in an amount ranging up to 8% of the requested
amount, with the specific percentage applicable to a particular surrender
depending on the length of time premium payments were held under the Contract,
and whether surrenders had been made previously during that Contract year. (See
Expenses--Surrender Charge on page 31 of the prospectus.)
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses. For the 30 days ended December 31, 1999,
the yield for the WRL AEGON Bond subaccount was ______%, assuming no surrender
and selection of the standard death benefit without the Rider.
TOTAL RETURNS
The total return quotations set forth in the prospectus for all subaccounts,
except the WRL J.P. Morgan Money Market subaccount, holding assets for the
Contracts during the accumulation period are average annual total return
quotations for the one, five, and ten-year periods (or, while a subaccount has
been in existence for a period of less than one, five and ten years, for such
lesser period) ended on the date of the most recent balance sheet of the
separate account, and for the period from the date the subaccounts 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(1 + T)n = ERV
Where: P = a hypothetical initial payment of $10,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $10,000
payment made at the beginning of each period at the
end of each period.
For purposes of the total return quotations for all subaccounts, except the WRL
J.P. Morgan Money Market subaccount, the calculations take into account all fees
that are charged under the Contract to all owner accounts during the
accumulation period. Such fees include the mortality and expense risk charge,
the administrative charge and the $30 annual Contract charge, calculated on the
basis of a separate account value per Contract of $10,000, which converts that
charge to an annual rate of 0.30% of the separate account value. (The
calculations may also reflect the mortality and expense risk charge for the
compounding minimum death benefit and the 0.30% charge for the Rider). The
calculations also assume a complete surrender as of the end of the particular
period. The calculations do not reflect any deduction for premium taxes or any
transfer charge that may be applicable to a particular Contract.
OTHER PERFORMANCE DATA
We 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 premium payment amounts. NON-STANDARD PERFORMANCE DATA WILL
ONLY BE DISCLOSED IF STANDARD PERFORMANCE DATA FOR THE REQUIRED PERIODS IS ALSO
DISCLOSED.
We may also disclose cumulative total returns and average annual compound rates
of return (T) for the subaccounts based on the inception date of the subaccounts
investing in the underlying portfolios.
14
<PAGE>
We calculate cumulative total returns according to the following formula:
(1 + T)n - 1
Where: T and N are the same values as above
In addition, we 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 subaccounts. This data is designed to show the
performance that would have resulted if the Contract had been in existence
during that time.
For instance, we 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% (1.40% if the compounding minimum death benefit is added), the
administrative charge of 0.40%, the Rider charge of 0.30% and the $30 annual
Contract charge (based on a separate account value of $10,000, the annual
Contract charge is translated into an annual charge of 0.30%). Such data assumes
a complete surrender of the Contract at the end of the period.
ADVERTISING AND SALES LITERATURE
From time to time we 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: (1) the
selection of individual investments has little impact on portfolio performance,
(2) market timing strategies seldom work, (3) markets are efficient, and (4)
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 we may outline the process of
personal and investment risk analysis including determining individual risk
tolerances and a discussion of the different types of investment risk. We 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
Ibbotson Associates, CDA Investment Technologies, Lipper Analytical Services and
any other expert which has been deemed by us to be appropriate. We 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. We 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. We may also discuss the basis of portfolio
optimization including the required inputs and the construction of efficient
portfolios using sophisticated computer-based techniques. Finally, we 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 premium 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 premium payments.
As described in the prospectus, in general, an owner 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, we may use narrative, numerical or graphic examples to show
hypothetical benefits of tax deferral in advertising and sales literature.
PUBLISHED RATINGS
We 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, Standard & Poor's
Insurance Ratings Services, Moody's Investors Service and Duff & Phelps Credit
Rating Co. 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
contracts in accordance with their terms. Claims-paying ability ratings do not
refer to an insurer's ability to meet non-contract obligations such as debt or
commercial paper obligations. These ratings do not apply to the separate
account, its subaccounts, the fund or its portfolios, or to their performance.
15
<PAGE>
ADMINISTRATION
Western Reserve performs administrative services for the Contracts. These
services include issuance of the Contracts, maintenance of records concerning
the Contracts, and certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
WRL Investment Services, Inc. As presently required by the 1940 Act and
regulations promulgated thereunder, Western Reserve will mail to all Contract
owners at their last known address of record, at least annually, reports
containing such information as may be required under the 1940 Act or by any
other applicable law or regulation. Contract owners will also receive
confirmation of each financial transaction and any other reports required by law
or regulation.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("AFSG") is the principal underwriter of the
Contracts. AFSG is located at 4333 Edgewood Rd., N.E., Cedar Rapids, Iowa 52499.
AFSG is registered with the SEC under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. AFSG will not
be compensated for its services as principal underwriter of the Contracts.
The Contracts are offered to the public through broker-dealers licensed under
the federal securities laws and state insurance laws and who have entered into
written sales agreements with AFSG. Western Reserve will generally pay
broker-dealers sales commissions in an amount equal to 4.25% of premium
payments. In addition, broker-dealers may receive trail commissions of 0.90% of
the annuity value in each Contract year, starting at the end of the first
quarter of the ninth Contract year, provided the Contract has an annuity value
of $10,000 or more. Certain production, persistency and managerial bonuses may
also be paid. Alternatively, compensation schedules may be structured to pay
lower compensation amounts on premium payments with trail commissions starting
at an earlier duration. 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 the
Contracts is continuous and Western Reserve does not anticipate discontinuing
the offering of the Contracts. However, Western Reserve reserves the right to do
so.
OTHER PRODUCTS
Western Reserve makes other variable annuity contracts available that may also
be funded through the separate account. These variable annuity contracts may
have different features, such as different investment choices or charges.
CUSTODY OF ASSETS
The assets of the separate account are held by Western Reserve. The assets of
the separate account are kept physically segregated and held apart from our
general account and any other separate account. WRL Investment Services, Inc.
maintains records of all purchases and redemptions of shares of the fund.
Additional protection for the assets of the separate account is provided by a
blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the
amount of $10 million, 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 $10 million.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP has provided advice on certain legal matters
concerning federal securities laws applicable to the issue and sale of 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.,
Senior Vice President, General Counsel and Assistant Secretary of Western
Reserve.
INDEPENDENT ACCOUNTANTS
The accounting firm of PricewaterhouseCoopers LLP, independent accountants,
provided audit services to the separate account for the year ended December 31,
1999. The principal business address of PricewaterhouseCoopers LLP is 160
Federal Street, Boston, Massachusetts 02110. The accounting firm of Ernst &
Young LLP, independent auditors, provided audit services to Western Reserve for
the year ended December 31, 1999. The principal business address of Ernst &
Young LLP is 801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764.
16
<PAGE>
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, with respect to the Contracts discussed in this SAI. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this SAI. Statements
contained in the prospectus and this SAI concerning the content of the Contracts
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of an owner's interest in the separate account will be affected
solely by the investment returns of the selected subaccount(s). Western
Reserve's financial statements, which are included in this SAI, should be
considered only as bearing on our ability to meet our obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the separate account. The financial statements
of the separate account are not fully representative of the subaccounts listed
in the prospectus, as the subaccounts that deduct a separate account annual
expense of 1.65% have not yet commenced operations.
Financial statements for Western Reserve as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 have been
prepared on the basis of statutory accounting principles, rather than generally
accepted accounting principles.
17
<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") will
be included in a future amendment.
(b) Exhibits
(1) Copy of resolution of the Board of
Directors of Western Reserve establishing
the Series Account 1/
(2) Not Applicable
(3) Distribution of Contracts
(a) Master Service and Distribution
Compliance Agreement 1/
(b) Amendment to Master Service and
Distribution Compliance Agreement
4/
(c) Broker/Dealer Supervisory and
Service Agreement 4/
(d) Principal Underwriting Agreement
4/
(e) First Amendment to Principal
Underwriting Agreement 4/
(4) (a) Specimen Flexible Payment Variable
Accumulation Deferred Annuity
Contract
(b) Guaranteed Minimum Income Benefit
Rider (GIB01) 5/
(5) Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract
(6) (a) Copy of Second Amended Articles of
Incorporation of Western Reserve
1/
(b) Copy of Amended Code of
Regulations of Western Reserve 1/
(7) Not Applicable
(8) Not Applicable
(9) Opinion and Consent of Thomas E. Pierpan,
Esq. as to the Legality of Securities
Being Registered
(10) (a) Written Consent of Sutherland
Asbill & Brennan LLP 6/
(b) Written Consent of Ernst &
Young LLP 6/
(c) Written Consent of
PricewaterhouseCoopers LLP 6/
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
C-1
<PAGE>
(15) (a) Powers of Attorney 1/
(b) Power of Attorney - James R.
Walker 3/
- -------------------------------------
1/ This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No.
33-49556) and is incorporated herein by reference.
2/ This exhibit was previously filed on Post-Effective Amendment No. 28 to
Form N-1A Registration Statement dated April 24, 1997 (File No. 33-507)
and is incorporated herein by reference.
3/ This exhibit was previously filed on Post-Effective Amendment No. 7 to
Form N-4 Registration Statement dated December 23, 1996 (File No.
33-49556) and is incorporated herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment No. 4 to
the Form S-6 Registration Statement dated April 21, 1999 (File No.
333-23359) and is incorporated herein by reference.
5/ This exhibit was previously filed on the Initial Registration Statement
to Form N-4 dated July 12, 1999 (File No. 333-82705) and is
incorporated herein by reference.
6/ To be filed by amendment.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
<S> <C> <C>
John R. Kenney (1) Chairman of the Board,
Chief Executive Officer
Jerome C. Vahl (1) Director and President
Lyman H. Treadway 30195 Chagrin Boulevard Director
Suite 210N
Cleveland, OH 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
Alan M. Yaeger (1) Executive Vice
President, Actuary
and Chief Financial Officer
William H. Geiger (1) Senior Vice President,
Secretary and
General Counsel
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
</TABLE>
- -------------------------
(1) 570 Carillon Parkway, St. Petersburg, Florida 33716.
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<PAGE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON - Netherlands Membership Association
AEGON N.V. - Netherlands corporation (51.16%)
Transamerica Corporation and subsidiaries (100%) (DE)
AEGON Nederland N.V. - Netherlands corporation (100%)
AEGON NEVAK 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)(DE)
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%)
AEGON Funding Corp. (DE) (100%)
First AUSA Life Insurance Company - insurance holding co. (MD) (100%)
AUSA Life Insurance Company, Inc. - insurance (NY) (82.33%)
Life Investors Insurance Company of America - insurance (IA) (100%)
Bankers United Life Assurance Company - insurance (IA) (100%)
Great American Insurance Agency, Inc. (IA) (100%)
Life Investors Alliance, LLC (DE) (100%)
PFL Life Insurance Company - insurance (IA) (100%)
AEGON Financial Services Group, Inc. (MN) (100%)
AEGON Assignment Corporation of Kentucky (KY) (100%)
AEGON Assignment Corporation (IL) (100%)
Southwest Equity Life Insurance Company - insurance (AZ) (100% Voting
Common)
Iowa Fidelity Life Insurance Company - insurance (AZ) (100% Voting
Common)
Western Reserve Life Assurance Co. of Ohio - insurance (OH) (100%)
WRL Investment Management, Inc. - investment adviser (FL) (100%)
WRL Investment Services, Inc. - transfer agent (FL)(100%)
WRL Series Fund, Inc. - mutual fund (MD)
ISI Insurance Agency, Inc. and subsidiaries (CA) (100%)
AEGON Equity Group, Inc. (FL) (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%)
Monumental General Life Insurance Company of Puerto Rico (PR) (51%)
AUSA Holding Company - holding company (MD) (100%)
Monumental General Insurance Group, Inc. - holding company (MD) (100%)
Monumental General Administrators, Inc. (MD) (100%)
Executive Management and Consultant Services, Inc. - consulting services
(MD) (100%)
Trip Mate Insurance Agency, Inc. (KS) (100%)
Monumental General Mass Marketing, Inc. - marketing (MD) (100%)
C-3
<PAGE>
AUSA Financial Markets, Inc. - marketing (IA) (100%)
Endeavor Group (CA) (100%)
Endeavor Management Company (CA) (100%)
Universal Benefits Corporation - third party administrator (IA) (100%)
Investors Warranty of America, Inc. - provider of automobile
extended maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - trust company (IA) (100%)
Money Services, Inc. - financial counseling for employees and agents of
affiliated companies (DE) (100%)
ORBA Insurance Services, Inc. (CA) (10.56%)
Zahorik Company, Inc. - broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
Long, Miller & Associates, L.L.C. (CA) (33-1/3%)
AEGON Asset Management Services, Inc. (DE) (100%)
InterSecurities, Inc. - broker-dealer (DE) (100%)
Associated Mariner Financial Group, Inc. - holding company (MI) (100%)
Mariner Financial Services, Inc. - broker/dealer (MI) (100%)
Associated Mariner Agency of Hawaii, Inc. - insurance agency (MI) (100%)
Associated Mariner Agency of New Mexico, Inc. (MI) (100%)
Idex Investor Services, Inc. - shareholder services (FL) (100%)
Idex Management, Inc. - investment adviser (DE) (100%)
IDEX Mutual Funds - mutual fund (MA)
Diversified Investment Advisors, Inc. - investment adviser (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)
Creditor Resources, Inc. - credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. - insurance agency
(Canada) (100%)
Weiner Agency, Inc. (MD) (100%)
AEGON USA Investment Management, Inc. - investment adviser (IA) (100%)
AEGON USA Realty Advisors, Inc. - real estate investment services (IA)
(100%)
QSC Holding, Inc. (DE) (100%)
Landauer Realty Advisors, Inc. - real estate counseling (IA) (100%)
Landauer Associates, Inc. - real estate counseling (DE) (100%)
Landauer Realty Associates, Inc. (TX) (100%)
Realty Information Systems, Inc. - information systems for real
estate investment management (IA) (100%)
USP Real Estate Investment Trust - real estate investment trust (IA)
RCC Properties Limited Partnership (IA)
Item 27. NUMBER OF CONTRACTOWNERS.
Because the offering has not yet commenced, there are no Contract
owners.
Item 28. INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended
Code of Regulations of Western Reserve whereby Western Reserve may
indemnify certain persons against certain payments incurred by such
persons. The following excerpts contain the substance of these
provisions.
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<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 contendere 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:
C-5
<PAGE>
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel other
than an attorney, or a firm having associated with it an attorney, who has
been retained by or who has performed services for the corporation, or any
person to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such
action, suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under
division (E)(2) of this section, and within ten days after receipt of such
notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review
the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and
(2) of this section, the articles or the regulations of a corporation state
by specific reference to this division that the provisions of this division
do not apply to the corporation and unless the only liability asserted
against a director in an action, suit, or proceeding referred to in divisions
(E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised
Code, expenses, including attorney's fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the corporation as
they are incurred, in advance of the final disposition of the action, suit,
or proceeding upon receipt of an undertaking by or on behalf of the director
in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate intent
to cause injury to the corporation or undertaken with reckless disregard for
the best interests of the corporation;
(ii) Reasonably cooperate with the corporation
concerning the action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be
paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding as authorized by the directors
in the specific case upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, if it
ultimately is determined that he is entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any
agreement, vote of shareholders or disinterested directors, or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, and 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.
C-6
<PAGE>
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of
credit, or self-insurance on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or
for profit, partnership, joint venture, trust, or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under this section.
Insurance may be purchased from or maintained with a person in which the
corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7) of
this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
divisions (E)(5), (6), or (7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign, nonprofit or
for profit, partnership, joint venture, trust, or other enterprise, shall
stand in the same position under this section with respect to the new or
surviving corporation as he would if he had served the new or surviving
corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture,
trust, or other enterprise, against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere 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
C-7
<PAGE>
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court of common
pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in sections (1) and (2) of this
article, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection therewith.
(4) Any indemnification under sections (1) and (2) of this article,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in sections (1) and (2) of this article. Such determination shall be made (a)
by a majority vote of a quorum consisting of directors of the indemnifying
corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if
a majority vote of a quorum of disinterested directors so directs, in a
written opinion by independent legal counsel other than an attorney, or a
firm having associated with it an attorney, who has been retained by or who
has performed services for the corporation, or any person to be indemnified
within the past five years, or (c) by the shareholders, or (d) by the court
of common pleas or the court in which such action, suit, or proceeding was
brought. Any determination made by the disinterested directors under section
(4)(a) or by independent legal counsel under section (4)(b) of this article
shall be promptly communicated to the person who threatened or brought the
action or suit by or in the right of the corporation under section (2) of
this article, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the
court in which such action or suit was brought to review the reasonableness
of such determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this
article, may be paid by the corporation in advance of the final disposition
of such action, suit, or proceeding as authorized by the directors in the
specific case upon receipt of a written undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, unless
it shall ultimately be determined that he is entitled to be indemnified by
the corporation as authorized in this article. If a majority vote of a quorum
of disinterested directors so directs by resolution, said written undertaking
need not be submitted to the corporation. Such a determination that a written
undertaking need not be submitted to the corporation shall in no way affect
the entitlement of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(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
C-8
<PAGE>
in any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(8) As used in this section, references to "the corporation" include
all constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee or agent of another corporation (including a subsidiary of this
corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise shall stand in the same position
under this article with respect to the new or surviving corporation as he
would if he had served the new or surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such
person may also be an agent of this corporation. The corporation may
indemnify such named fiduciaries of its employee benefit plans against all
costs and expenses, judgments, fines, settlements or other amounts actually
and reasonably incurred by or imposed upon said named fiduciary in connection
with or arising out of any claim, demand, action, suit or proceeding in which
the named fiduciary may be made a party by reason of being or having been a
named fiduciary, to the same extent it indemnifies an agent of the
corporation. To the extent that the corporation does not have the direct
legal power to indemnify, the corporation may contract with the named
fiduciaries of its employee benefit plans to indemnify them to the same
extent as noted above. The corporation may purchase and maintain insurance on
behalf of such named fiduciary covering any liability to the same extent that
it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is
a creditor (and his heirs, executors and administrators) shall be indemnified
by the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Western
Reserve of expenses incurred or paid by a director, officer or controlling
person of Western Reserve in the successful defense of any action, suit or
proceeding) is asserted by such 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.
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<PAGE>
Item 29. PRINCIPAL UNDERWRITER
(a) AFSG Securities Corporation ("AFSG") is the principal underwriter for
the Contracts. AFSG currently serves as principal underwriter for the
PFL Endeavor VA Separate Account, the PFL Retirement Builder Variable
Annuity Account, the PFL Life Variable Annuity Account A, the PFL
Wright Variable Annuity Account, the AUSA Endeavor Variable Annuity
Account, Separate Account C of First Providian Life and Health
Insurance Company, the Separate Account I, Separate Account II, and
Separate Account V of Providian Life and Health Insurance Company, WRL
Series Life Account, WRL Series Annuity Account B and AUSA Series Life
Account.
(b) Directors and Officers of AFSG
<TABLE>
<CAPTION>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH UNDERWRITER
---- ---------------- --------------------
<S> <C> <C>
Larry N. Norman (1) Director and President
Harvey E. Willis (1) Vice President and Secretary
Lisa Wachendorf (1) Compliance Officer
Debra C. Cubero (1) Vice President
Gregory J. Garvin (1) Vice President
Michael F. Lane (1) Vice President
Sara J. Stange (1) Director and Vice President
Brenda K. Clancy (1) Vice President
Michael G. Ayers (1) Treasurer/Controller
Colleen S. Lyons (1) Assistant Secretary
John F. Reesor (1) Assistant Secretary
Anne Spaes (1) Vice President
Priscilla I. Hechler (2) Assistant Vice President
and Assistant Secretary
Thomas E. Pierpan (2) Assistant Secretary
Richard C. Hicks (2) Assistant Vice President
and Assistant Secretary
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Nancy C. Hassett (2) Assistant Secretary
Gina A. Babka (2) Assistant Secretary
</TABLE>
- --------------------------------------
(1) 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, FL 33716-1202
(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, 570 Carillon Parkway, St. Petersburg,
Florida 33716.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
Western Reserve hereby represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by Western Reserve.
Item 33. SECTION 403(B)(11) REPRESENTATION
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of
1986, Registrant is relying on the no-action letter issued by
the Office of Insurance Products and Legal Compliance,
Division of Investment Management, to the American Council of
Life Insurance dated November 28, 1988 (Ref. No. IP-6-88), and
that the provisions of paragraphs (1) - (4) thereof have been
complied with.
TEXAS ORP REPRESENTATION
The Registrant intends to offer Contracts to participants in
the Texas Optional Retirement Program. In connection with that
offering, the Registrant is relying on Rule 6c-7 under the
Investment Company Act of 1940 and is complying with, or shall
comply with, paragraphs (a) - (d) of that Rule.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Initial Registration Statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of St. Petersburg, State of Florida, on
this 17th day of December, 1999.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ JOHN R. KENNEY
------------------
John R. Kenney, Chairman of the
Board and Chief Executive Officer
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 and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Initial
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JOHN R. KENNEY Chairman of the Board December 17, 1999
- ------------------------- and Chief Executive Officer
John R. Kenney (Principal Executive Officer)
/s/ ALLAN J. HAMILTON Vice President, Treasurer December 17, 1999
- ------------------------- and Controller
Allan J. Hamilton
/s/ ALAN M. YAEGER Executive Vice President, December 17, 1999
- ------------------------- and Chief Financial
Alan M. Yaeger Actuary Officer
/s/ JEROME C. VAHL Director and President December 17, 1999
- -------------------------
Jerome C. Vahl
/s/ LYMAN H. TREADWAY Director December 17, 1999
- -------------------------
Lyman H. Treadway */
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/JACK E. ZIMMERMAN Director December 17, 1999
- -------------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director December 17, 1999
- -------------------------
James R. Walker */
</TABLE>
*/ /s/ PRISCILLA I. HECHLER
---------------------------
Signed by Priscilla I. Hechler
As Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
4(a) Specimen Flexible Payment Variable Accumulation Deferred Annuity
Contract
(5) Application for Flexible Payment Variable Accumulation Deferred
Annuity Contract
(9) Opinion and Consent of Thomas E. Pierpan, Esq. As to the Legality
of Securities Being Registered
Exhibit 4(a)
Specimen Flexible Payment Variable Accumulation Deferred Annuity Contract
<PAGE>
================================================================================
WESTERN RESERVE LIFE Administrative Office:
ASSURANCE CO. OF OHIO P.O. Box 5068
(A STOCK COMPANY) Clearwater, Florida 33758-5068
Home Office: Columbus, Ohio (727) 299-1800
================================================================================
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 SUBACCOUNTS IN THE SEPARATE ACCOUNT. CONTRACT VALUES, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SUBACCOUNT OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
THE CONSIDERATION for this Contract is the application and the payment of the
Initial Premium.
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.
READ YOUR CONTRACT CAREFULLY.
IN WITNESS WHEREOF, We have signed this Contract at Our Office in Clearwater,
Florida as of the Contract Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
Secretary President
================================================================================
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this Contract at any time within ten days after receipt
by returning it to Us at P.O. Box 5068, Clearwater, Florida 33758 or to the
representative through whom it was purchased. If the Contract is returned
within this period, We will pay to the Owner the sum of:
1. The total premiums received; minus
2. Any Premium Enhancement(s); plus (or minus)
3. 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>
<TABLE>
<CAPTION>
===================================================================================================================
CONTRACT GUIDE
===================================================================================================================
<S> <C> <C> <C>
CONTRACT SCHEDULE................................. 3 SEPARATE ACCOUNT PROVISIONS (continued)
DEFINITIONS....................................... 5 Transfers Among Subaccounts After the
Accounts....................................... 5 Maturity Date................................ 12
Accumulation Period............................ 5 Addition, Deletion or Substitution of
Accumulation Unit Value........................ 5 Investments.................................. 12
Age............................................ 5 Change of Investment Objective.................. 13
Annuitant...................................... 5 Accumulation Unit Value......................... 13
Annuity Proceeds............................... 5 PREMIUM PROVISIONS................................ 14
Annuity Unit Value............................. 5 Premiums........................................ 14
Annuity Value.................................. 5 Premium Enhancements............................ 14
Cash Value..................................... 5 CONTRACT VALUE PROVISIONS......................... 15
Contingent Beneficiary......................... 5 Net Premium..................................... 15
Contract Date.................................. 6 Allocation of Net Premiums...................... 15
Death Benefit Proceeds......................... 6 Subaccount Value................................ 15
Death Report Day............................... 6 Fixed Account................................... 16
Fixed Account.................................. 6 Annual Contract Charge.......................... 17
Immediate Family............................... 6 Annuity Value................................... 17
Maturity Date.................................. 6 Partial Surrender............................... 17
Nursing Care Facility.......................... 6 Cash Value...................................... 19
Physician...................................... 7 Surrender Charge................................ 19
Physician's Statement.......................... 7 Nursing Care Facility Waiver of
Premium Enhancement............................ 7 Surrender Charge............................. 19
Premium Tax.................................... 7 Terminal Condition Waiver of
Reallocation Date.............................. 7 Surrender Charge............................. 20
SEC............................................ 7 Basis of Computation............................ 20
Separate Account............................... 7 DEATH BENEFIT PROVISIONS.......................... 20
Series Fund.................................... 8 Death of Annuitant During the
Skilled or Intermediate Nursing Care........... 8 Accumulation Period.......................... 20
Subaccount..................................... 8 Death Benefit Proceeds.......................... 21
Surrender...................................... 8 Alternative Election............................ 22
Surrender Charge Period........................ 8 ANNUITY PROVISIONS................................ 23
Terminal Condition............................. 8 Commencement of Annuity Payments................ 23
Valuation Date................................. 8 Maturity Date................................... 23
Valuation Period............................... 8 Annuity Option.................................. 23
Written Notice................................. 8 Change of Annuitant............................. 23
GENERAL PROVISIONS................................ 9 Payee........................................... 24
The Contract................................... 9 Availability.................................... 24
Ownership...................................... 9 Age............................................. 24
Change of Ownership Upon Request............... 9 Proof of Age and Sex............................ 24
Change of Ownership Upon Death of Proof of Survival............................... 24
Owner....................................... 9 Death Benefit After the Maturity Date........... 24
Beneficiary.................................... 10 Restrictions.................................... 24
Change of Beneficiary.......................... 10 FIXED ACCOUNT ANNUITY PAYMENTS.................... 25
Assignment..................................... 10 Interest and Mortality.......................... 25
Incontestability............................... 10 Amount of Monthly Fixed Account Annuity
Age and Sex.................................... 10 Payment...................................... 25
Contract Years................................. 10 Fixed Account Annuity Options................... 25
Reports........................................ 11 VARIABLE ACCOUNT ANNUITY PAYMENTS................. 27
Contract Payment............................... 11 Annuity Unit Value.............................. 27
Protection of Proceeds......................... 11 Determination of the First Variable
SEPARATE ACCOUNT PROVISIONS....................... 11 Payment...................................... 28
Subaccounts..................................... 12 Determination of Subsequent Variable
Transfers Among Subaccounts During Payments..................................... 28
the Accumulation Period..................... 12 Variable Account Annuity Options................ 28
</TABLE>
Page 2
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
CONTRACT SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OWNER: John Doe
ANNUITANT: John Doe
ISSUE AGE 35
SEX: Male
ANNUITY OPTION: D-10 Year Certain CONTRACT NUMBER: 01-12345678
INITIAL PREMIUM: $50,000.00 CONTRACT DATE: September 03, 1998
DEATH BENEFIT OPTION: A MATURITY DATE: August 01, 2058
REALLOCATION DATE: September 18, 1998
REALLOCATION ACCOUNT: Money Market
ANTICIPATED PREMIUM PATTERN*
AMOUNT MODE YEARS PAYABLE
$10,000.00 Annual 60 Years
</TABLE>
* The anticipated premium pattern is based upon selection made in the
application. The amount may be changed in accordance with the Premium
Provisions on Page 14.
<TABLE>
<CAPTION>
<S> <C>
SEPARATE ACCOUNT PROVISIONS
Separate Account: WRL Series Annuity Account
Separate Account Charge
Death Benefit Option [A; B]: [1.40-1.80] % Annually
PREMIUM PROVISIONS
Maximum Additional Annual Premium: $1,000,000 (Without Prior Approval)
Minimum Additional Premium: $50.00
CONTRACT VALUE PROVISIONS
Annual Contract Charge: $30
Minimum Balance: $10,000
Premium Enhancement: [4.5%] (As a Percentage of the Initial Premium)
SURRENDER CHARGE PERIOD: 108 Months from the Date of Each Premium Payment
SURRENDER CHARGE PERCENTAGE (As a Percentage of Each Respective Premium Payment):
</TABLE>
MONTHS SINCE DATE OF PAYMENT PERCENTAGE
---------------------------- ----------
36 Months or Less 8%
37 Months Through 48 Months 7%
49 Months Through 60 Months 6%
61 Months Through 72 Months 5%
73 Months Through 84 Months 4%
85 Months Through 96 Months 3%
97 Months Through 108 Months 2%
109 Months or More 0%
Page 3
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
Page 4
<PAGE>
DEFINITIONS
================================================================================
ACCOUNTS Allocation options including the Fixed Account
and the Subaccounts of the Separate Account.
ACCUMULATION PERIOD The period between the Contract Date and the
Maturity Date while the Contract is in force.
ACCUMULATION An accounting unit of measure used to calculate
UNIT VALUE Subaccount values for the Contract during the
Accumulation Period.
AGE Issue Age refers to the Age of the Annuitant on
his/her birthday immediately preceding the
Contract Date. Attained Age refers to the Issue
Age plus the number of completed contract
years.
ANNUITANT The person named on the application, or as
subsequently changed, to receive annuity
payments. The Annuitant may be changed as
provided in the Death Benefit Provisions and
Annuity Provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic
annuity payments. Such amount is the
Annuity Value on the Maturity Date, less any
applicable Premium Tax.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate
annuity payments from a Subaccount 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 The new Beneficiary upon the current
BENEFICIARY Beneficiary's death.
Page 5
<PAGE>
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 The value as described in the Death Benefit
PROCEEDS 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.
IMMEDIATE FAMILY A spouse, child, brother, sister, parent,
grandparent, or grandchild of the Annuitant
or Owner(s).
MATURITY DATE The date of the Annuitant's 95th birthday,
on which the Accumulation Period ends and
annuity payments are to commence. The date may
be changed as provided in the Annuity
Provisions.
For contracts issued in conjunction with a Net
Income Charitable Remainder Unitrust, the
Maturity Date shall be the date of the
Annuitant's 100th birthday.
NURSING CARE FACILITY A skilled or intermediate care facility which
meets all of the following tests:
1. It must be legally operated to provide
skilled or intermediate nursing care to
patients at their expense.
2. It must provide licensed nursing care by a
registered, licensed practical or
vocational nurse (RN, LPN, or LVN); it
must do so 24 hours a day under the
direction of a physician or registered
nurse (RN).
3. It must keep daily medical records for
each patient.
4. It is not: a custodial care facility; a
home for the aged; an adult congregate
living facility; an adult day care center;
nor a place mainly for rest, retirement
care, or the treatment of alcoholism,
mental illness, or drug abuse.
5. It is not a hospital but it may be part of
a hospital. A bed, ward, unit or wing not
meeting all of the above tests is not
considered part of such Nursing Care
Facility.
Page 6
<PAGE>
PHYSICIAN A Doctor of Medicine or a Doctor of Osteopathy
licensed to practice medicine and treat injury
or illness in the state in which treatment is
received and who is acting within the scope of
that license. A physician must be someone other
than:
1. the Annuitant;
2. the Owner;
3. a person who lives with the Annuitant or
Owner;
4. a person who is a member of the Annuitant's
or Owner's immediate family.
PHYSICIAN'S STATEMENT A written statement acceptable to Us and signed
by a Physician, which:
1. provides the Physician's diagnosis and
prognosis of the Owner's non-correctable
medical condition; and
2. states with reasonable medical certainty
that the non-correctable medical condition
will result in the Owner's death within 12
months from the date of the Physician's
Statement. This statement must take into
consideration the ordinary and reasonable
medical care, advice and treatment
available in the same or similar
communities.
PREMIUM Amounts credited to the Annuity Value by Us.
ENHANCEMENT
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 premium
or the contract value.
REALLOCATION DATE The date on which any premiums are
reallocated from the Reallocation Account to
the Accounts elected by the Owner. The
Reallocation Date is shown on the Contract
Schedule page.
SEC The United States Securities and Exchange
Commission.
SEPARATE ACCOUNT A separate investment account composed
of several Subaccounts established to receive
and invest net payments under the Contract and
under other variable annuity contracts issued
by the Company.
Page 7
<PAGE>
SERIES FUND A designated mutual fund from which a
Subaccount of the Separate Account will buy
shares.
SKILLED OR INTERMEDIATE Using professional nursing methods and
NURSING CARE procedures administered by licensed health
care personnel. Such care includes: post-
hospital care; rehabilitation nursing care;
maintenance therapy; administration of
medications which cannot be self-administered;
injections; and catheterization.
SUBACCOUNT A Separate Account allocation option that is
made available under this Contract.
SURRENDER The termination of the Contract at the option
of the Owner.
SURRENDER CHARGE The period of time during which a Surrender
PERIOD Charge may be imposed as shown on the
Contract Schedule page. For each premium, the
period begins on the date payment is
received by Us.
TERMINAL CONDITION A condition resulting from injury or illness
which, as determined by a Physician, has
reduced life expectancy to not more than 12
months from the date of the Physician's
Statement.
VALUATION DATE Each day on which the New York Stock Exchange
is open for business.
VALUATION PERIOD The period commencing at the end of one
Valuation Date and continuing to the end of
the next succeeding Valuation Date.
WRITTEN NOTICE Written Notice means a notice by the Owner to
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.
Page 8
<PAGE>
GENERAL PROVISIONS
================================================================================
THE CONTRACT This Contract, the attached application, if
any, and any contract Riders constitute the
entire Contract. No Contract provision can
be waived or changed except by endorsement.
Such endorsement must be signed by Our
President or Secretary. We reserve the right to
amend the Contract to meet the requirements of
any applicable Federal or state laws or
regulations.
OWNERSHIP This Contract belongs to the Owner. The Owner
as shown on the Contract Schedule page, or as
subsequently changed, may exercise all rights
under this Contract including the right to
transfer ownership. These rights may be subject
to the consent of any assignee or irrevocable
beneficiary. Joint Owners may be named,
provided the Joint Owners are husband and wife.
CHANGE OF We will not be bound by any requested change in
OWNERSHIP UPON the ownership designation unless it is made by
REQUEST Written Notice. The change will be effective
on the date the Written Notice is accepted by
Us. If We request, this Contract must be
returned to Our Office for endorsement.
Changing the Owner cancels any prior ownership
designation, but it does not change the
Beneficiary or the Annuitant.
CHANGE OF Should the Owner die during the Accumulation
OWNERSHIP UPON Period, We will be bound by the following:
DEATH OF OWNER
1. In the event of death of one Joint Owner,
this Contract will continue with the
surviving Joint Owner as sole Owner.
2. If the Owner is the Annuitant, then the
Death Benefit Proceeds are payable as
provided in the Death Benefit Provisions.
3. If the Owner is not the Annuitant and dies
before the Annuitant:
(a) If no Beneficiary is named and alive,
the Owner's estate will become the
new Owner. The Cash Value must be
distributed within five years of the
former Owner's death;
(b) If the Beneficiary is alive and is the
Owner's spouse, this Contract will
continue with the spouse as the new
Owner; or
(c) If the Beneficiary is alive and is not
the Owner's spouse, the Beneficiary
will become the new Owner. The Cash
Value must be distributed either:
Page 9
<PAGE>
(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 be the Internal Revenue
Code and Regulations adopted
under the Code) of the new
Owner, if a natural person, with
payments beginning within one
year of the former Owner's death.
BENEFICIARY The Beneficiary, as named in the application or
subsequently changed, is entitled to receive
the Death Benefit Proceeds, if any, as provided
in the Death Benefit Provisions of this
Contract, or the Cash Value, if any, as
provided in 3.c above. If no Beneficiary is
alive, the benefits payable to the Beneficiary
will be paid to the Owner, if surviving,
otherwise to the Owner's estate.
CHANGE OF We will not be bound by any change in the
BENEFICIARY Beneficiary designation unless it is made
by Written Notice. The change will be effective
on the date the Written Notice was signed;
however, no change will apply to any payment
We made before the Written Notice is received.
If We request, this Contract must be
returned to Our Office for endorsement.
ASSIGNMENT This Contract may be assigned prior to the
Maturity Date. We will not be bound by any
assignment unless made by Written Notice. The
Assignment will be effective on the date the
Written Notice is received at Our Office and
accepted by Us. We assume no responsibility for
the validity of any assignment.
INCONTESTABILITY This Contract is incontestable from the
Contract Date.
AGE AND SEX If a date of birth or sex has been misstated,
any amount payable will be adjusted to conform
to the correct date of birth and sex.
CONTRACT YEARS Contract years, quarters and anniversaries are
measured from the Contract Date.
Page 10
<PAGE>
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 Subaccounts will be processed as provided
in this Contract unless one of the following
situations exist:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted
or declares an emergency; or
3. The SEC allows Us to defer payments to
protect Our contractowners.
PROTECTION OF Unless the Owner directs by filing Written
PROCEEDS 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.
SEPARATE ACCOUNT PROVISIONS
================================================================================
The variable benefits under this Contract are provided through the Separate
Account referenced on the Contract Schedule page. 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.
Page 11
<PAGE>
SUBACCOUNTS The Separate Account has various Subaccounts.
Each Subaccount 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
Subaccounts than assets invested during the
Accumulation Period. We reserve the right to
add or remove any Subaccount of the Separate
Account. Income and realized and unrealized
gains and losses from assets in each Subaccount
are credited to, or charged against, that
Subaccount without regard to income, gains, or
losses in other Subaccounts. Any amount
charged against the contract value for federal
or state income taxes will be deducted from
that Subaccount.
TRANSFERS AMONG During the Accumulation Period, the Owner may
SUBACCOUNTS DURING transfer all or a portion of this Contract's
THE ACCUMULATION value in its Subaccounts to other Subaccounts
PERIOD 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.
TRANSFERS AMONG After the Maturity Date, the Owner may transfer
SUBACCOUNTS AFTER the value of the variable annuity units from
THE MATURITY DATE one Subaccount to another. The minimum amount
which may be transferred is the lesser of $10
monthly income or the entire monthly income of
the variable annuity units in the Subaccount
from which the transfer is being made. If the
monthly income of the remaining units in a
Subaccount is less the $10, We reserve the
right to include the value of those variable
annuity units as part of the transfer.
After the Maturity Date, no transfers may be
made to or from the Fixed Account. We reserve
the right to limit transfers to once per
contract year.
ADDITION, DELETION OR We reserve the right to transfer assets of the
SUBSTITUTION Separate Account, which We determine to be
OF INVESTMENTS 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 Subaccount.
Page 12
<PAGE>
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;
4. combine the Separate Account or any
Subaccount(s) with one or more other
Separate Accounts or Subaccounts;
CHANGE OF We reserve the right to change the investment
INVESTMENT OBJECTIVE objective of a Subaccount. If required by law
or regulation, an investment objective of the
Separate Account, or of a Series Fund
portfolio designated for a Subaccount, will
not be materially changed unless a statement
of the change is filed with and approved by
the appropriate insurance official of the
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 Some of the contract values fluctuate with the
UNIT VALUE investment results of the Subaccounts. In order
to determine how investment results affect the
contract values, an Accumulation Unit Value is
determined for each Subaccount. The
Accumulation Unit Value may increase or
decrease from one Valuation Period to the next.
Accumulation Unit Values also will vary between
Subaccounts.
The Accumulation Unit Value of any Subaccount
at the end of the Valuation Period is the
result of:
1. the total value of the assets held in the
Subaccount. This value is determined by
multiplying the number of shares of the
designated Series Fund portfolio owned by
the Subaccount times the net asset value
per share; minus
2. the accrued charge for administration and
mortality and expense. The daily amount of
this charge is equal to the daily net
assets of the Subaccounts multiplied by
the daily Separate Account Charge for the
selected Death Benefit Option. The maximum
annual factor for the Separate Account
Charge is shown on the Contract Schedule
page; minus
3. the accrued amount of reserve for any
taxes that are determined by Us to have
resulted from the investment operations of
the Subaccount; and the result divided by
4. the number of outstanding units in the
Subaccount.
Page 13
<PAGE>
The use of the Accumulation Unit Value in
determining contract values is described in the
Contract Value Provisions.
PREMIUM PROVISIONS
================================================================================
PREMIUMS Premiums after the first are payable at Our
Office. The amount of premium which may be paid
during any contract year may not exceed the
Maximum Additional Annual Premium shown on the
Contract Schedule page without Our consent.
Premiums will not be accepted in an amount less
than the Minimum Additional Premium shown on
the Contract Schedule page without Our consent.
Our acceptance of any premium shall not
constitute a waiver of these limits with
respect to subsequent premiums.
PREMIUM When a premium is received, the corresponding
ENHANCEMENTS Premium Enhancement will be calculated as a
percentage of that premium and will be credited
to the Annuity Value in the same manner as the
Owner's current premium allocation. The Premium
Enhancement percentage for the Initial Premium
is shown on the Contract Schedule page. The
Premium Enhancement percentage for subsequent
premiums may vary from premium to premium and
will vary based upon the Annuitant's Attained
Age and the contract year at the time a premium
payment is made, but will never be greater than
8%. We will notify the Owner of the amount of
the applicable Premium Enhancement applicable
to each premium payment.
On any premium received subsequent to the
Initial Premium, We may only calculate the
Premium Enhancement on the excess of the
premium paid over prior partial Surrenders.
Premium Enhancements are not considered
premiums.
Page 14
<PAGE>
CONTRACT VALUE PROVISIONS
================================================================================
NET PREMIUM The net premium will be the premium received
less Premium Tax, if any.
ALLOCATION OF NET Net Premiums plus any corresponding Premium
PREMIUMS Enhancements will be allocated to the Accounts
on the first Valuation Date on or following
the date the premium is received at Our Office.
Any premium received prior to the Reallocation
Date, including the Initial Premium, will be
allocated to the Reallocation Account. On the
first Valuation Date on or following the
Reallocation Date, the values in the
Reallocation Account, and any corresponding
Premium Enhancement, will be allocated in
accordance with the Owner's current premium
allocation instructions.
All allocation percentages must be in whole
numbers. The allocation of future net premiums
may be changed by the Owner. We reserve the
right to charge a fee of $25 for each change of
allocation in excess of one per Contract
quarter. The request for change of allocations
must be in a manner satisfactory to Us. The
allocation change will be effective on the date
the request for change is recorded by Us.
SUBACCOUNT VALUE At the end of any Valuation Period, the
Subaccount value is equal to the number of
units that the Contract has in the Subaccount,
multiplied by the Accumulation Unit Value of
that Subaccount.
The number of units that the Contract has in
each Subaccount is equal to:
1. the units purchased by the Initial
Premium on the Contract Date; plus
2. the units purchased by the Premium
Enhancement applicable to the Initial
Premium as of the Reallocation Date; plus
3. units purchased at the time additional net
premiums are allocated to the Subaccount;
plus
4. units purchased at the time any additional
Premium Enhancements are allocated to the
Subaccount; plus
5. units purchased through transfers from
another Account; minus
6. any units that are redeemed to pay for
partial Surrenders; minus
7. any units that are redeemed as part of a
transfer to another Account; minus
8. any units that are redeemed to pay the
Annual Contract Charge, Premium Tax and
transfer fees, if any.
Page 15
<PAGE>
FIXED ACCOUNT At the end of any Valuation Period, the Fixed
Account value is equal to:
1. the sum of all net premiums allocated to
the Fixed Account; plus
2. the sum of all Premium Enhancements
credited to the Fixed Account; plus
3. any amounts transferred from a Subaccount
to the Fixed Account; plus
4. total interest credited to the Fixed
Account; minus
5. any amounts withdrawn from the Fixed
Account to pay for partial Surrenders;
minus
6. any amounts transferred to a Subaccount
from the Fixed Account; minus
7. any amounts charged to pay the Annual
Contract Charge, Premium Tax and transfer
fees, if any.
Interest on the Fixed Account will be
compounded daily at a minimum guaranteed
effective annual interest rate of 3% per year.
We may declare from time to time higher current
interest rates. The interest rates We set will
be credited for increments of at least one year
measured from each purchase payment or transfer
date.
On transfers from the Fixed Account to a
Subaccount, unless We otherwise consent:
1. Written Notice must be within 30 days after
a contract anniversary.
2. The transfer will ordinarily take place on
the first Valuation Date on or
following the date We receive such Written
Notice.
3. The amount that may be transferred is the
greater of (a) 25% of the amount in the
Fixed Account; or (b) the amount
transferred in the prior contract year
from the Fixed Account.
Unless We otherwise consent, transfers to the
Fixed Account or allocation of Net Premiums to
the Fixed Account may be restricted if the
Fixed Account value following the transfer or
allocation would exceed $500,000.
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.
Page 16
<PAGE>
ANNUAL CONTRACT During the Accumulation Period, the Annual
CHARGE Contract Charge shown on the Contract
Schedule page will be made once a year from the
Annuity Value on each contract
anniversary. This charge will be deducted from
each Subaccount and the Fixed Account in
proportion to the value each bears to the
Annuity Value. If the Contract is surrendered
on other than a contract anniversary, the
charge will also be made on the date of
Surrender.
The Annual Contract Charge prior to Surrender
will be waived if either (1) the Annuity Value
or (2) the sum of all net premiums received,
minus all partial Surrenders, equals or exceeds
[$50,000] as of the contract anniversary for
which the charge is payable.
ANNUITY VALUE At the end of any Valuation Period, the Annuity
Value is equal to the sum of the Account
values.
PARTIAL SURRENDER Prior to the Maturity Date, a partial Surrender
may be made by the Owner without full Surrender
of this Contract. Unless We otherwise consent:
1. The request must be made by Written Notice.
2. The partial Surrender may not reduce the
Cash Value to less than the Minimum
Balance shown on the Contract Schedule page.
3. No amount from the Fixed Account may be
partially surrendered.
Except as provided below, the amount payable
will be the amount of the partial Surrender
less any applicable Surrender Charge and
Premium Tax. The Subaccount(s) for the partial
Surrender may be specified. If not specified,
partial Surrenders will be deducted from each
Subaccount and, if We consent, the Fixed
Account in proportion to the value each bears
to the Annuity Value.
Partial Surrenders may be made, without a
Surrender Charge being deducted at the time the
partial Surrender is made, in one of the
following ways:
1. LUMP SUM
During any Contract Year, the Owner may request
a lump sum partial Surrender. The maximum
amount available without a Surrender Charge for
a lump sum partial Surrender is equal to the
greater of A or B, where:
Page 17
<PAGE>
A is equal to:
(i)the Annuity Value on the date of the
partial Surrender; plus (ii) any amounts
previously surrendered from this Contract;
minus (iii) the total of all premiums paid
for this Contract; minus (iv) any Premium
Enhancement amounts credited; minus (v)any
amounts previously surrendered under A.
and
B is equal to:
(i) 10% of the Annuity Value on the date
of the partial Surrender; minus
(ii) any amounts partially surrendered
during the contract year in which
the partial Surrender is requested.
If the requested partial Surrender amount is
less than the amount determined under A above,
the partial Surrender will be processed under
A.
If the requested partial Surrender amount is
greater than the amount determined under A, but
less than the amount determined under B above,
the partial Surrender will be processed under A
up to the amount of A and any excess partial
Surrender amount will be processed under the
terms of B.
If the amount determined under A is ever less
than or equal to zero, the partial Surrender
will be processed under the terms of B above.
Unless We otherwise consent, the minimum lump
sum payment amount is $500.
2. SYSTEMATIC PAYOUT OPTION
During any contract year, a Systematic Payout
Option is available on a monthly, quarterly,
semi-annual or annual basis without a Surrender
Charge. Systematic payouts must be at least $50
and may not exceed 10% of the Annuity Value at
the time the payout is made, divided by the
number of payouts made per calendar year. We
reserve the right to discontinue systematic
payouts if any payout would reduce the Annuity
Value below the Minimum Balance shown on the
Contract Schedule page.
The Owner may elect to begin or discontinue
systematic payouts at any time. However, We
must receive Written Notice at least 30 days
prior to the date systematic payouts are to be
discontinued.
Page 18
<PAGE>
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:
1. any applicable Surrender Charge; less
2. any applicable Premium Tax; less
3. the Annual Contract Charge.
SURRENDER CHARGE On the Surrender or partial Surrender of
premiums paid beyond the Surrender Charge
Period shown on the Contract Schedule page, no
Surrender Charge will be imposed.
Except as provided in the Partial Surrender
provision, on the partial Surrender of premiums
within the Surrender Charge Period, the
Surrender Charge will equal the premium paid
within the Surrender Charge Period, times the
applicable Surrender Charge Percentage shown on
the Contract Schedule page.
On the full Surrender of premium payments
within the Surrender Charge Period, the
Surrender Charge will equal the premium paid
within the Surrender Charge Period (including
any premiums previously withdrawn to pay for
partial Surrenders for which a Surrender Charge
was not deducted), times the applicable
Surrender Charge Percentage shown on the
Contract Schedule page.
NURSING CARE FACILITY If the Owner is confined to a Nursing Care
WAIVER OF SURRENDER Facility for 30 consecutive days or longer, We
CHARGE will waive all Surrender Charges on Surrender
or partial Surrenders from the Contract, as
follows. Such confinement must begin after the
Contract Date. We will waive Surrender Charges
under this provision only for Surrender or
partial Surrenders made during such confinement
or within two months after confinement ends.
Each Surrender or partial Surrender request
must be accompanied by satisfactory written
evidence of confinement, including dates of
confinement, at the time the request is made.
If the Owner requests a partial or full
Surrender under the terms of this provision,
the Annuity Value will be reduced by the total
Premium Enhancements credited to the Annuity
Value within the twelve (12) months prior to
the partial or full Surrender request, and
those Premium Enhancements will be forfeited.
Page 19
<PAGE>
TERMINAL CONDITION If the Owner is diagnosed with a Terminal
WAIVER OF SURRENDER Condition the Contract Date, We will waive all
CHARGE Surrender Charges full Surrender or upon each
partial surrender. Requests for Surrender or a
partial Surrender must be accompanied by a
Physician's Statement. The minimum amount
available for a partial Surrender under this
provision is $1,000.
Partial Surrenders will reduce the Annuity
Value by the amount surrendered. If the Owner
requests a full Surrender, or if any partial
Surrender reduces the Annuity Value below the
Minimum Balance shown on the Contract Schedule
page, We will pay the Contract's Annuity Value
and the Contract will terminate without further
value.
If the Owner requests a partial or full
Surrender under the terms of this provision,
the Annuity Value will be reduced by the total
Premium Enhancements credited to the Annuity
Value within the twelve (12) months prior to
the partial or full Surrender request, and
those Premium Enhancements will be forfeited.
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.
DEATH BENEFIT PROVISIONS
================================================================================
DEATH OF ANNUITANT If the Annuitant dies during the Accumulation
DURING THE Period and the Owner is a natural person other
ACCUMULATION PERIOD than the Annuitant, the Owner will
automatically become the Annuitant and this
Contract will continue. In the event of Joint
Owners, the younger Joint Owner will
automatically become the new Annuitant and this
Contract will continue.
If the Annuitant dies during the Accumulation
Period and the Owner is either (1) the same
individual as the Annuitant; or (2) other than
a natural person, then the Death Benefit
Proceeds as calculated below are payable to the
Beneficiary. However, in the event of Joint
Owners, if the Annuitant dies during the
Accumulation Period and is the same individual
as one of the Joint Owners, the surviving Joint
Owner will automatically become the Annuitant
and this Contract will continue.
Page 20
<PAGE>
DEATH BENEFIT If the Annuitant dies during the Accumulation
PROCEEDS Period, the Death Benefit Proceeds, if payable,
will be determined by the Death Benefit Option
shown on the Contract Schedule Page. The
Death Benefit Option may not be changed after
this Contract has been issued.
OPTION A
Under Option A, the Death Benefit Proceeds
will be the greater of:
1. the Annuity Value as of the Death Report
Day, reduced by the amount of any Premium
Enhancements credited to the Annuity Value
within twelve (12) months prior to the
Death Report Day; or
2. the excess of (a) the amount of premium
paid as of the Death Report Day, less (b)
any amount withdrawn from this Contract to
pay for partial Surrenders (Premium
Enhancements are not included in the
calculation of the Death Benefit Proceeds
under this option); or
3. the highest Annuity Value as of any
contract anniversary prior to the
Annuitant's 81st birthday. If the contract
anniversary with the highest anniversary
value occurs within the twelve (12) months
prior to the Death Report Day, then the
highest Annuity Value will be reduced by
the amount of any Premium Enhancements
credited to the Annuity Value from the
beginning of this twelve (12) month period
to that contract anniversary. The highest
Annuity Value will be increased for
premiums made (but it will not be
increased for the Premium Enhancements
applicable to those premiums) and
decreased for adjusted partial Surrenders
taken following the date of the contract
anniversary on which the highest Annuity
Value occurs.
OPTION B
Under Option B, the Death Benefit Proceeds will
be the greater of:
1. the Death Benefit Proceeds as determined
under Option A above; or
2. total premiums paid for this Contract plus
the Premium Enhancement corresponding to
the Initial Premium only, less any
adjusted partial Surrenders, accumulated
at 5% interest per annum from the date of
payment or partial Surrender until the
earlier of (a) the date of death, or (b)
the date of the Annuitant's 81st birthday.
Option B is not available if either the
Annuitant or Owner is Age 74 or over as of the
Contract Date.
The adjusted partial Surrender under Death
Benefit Option A, 3, and Option B, 2, is equal
to (a) times (b) where:
Page 21
<PAGE>
(a) is the ratio of the value of any proceeds
that would have been payable had death
occurred, to the Annuity Value, as these
amounts existed on the date the partial
Surrender is processed, but prior to the
processing; and
(b) is the amount of the partial Surrender.
ALTERNATIVE ELECTION If the Beneficiary is entitled to receive the
Death Benefit Proceeds, the Beneficiary may
elect, in lieu of a lump sum payment, one of
the following options that provides for
complete distribution and termination of this
Contract at the end of the distribution period:
1. within five years of the date of death of
the Annuitant; or
2. over the lifetime of the Beneficiary; or
3. over a period that does not exceed the
life expectancy (as defined by the
Internal Revenue Code and Regulations
adopted under the Code) of such
Beneficiary.
Multiple beneficiaries may choose individually
among any of the three options.
For subparagraphs (1) and (3), the Annuity
Value as of the Death Report Day will be
adjusted to equal the Death Benefit Proceeds
and this Contract will remain in force as a
deferred annuity until the end of the elected
distribution period. For subparagraph (2), the
Maturity Date will be changed to the Death
Report Day and the Death Benefit Proceeds will
be used to purchase annuity payments under the
Annuity Provisions of this Contract.
For elections made under subparagraph (1), We
will:
a. at the time of election, allow one partial
Surrender and one transfer of all or a
portion of the Contract's value among
Subaccounts or the Fixed Account without a
transfer charge. Additional partial
Surrender and transfers are not permitted;
b. not deduct the Annual Contract Charge upon
complete distribution;
c. not permit payment of the Death Benefit
Proceeds under the Annuity Provisions of
this Contract upon complete distribution.
The Beneficiary may not name a Beneficiary
for payment of the Death Benefit Proceeds.
In the event the Beneficiary dies prior to
distribution of all Death Benefit
Proceeds, We will pay the remaining value
of the Death Benefit Proceeds to the
Contingent Beneficiary, if named by the
Owner. If no Contingent Beneficiary is
named, such payment will be made to the
Beneficiary's estate.
Page 22
<PAGE>
Subparagraphs (2) and (3) may be elected only
if the Beneficiary is a natural person and
payments start within one year of the date of
death of the Annuitant.
Except in the event of Joint Owners, as
provided in the Death of Annuitant During the
Accumulation Period provision, if the
Beneficiary is entitled to receive the Death
Benefit Proceeds and is the spouse of the
deceased Annuitant, then the Beneficiary may
elect to become the new Annuitant and Owner and
keep the Contract in force in lieu of receiving
the Death Benefit Proceeds. However, if the
spouse is also a Joint Owner of this Contract,
the terms of the Death of Annuitant During the
Accumulation Period provision shall apply.
ANNUITY PROVISIONS
================================================================================
COMMENCEMENT OF Monthly annuity payments will begin as of the
ANNUITY PAYMENTS Maturity Date shown on the Contract Schedule
page, unless another Maturity Date has been
elected as provided in these provisions.
MATURITY DATE The Maturity Date shown on the Contract
Schedule page 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 new Maturity Date is not beyond the
Annuitant's 95th birthday (100th birthday
if issued in conjunction with a Net Income
Charitable Remainder Unitrust).
ANNUITY OPTION The Annuity Option shown on the Contract
Schedule page 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
Subaccount allocation of the Annuity Proceeds
as of the Maturity Date.
CHANGE OF As of the Maturity Date and upon agreement with
ANNUITANT 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.
Page 23
<PAGE>
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 Prior to making the first monthly annuity
AND SEX 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 death benefit after the Maturity Date and
THE MATURITY DATE after the commencement of annuity payments
depends upon the annuity option selected. If a
payee dies on or after the commencement of
annuity payments, the remaining portion of any
interest In the Contract will be distributed at
least as rapidly as under the method of
distribution being used as of the date of the
payee's death.
RESTRICTIONS After the Maturity Date, no additional
premiums, partial Surrenders, full Surrenders,
change of Annuitants or Annuity Options may be
made under this Contract.
Page 24
<PAGE>
FIXED ACCOUNT ANNUITY PAYMENTS
================================================================================
INTEREST AND All Fixed Account annuity option payments are based
MORTALITY on a guaranteed interest rate of 3%. Mortality
is based on the "1983 Table a" mortality table
with projection using Projection Scale G
factors and assuming a Maturity Date in the
year 2000. Gender based mortality tables will
be used unless prohibited by law.
AMOUNT OF MONTHLY The amount of each monthly annuity payment will
FIXED ACCOUNT be determined by multiplying:
ANNUITY PAYMENT
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 The following options are available for payment
ANNUITY OPTIONS 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 - The Annuity Proceeds will be paid in equal
Fixed Period installments. The installments will be paid
over a fixed period determined from the
following table:
FIXED PERIOD
(IN MONTHS) RATE
---------------------- ------------------
60 17.91
120 9.61
180 6.87
240 5.51
Option B - The Annuity Proceeds will be paid in equal
Life Income installments determined from the following
table. Such installments are payable:
1. during the payee's lifetime only (Life
Annuity); or
2. during a 10 or 20 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).
Page 25
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTION B: LIFE INCOME
MONTHLY INCOME PAYMENTS
- ----------------------------------------------------------------------------------------------------------------------
GUARANTEED FOR LIFE GUARANTEED FOR 10 YEARS
- ------------------------------------------------------------ ---------------------------------------------------------
MALE AGE FEMALE MALE AGE FEMALE
- --------------------- ------------------- ------------------ ------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 3.87 50 $ 3.55 $ 3.84 50 $ 3.54
4.23 55 3.83 4.19 55 3.82
4.72 60 4.21 4.63 60 4.18
5.40 65 4.73 5.22 65 4.66
6.34 70 5.45 5.96 70 5.30
- --------------------- ------------------- ------------------ ------------------- ----------------- -------------------
- ------------------------------------------------------------ ---------------------------------------------------------
GUARANTEED RETURN OF POLICY PROCEEDS GUARANTEED FOR 20 YEARS
- ------------------------------------------------------------ ---------------------------------------------------------
MALE AGE FEMALE MALE AGE FEMALE
- --------------------- ------------------- ------------------ ------------------- ----------------- -------------------
$ 3.73 50 $ 3.49 $ 3.76 50 $ 3.51
4.03 55 3.73 4.05 55 3.75
4.40 60 4.04 4.37 60 4.06
4.88 65 4.45 4.72 65 4.41
5.51 70 4.99 5.04 70 4.80
- --------------------- ------------------- ------------------ ------------------- ----------------- -------------------
</TABLE>
Option C - The Annuity Proceeds will be paid in equal installments
Joint and Survivor during the joint lifetime of two payees and continuing
Life Income upon the death of the first payee for the remaining
lifetime of the survivor.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTION C: JOINT AND SURVIVOR LIFE INCOME
- ----------------------------------------------------------------------------------------------------------------------
MONTHLY PAYMENTS FOR EACH $1,000 OF AMOUNT RETAINED
- ----------------------------------------------------------------------------------------------------------------------
AGE OF OTHER PAYEE (FEMALE)
------------------------------------------------------------------------------------------------
AGE OF ONE 15 YEARS LESS 10 YEARS LESS 5 YEARS LESS SAME AS
PAYEE (MALE) THAN MALE PAYEE'S THAN MALE PAYEE'S THAN MALE PAYEE'S MALE PAYEE'S
- --------------------- ------------------------- ------------------------- ------------------------ -------------------
<S> <C> <C> <C> <C> <C>
50 $ 2.99 $ 3.09 $ 3.20 $ 3.32
55 3.11 3.24 3.38 3.53
60 3.27 3.43 3.62 3.82
65 3.47 3.69 3.94 4.22
70 3.74 4.04 4.38 4.77
- --------------------- ------------------------- ------------------------- ------------------------ -------------------
</TABLE>
Page 26
<PAGE>
VARIABLE ACCOUNT ANNUITY PAYMENTS
================================================================================
ANNUITY UNIT VALUE The Annuity Proceeds will be used to
purchase variable annuity units in the chosen
Subaccount(s). The Annuity Unit Value in any
Subaccount will increase or decrease reflecting
the investment experience of that Subaccount.
The Annuity Unit Value of any Subaccount 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
Subaccount at the end of the immediately
preceding Valuation Period;
(b) is the net investment factor for the
Subaccount 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
Subaccount 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 Subaccount
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 Subaccount 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
Subaccount.
(e) is the net asset value of a Series Fund
share held in the Subaccount 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 Subaccount.
Page 27
<PAGE>
DETERMINATION OF The amount of the first variable payment is
THE FIRST VARIABLE determined by multiplying the Annuity Proceeds
PAYMENT times the appropriate rate from the variable
option selected. The tables are based on the
"1983 Table a" mortality table with projection
using Projection Scale G factors, 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 Age nearest the Maturity
Date, adjusted as follows:
<TABLE>
<CAPTION>
MATURITY DATE ADJUSTED AGE
------------------------------------------------
<S> <C>
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
</TABLE>
After the year 2040 as determined by Us.
DETERMINATION OF The amount of variable annuity payments after
SUBSEQUENT the first will increase or decrease according
VARIABLE PAYMENTS to the Annuity Unit Value which reflects the
investment experience of the selected
Subaccount(s). Each variable annuity payment
after the first will be equal to the number of
variable annuity units in each selected
Subaccount multiplied by the Annuity Unit Value
of that Subaccount on the date the payment is
processed. The number of variable annuity units
in any selected Subaccount is determined by
dividing the first variable annuity payment
allocated to that Subaccount by the variable
Annuity Unit Value of that Subaccount on the
date the first annuity payment is processed. The
number of variable annuity units in any selected
Subaccount will be increased or reduced by the
number of units transferred to or from another
Subaccount.
VARIABLE ACCOUNT The following options are available for payment
ANNUITY OPTIONS 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 eac option. Any
guaranteed rates not shown for the options
below will be available upon request.
Page 28
<PAGE>
Option D - The Annuity Proceeds will be paid in
Variable Life Income installments determined from the following
table. Such installments are payable:
1. during the payee's lifetime only (Variable
Life Annuity); or
2. during a 10 year fixed period certain and for
the payee's remaining lifetime (Variable
Certain Period).
<TABLE>
<CAPTION>
=================== ================================================= ================================================
ADJUSTED VARIABLE LIFE ANNUITY VARIABLE CERTAIN PERIOD
PAYEE'S AGE MALE FEMALE UNISEX MALE FEMALE UNISEX
---------------- -------------- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
55 5.46 5.06 5.26 5.39 5.03 5.21
60 5.93 5.42 5.68 5.81 5.37 5.59
65 6.60 5.91 6.26 6.37 5.82 6.10
70 7.55 6.63 7.09 7.07 6.43 6.75
75 8.87 7.70 8.29 7.89 7.23 7.56
80 10.75 9.30 10.03 8.74 8.18 8.46
85 13.36 11.68 12.52 9.50 9.11 9.31
90 16.94 15.13 16.04 10.04 9.80 9.92
=================== ================ ============== ================= =============== ============== =================
</TABLE>
Option E - The Annuity Proceeds will be paid in
Variable Joint and installments during the joint lifetime of two
Survivor Life Income payees and continuing upon the death of the
first payee for the remaining lifetime of the
survivor.
Page 29
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Home Office: Columbus, Ohio
Administrative Office:
P.O. Box 5068
Clearwater, Florida 33758
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity
Monthly Annuity Commencing on Maturity Date
Non-Participating
No Dividends
Exhibit (5)
Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract
<PAGE>
WRL FREEDOM ENHANCER
VARIABLE ANNUITY APPLICATION
AA00104 [WRL LOGO]
<PAGE>
APPLICATION INSTRUCTIONS
1 ANNUITANT
Please provide all of the information requested for the Annuitant. The
Annuitant is the person who will receive the Annuity Payments and on whose
life expectancy payments are based. Provide the Annuitants Social Security
Number.
2 CONTRACT
Owner Complete ONLY if Contract Owner is not the same as the Annuitant.
Please provide all of the information requested for the Contract Owner.
Should the Owner be a Trust, a complete trust date must be supplied. If this
is to be an Individual Retirement Annuity, the Contract Owner must be the
same as the Annuitant. Provide the Contract Owners Taxpayer Identification
Number. For individuals, this is the Social Security Number, for
corporations, this is the Federal Employer Tax Identification Number. In the
event the contract is Jointly owned, taxation will be reported under the
Social Security Number listed in this section.
3 JOINT CONTRACT OWNER
NOTE: IF THIS CONTRACT IS INTENDED TO BE AN INDIVIDUAL RETIREMENT ANNUITY
(IRA), A JOINT CONTRACT OWNER IS NOT PERMITTED.
Joint Owners may be named provided the Joint Owners are husband and wife.
(Distributions from Jointly Owned contracts will be made payable to both
husband and wife.)
4 BENEFICIARY DESIGNATION
The Primary Beneficiary will receive the death benefit proceeds payable in
the event of the Owners death, or the Annuitants death, if the Owner is not
a natural person. If the Primary Beneficiary is already deceased, the
Contingent Beneficiary, if designated, will receive the death benefit
proceeds; otherwise, the proceeds will be paid to the Owners estate. In the
event of the death of one Joint Owner, the contract will continue with the
surviving Joint Owner as sole Owner. The relationship of the Beneficiary to
the Annuitant must be provided.
5 NAME OF ANNUITY
The Name of Annuity being applied for must be indicated.
6 TYPE OF PLAN
The annuity will be issued as the type of plan indicated in this section.
(IRA SOURCES: TRANSFER TRUSTEE TO TRUSTEE; ROLLOVER/DIRECT ROLLOVER
QUALIFIED RETIREMENT PLAN TO IRA, (TRUSTEE TO TRUSTEE OR TRUSTEE TO
INDIVIDUAL/PARTICIPANT); CONDUIT IRA ESTABLISHED FROM A DIRECT ROLLOVER WITH
THE INTENT TO ROLL BACK INTO ANOTHER QUALIFIED RETIREMENT PLAN)
7 REPLACEMENT
The Contract Owner must answer the replacement question.
If replacing a life insurance policy or an annuity contract from another
company, please check the box marked Yes, and complete the required form(s).
If not replacing a policy or a contract, check the box marked No.
8 INITIAL PREMIUM
Refer to the prospectus for the minimum initial purchase payment, payable by
check, wire transfer* or by an Exchange or Transfer. Indicate the initial
purchase amount if enclosed with the application.
* Contact the home office for wiring instructions.
9 SPECIAL INSTRUCTIONS
Complete this section to indicate any special remarks.
10 ADDITIONAL INFORMATION
Complete this section if the Contract Owner would like a Statement of
Additional Information.
11 INVESTMENT SELECTION
Payments may be allocated to any combination of the available Sub-Accounts,
or the Fixed Account. Please indicate each allocation selected as a whole
percentage of the Purchase Payment; note that the allocations must total
100%.
Future premiums will be allocated as shown in this section, unless the
Contract Owner notifies Western Reserve Life differently in writing.
12 STATEMENT OF OWNER
The Owner must sign, as indicated, exactly as the name appears in either
Section 1, if Annuitant and Owner are the same, or in Section 2, if
Annuitant and Owner are different. In the event of Joint Owners, the Joint
Owners must sign, as indicated, exactly as the names appear in Section 2 and
Section 3. The State in which the application was written and the date
signed are also required.
NOTE: SOME STATES REQUIRE THAT THE CONTRACT OWNERS(S) ACKNOWLEDGE A FRAUD
WARNING STATEMENT. PLEASE REFER TO THE FRAUD WARNING STATEMENT FOR YOUR
STATE AS INDICATED.
13 BROKER/DEALER INFORMATION
The Registered Representative signature and the date signed are required.
Complete all of the remaining information by printing clearly.
The Registered Representative must answer the replacement question.
AA00104
<PAGE>
OPTIONAL FEATURE INSTRUCTIONS
14 TELEPHONE TRANSACTIONS
Your variable annuity contract will automatically receive telephone transfer
and withdrawal privileges described in the applicable prospectus unless
instructions to the contrary are indicated.
Western Reserve Life will not be liable for complying with the telephone
instructions it reasonably believes to be authentic, nor for any loss,
damage, costs or expense in acting on such telephone instructions, and
Owners will bear the risk of any such loss. Western Reserve Life will employ
such procedures to confirm that the telephone instructions are genuine. If
Western Reserve Life does not employ such procedures, it may be liable for
losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring forms of personal identification prior to
acting upon such telephone instructions, providing written confirmation of
such transactions to Owners and/or tape recording of telephone transaction
instructions received.
15 AUTOMATIC MONTHLY INVESTING
Complete this section if Automatic Monthly Investing by electronic funds is
desired. A voided, unsigned check from the bank account to be debited must
be attached to the application. Automatic Monthly Investing will be
processed on the date specified herein. If the date an Automatic Monthly
Investing transaction would otherwise be processed falls on a non- business
day, the Automatic Monthly Investing will be processed on the next business
day. The amount debited will be allocated according to the instructions in
Section 11 of the Application, or as subsequently changed in writing by the
Owner. Credit Unions and Savings account may not be eligible, please consult
your banking institution.
16 DOLLAR COST AVERAGING
Complete this section if Dollar Cost Averaging is desired. If selected,
Western Reserve Life will automatically transfer the stated amount(s) from
the designated Sub-Account(s) or the Fixed Account* to the other
Sub-Account(s) or Fixed Account indicated on the chosen date of each month.
The Dollar Cost Averaging feature is a long-term investment method that
provides for regular, level investments over time. Western Reserve Life
makes no guarantee that the Dollar Cost Averaging feature, if implemented,
will result in a profit or protect from loss. To complete this section,
indicate the Sub-Account(s) or Fixed Account* from which the Dollar Cost
Averaging are to be made, one Sub-Account or Fixed Account* per From line. A
minimum of $5,000 must be allocated in each Sub-Account chosen (or Fixed
Account*) at the time this option is initiated. At least $100 in the
aggregate must be transferred each month. *No more than 110 of the amount in
the Fixed Account at the beginning of the Dollar Cost Averaging can be
transferred each month. (Note: This option is not available if Automatic
Withdrawal or Asset Rebalancing option is selected.)
17 ADDITIONAL BENEFITS ELECTION
The additional benefit option allows you to choose either an alternative
Death Benefit in addition to the standard death benefit for the chosen
product, or a minimum annuitization value option for your contact. These
options must be elected at the time the application is taken. The Guaranteed
Minimum Income Benefit and the additional Death Benefit options are not
available if the annuitant is age 74 or older.
18 ASSET REBALANCING
Complete this section if Asset Rebalancing is desired. If selected, Western
Reserve Life will automatically transfer amounts among the chosen
Sub-Accounts on the frequency selected to maintain a desired allocation of
the annuity purchase value among the various Sub-Accounts offered. Western
Reserve Life makes no guarantee that the Asset Rebalancing feature, if
implemented, will result in a profit or protect against loss. To be
eligible, a minimum initial purchase payment of $5,000 must accompany this
application. *Asset Rebalancing is not available for any amounts in the
Fixed Account (Note: This option is not available if Automatic Withdrawal or
Dollar Cost Averaging option is selected.)
19 AUTOMATIC PARTIAL SURRENDER
The Owner may select to partially surrender up to 10% of the Contract value
annually, payable in equal annual, semi-annual, quarterly, or monthly
installments of at least $200 per month. To be eligible, a minimum initial
premium of $25,000 must accompany this application. A penalty tax equal to
10% of the amount of the partial surrenders treated as taxable income will
generally be imposed on the partial surrenders prior to the Owners age 5912.
Partial surrenders will be processed on the date specified herein. If the
date an Automatic Partial Surrender transaction would otherwise be processed
falls on a non-business day, the Automatic Partial Surrender will be
processed on the next business day. For Tax-Qualified contracts, or if the
Owner is a resident of a community property state, spousal signature is
required. If an alternate payee is designated, and the payee is a bank
account, the Automatic Partial Surrender will be directly deposited by
electronic funds transfer. If the payee is not a bank, please allow 7 to 10
days for receipt of funds by mail. Indicate whether or not to withhold
Federal income tax from the partial surrender payments. *Automatic Partial
Surrenders is not available for any amounts in the Fixed Account (Note: This
option is not available if Dollar Cost Averaging or Asset Rebalancing option
is selected.)
20 APPROVAL OF OPTIONAL FEATURES
If any of the Optional features available in Section(s) 14, 15, 16, 17, and
18 have been selected, please complete this section by printing and signing
your name as indicated.
For assistance in completing this application, please call your dedicated
"800" line and dial extension 6525 for our Sales Support Team.
<TABLE>
<CAPTION>
<S> <C>
PLEASE MAIL APPLICATION AND CHACK PAYABLE TO: IF OVERNIGHT DELIVERY:
Western Reserve Life Assurance Co. of Ohio Western Reserve Life Assurance Co. of Ohio
Attention: Annuity Department Attention: Annuity Department
P.O. Box 9051 8550 Ulmerton Road, Suite 101
Clearwater, CL, 33758 Largo, FL 33771
</TABLE>
AA00104
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, P.O. BOX 9051, CLEARWATER, FLORIDA
33758
VARIABLE ANNUITY APPLICATION
1 ANNUITANT
________________________________________________
Name
________________________________________________
Address
________________________________________________
City State Zip
________________________________________________
Social Security Number
[ ] male
[ ] female
________________________________________________
Date of Birth (mm/dd/yyyy)
________________________________________________
Daytime Telephone
________________________________________________
E-Mail Address (Optional)
2 CONTRACT OWNER (IF OTHER THAN ANNUITANT)
________________________________________________
Name
________________________________________________
Address
________________________________________________
City State Zip
________________________________________________
Social Security Number or Tax I.D. Number
[ ] male
[ ] female
________________________________________________
Date of Birth (mm/dd/yyyy)
________________________________________________
Daytime Telephone
________________________________________________
E-Mail Address (Optional)
3 JOINT CONTRACT OWNER (OPTIONAL)
(If elected must be spouse of owner)
________________________________________________
Name
________________________________________________
Address
________________________________________________
City State Zip
________________________________________________
Social Security Number or Tax I.D. Number
[ ] male
[ ] female
________________________________________________
Date of Birth (mm/dd/yyyy)
( )
________________________________________________
Daytime Telephone
4 BENEFICIARY DESIGNATION
PRIMARY BENEFICIARY
Name Relationship to Annuitant Percentage
________________________________________________
________________________________________________
________________________________________________
CONTINGENT BENEFICIARY
Name Relationship to Annuitant Percentage
________________________________________________
________________________________________________
________________________________________________
(IF MORE THAN ONE PRIMARY OR CONTINGENT BENEFICIARY IS DESIGNATED, PROCEEDS
WILL BE DIVIDED EQUALLY AMONG THE SURVIVORS WITHIN THE CLASSIFICATION UNLESS
OTHERWISE INDICATED.)
5 NAME OF ANNUITY
[ ] WRL Freedom Enhancer
[ ] Other ________________________________________
6 TYPE OF PLAN (SEE PROSPECTUS FOR MINIMUM CONTRIBUTIONS)
[ ] Non-Qualified [ ] SEP/IRA [ ] SIMPLE IRA
[ ] Roth IRA [ ] IRA
(Indicate the source of the IRA below)
[ ] Transfer [ ] Conduit
[ ] Rollover/Direct Rollover
[ ] Conversion: tax year
[ ] Contributory: tax year
[ ] Other
7 REPLACEMENT (REQUIRED)
Is this annuity intended to replace (in whole or in part) an
existing life insurance policy or annuity contract?
[ ] Yes
[ ] No
If Yes, please provide the name and the policy or contract number below:
________________________________________________
Company
________________________________________________
Policy or Contract Number
AA00104 1
<PAGE>
8 INITIAL PREMIUM
Make Check Payable to "Western Reserve Life"
$________________________________________________
[ ] Automatic Monthly Investing (Complete section No. 15)
9 SPECIAL INSTRUCTIONS
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
10 ADDITIONAL INFORMATION
[ ] Yes, Please send me a statement of additional information.
11 INVESTMENT SELECTION**
WRL Janus Growth %
WRL Janus Global %
WRL Alger Aggressive Growth %
WRL VKAM Emerging Growth %
WRL AEGON Bond %
WRL AEGON Balanced %
WRL LKCM Strategic Total Return %
WRL Federated Growth & Income %
WRL J.P. Morgan Money Market %
WRL J.P. Morgan Real Estate Securities %
WRL Dean Asset Allocation %
WRL GE U.S. Equity %
WRL GE/Scottish Equitable International Equity %
WRL Third Avenue Value %
WRL NWQ Value Equity %
WRL C.A.S.E. Growth %
WRL Goldman Sachs Growth %
WRL Goldman Sachs Small Cap %
WRL T. Rowe Price Dividend Growth %
WRL T. Rowe Price Small Cap %
WRL Salomon All Cap %
WRL Pilgrim Baxter Mid Cap Growth %
WRL Dreyfus Mid Cap %
Fixed Account %
Other %
Other %
** In some states the initial premium payment will be allocated to the WRL
J.P. Morgan Money Market subaccount during the right to examine period.
12 STATEMENT OF OWNER (IF APPLICABLE, COMPLETE THE STATE SPECIFIC FRAUD
WARNING)
I hereby represent my answers on this application are true and complete to
the best of my knowledge and belief. I agree that this application shall be
a part of the annuity contract. I have received a current Prospectus for the
contract applied for. I understand that I should consult my own tax advisor
and/or legal counsel as to the consequences of using this product in
conjunction with my own particular tax or financial plan.
I UNDERSTAND THAT UNDER THE CONTRACT APPLIED FOR VALUES MAY INCREASE OR
DECREASE DEPENDING UPON INVESTMENT EXPERIENCE. I also state that the
contract is in accordance with my financial objectives.
* The standard maturity date is the anniversary nearest Annuitants age 95
(age 100 if issued in conjunction with a net income charitable remainder
unitrust). The standard annuity option is variable account life with 120
monthly payments guaranteed. Option to change election is permitted by
the contract.
Under penalty of perjury, I (the owner) certify that my Taxpayer I.D. Number
is correct as it appears on the application and that I am not subject to
backup withholding.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________
<S> <C> <C> <C>
Signed in (State) Date Signed Signature of Contract Owner Signature of Joint Owner
</TABLE>
13 BROKER/DEALER INFORMATION (FOR REGISTERED REPRESENTATIVE USE ONLY)
I certify that (1) the Applicant signed this completed Application in my
presence; (2) I am authorized and qualified to discuss the contract herein
applied for.
_________________________________________________________________________
Registered Representative Signature Date
_________________________________________________________________________
Print RR Name, WRL RR Number, Production %, State License (If Applicable)
_________________________________________________________________________
Registered Representative Telephone Number
[ ] [ ] [ ] [ ] [ ] HIGH MID LEVEL
-----------------------
CIRCLE
_________________________________________________________________________
Name of Broker/Dealer Dealer Number Dealer Branch
_________________________________________________________________________
Print RR Name, WRL RR Number, Production %, State License (If Applicable)
_________________________________________________________________________
Print RR Name, WRL RR Number, Production %, State License (If Applicable)
_________________________________________________________________________
Registered Representative Fax Number
*Do you have any reason to believe that the contract applied for is to replace
an existing annuity contract or life policy? [ ] Yes [ ] No
AA00104 2
<PAGE>
OPTIONAL FEATURES
14 TELEPHONE TRANSACTIONS(SEE PROSPECTUS FOR TELEPHONE TRANSACTIONS PROCEDURES)
Your variable annuity contract will automatically receive telephone transfer
and withdrawal privileges described in the applicable prospectus unless
instructions to the contrary are indicated below. These privileges allow you
to give the registered representative/agent of record for your contract
authority to make telephone transfers or withdrawals and to change the
allocation of future payments among the Sub-Accounts and The Fixed Account
(restrictions may apply) on your behalf according to your instructions.
[ ] I do not want telephone transfer privileges.
[ ] I do not want telephone withdrawal privileges.
15 AUTOMATIC MONTHLY INVESTING (ATTACH VOIDED CHECK)
[ ] I authorize the making of Purchase Payments by electronic funds transfer
on a monthly basis, in the amount of $_________________, beginning on the
__________ day of each month (except the 29th, 30th, or 31st). I have
attached to this form a voided, unsigned check from the bank account to be
debited. I may notify Western Reserve Life in writing at the Administrative
Office to cancel this authorization at any time.
(NOTE: CREDIT UNIONS AND SAVINGS ACCOUNTS MAY NOT BE ELIGIBLE PLEASE CONSULT
YOUR BANKING INSTITUTION.)
16 DOLLAR COST AVERAGING (DCA) (MINIMUM OF $5,000 IN EACH SUB-ACCOUNT OR FIXED
ACCOUNT* REQUIRED)
I hereby request and authorize Western Reserve Life to transfer funds from
the selected Sub-Account(s) or Fixed Account* to invest in the portfolio(s),
in the amount indicated below. The transfers are to be made on the
___________ day of the month (except the 29th, 30th, or 31st for ___________
months. (minimum of 6 months, maximum of 24 months.) The minimum total to be
transferred each month is $100.
Transfer From: $_________________ $_________________ $______________
Bond Fixed Account* Money Market
Transfer To:
______________ $_________________ _________________ $______________
______________ $_________________ _________________ $______________
______________ $_________________ _________________ $______________
Note: The first transfer will take place the month following the issuance of
the contract. I understand that DCA transfers do not guarantee a profit and
do not protect against a loss. I further understand and agree: (1) Western
Reserve Life shall not be subjected to any claim, loss, liability, cost or
expense if it acts in reliance upon the instructions contained in the
authorization; and (2) this authorization shall not affect the allocation of
future net purchase payments; and (3) once elected, transfers will be
processed monthly until the date Western Reserve Life receives written
instructions from me at the Administrative Office to cancel the monthly DCA
transfers. The scheduled time as indicated above has ended or the date
Western Reserve Life discontinues this DCA transfer privilege.
(* NO MORE THAN 110 OF THE AMOUNT IN THE FIXED ACCOUNT AT THE BEGINNING OF
THE DOLLAR COST AVERAGING CAN BE TRANSFERRED EACH MONTH.)
17 DEATH BENEFIT OPTIONS (MUST BE CHOSEN PRIOR TO CONTRACT ISSUE DATE) 17A
ADDITIONAL BENEFITS
Guaranteed Minimum Death Benefit [ ] Yes [ ] No
Annual 5% Compound Death Benefit [ ] Yes [ ] No
Guaranteed Minimum Income Benefit* [ ] Yes [ ] No
* May not be available in all states
18 ASSET REBALANCING (MINIMUM INITIAL PURCHASE PAYMENT OF $10,000)
I hereby request and authorize Western Reserve Life to automatically
transfer amounts among the chosen Sub-Accounts (as indicated below) on the
frequency selected to maintain a desired allocation of the Annuity Purchase
Value among the various Sub-Accounts offered.
Frequency: [ ] Quarterly [ ] Semi-Annual [ ] Annual [ ] Monthly
%________ WRL Janus Growth
%________ WRL Janus Global
%________ WRL Alger Aggressive Growth
%________ WRL VKAM Emerging Growth
%________ WRL AEGON Bond
%________ WRL AEGON Balanced
%________ WRL LKCM Strategic Total Return
%________ WRL Federated Growth & Income
%________ WRL J.P. Morgan Money Market
%________ WRL J.P. Morgan Real Estate Securities
%________ WRL Dean Asset Allocation
%________ WRL GE U.S. Equity
%________ WRL GE/Scottish Equitable
International Equity
%________ WRL Third Avenue Value
%________ WRL NWQ Value Equity
%________ WRL C.A.S.E.
%________ WRL Goldman Sachs Growth
%________ WRL Goldman Sachs Small Cap
%________ WRL T. Rowe Price Dividend Growth
%________ WRL T. Rowe Price Small Cap
%________ WRL Salomon All Cap
%________ WRL Pilgrim Baxter Mid Cap Growth
%________ WRL Dreyfus Mid Cap
%________ Other
%________ Other
%________ Other
[ ] Pro-Rata
(THEPERCENT % MUST EQUAL 100%)
Note: Western Reserve Life will effect the initial rebalancing of the Cash
Value on the next such anniversary, in accordance with the Contracts current
Net Purchase Payment Allocation schedule. Asset Rebalancing will be
processed in the frequency requested until the earlier of: (a) the date
Western Reserve Life receives written instructions from me at the
Administrative Office to cancel the Asset Rebalancing or (b) the date any
transfer is made to, or from any Sub-Account, other than a scheduled
rebalancing: or (c) the date Western Reserve Life discontinues this Asset
Rebalancing privilege. Asset rebalancing is not available for any amounts in
the Fixed Account.
APPROVAL SIGNATURES FOR OPTIONS 14, 15, 16 AND 17 ARE REQUIRED ON THE NEXT
PAGE.
AA00104 3
<PAGE>
OPTIONAL FEATURES
19 AUTOMATIC PARTIAL SURRENDERS (MINIMUM INITIAL PREMIUM OF $25,000)
Subject to the provisions of the prospectus and this authorization, I hereby
request and authorize Western Reserve Life to systematically make partial
surrenders of as follows:
Amount $______________________ Type of Partial Surrender (Check One)
Frequency: [ ] Annual [ ] Semi-Annual [ ] Quarterly [ ] Monthly
[ ] Standard Systematic Partial Surrenders
Begin date (mm/dd/yyyy): ____________________ (Except 29th, 30th, or 31st)
[ ]72T/72Q (Substantially Equal Payments) from the Sub-Accounts shown
below and to make payment to me unless a different payee is named below.
(72T calculation and disclosure must accompany.)
[ ]RMD (Required Minimum Distribution)
Alternate Payee Designation: If the alternate payee is a Bank Account,
Please attach a voided check for direct deposit by electronic funds
transfer. NOTE: PROVIDE THE FOLLOWING INFORMATION ONLY IF THE NAME OF THE
PAYEE DIFFERS FROM THE OWNER. WESTERN RESERVE LIFE IS DIRECTED TO MAKE
MONTHLY AUTOMATIC PARTIAL SURRENDER PAYMENTS TO:
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<CAPTION>
___________________________________________________________________________________________________
<S> <C> <C>
Payee Name or Bank (Attach a voided check for bank payee) Bank Account Routing Number
___________________________________________________________________________________________________
Address City State Zip
</TABLE>
AUTOMATIC PARTIAL SURRENDERS REQUIRE A MINIMUM INITIAL PREMIUM OF $25,000
(FIXED ACCOUNT NOT AVAILABLE) AGGREGATE Partial Surrender CANNOT EXCEED 10%
OF CASH VALUE ANNUALLY
Amounts received as partial surrenders from non-tax qualified annuity
contracts prior to the maturity date are first treated as taxable income to
the extent of any gain. Additionally, a penalty tax equal to 10% of the
amount treated as taxable gain will generally be imposed on partial
surrenders made prior to the Owners age 5912. This authorization applies
only to this Western Reserve Life application/contract being applied for. A
separate authorization must be completed for any additional Variable Annuity
Contracts owned. I understand and agree to the terms and conditions as set
forth in the Prospectus.
ELECTION FOR RECIPIENTS OF PERIODIC PAYMENTS INSTRUCTIONS (FAILURE TO
COMPLETE THIS SECTION MAY RESULT IN A DELAY OF REQUESTED WITHDRAWALS)
[ ] Check box A if you do not want any Federal income tax withheld from your
annuity partial surrender payments.
[ ] Check box B if you do want Federal income tax withheld from your annuity
partial surrender payments.
Even if you elect not to have Federal income tax withheld, you are liable
for payment of Federal income tax on the taxable portion of your annuity
payments. You may also be subject to tax penalties under the estimated tax
payment rules if your payment of estimated tax and withholding, if any, is
inadequate.
(CHECK ONE ONLY)
A [ ] I do not want to have Federal income tax withheld from my annuity
partial surrender payments.
B [ ] I wish to have Federal income tax withheld from my annuity partial
surrender payments: ________________%
(If percentage not indicated, 10% will be withheld.)
Sub-Account Partial Surrender Allocation
$________ WRL Janus Growth
$________ WRL Janus Global
$________ WRL Alger Aggressive Growth
$________ WRL VKAM Emerging Growth
$________ WRL AEGON Bond
$________ WRL AEGON Balanced
$________ WRL LKCM Strategic Total Return
$________ WRL Federated Growth & Income
$________ WRL J.P. Morgan Money Market
$________ WRL J.P. Morgan Real Estate Securities
$________ WRL Dean Asset Allocation
$________ WRL GE U.S. Equity
$________ WRL GE/Scottish Equitable International Equity
$________ WRL Third Avenue Value
$________ WRL NWQ Value Equity
$________ WRL C.A.S.E. Growth
$________ WRL Goldman Sachs Growth
$________ WRL Goldman Sachs Small Cap
$________ WRL T. Rowe Price Dividend Growth
$________ WRL T. Rowe Price Small Cap
$________ WRL Salomon All Cap
$________ WRL Pilgrim Baxter Mid Cap Growth
$________ WRL Dreyfus Mid Cap
$________ WRL Fixed Account
$________ Other
$________ Other
20 APPROVAL OF OPTIONAL FEATURES
By signing below, I hereby attest that I have selected the options available
in any or all Optional Features in Sections 14, 15, 16, 17, 18, and 19,
according to the information which I have entered in each section.
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
<S> <C> <C>
Owners Name - Please Print Owners Signature Date
_____________________________________________________________________________________________________
Name of Joint Owner/Spouse - Please Print Signature of Joint Owner/Spouse * Date
</TABLE>
* Signature of Spouse required if the contract is a Tax-Qualified plan or if
the Owner is a resident of a community property state.
AA00104 4
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 9051
CLEARWATER, FLORIDA 33758
FRAUD WARNING
The following states require that contract owners acknowledge a fraud warning
statement. Please refer to the fraud warning statement for your state as
indicated below.
FOR CONTRACT OWNERS IN ARKANSAS/LOUISIANA
Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit or
knowingly presents false information in an
application for insurance is guilty of a crime and
may be subject to fines and confinement in prison.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN COLORADO
It is unlawful to knowingly provide false,
incomplete, or misleading facts or information to an
insurance company for the purpose of defrauding or
attempting to defraud the company. Penalties may
include imprisonment, fines, denial of insurance, and
civil damages. Any insurance company or agent of an
insurance company who knowingly provides false,
incomplete, or misleading facts or information to a
policyholder or claimant for the purpose of
defrauding or attempting to defraud the policyholder
or claimant with regard to a settlement or award
payable from insurance proceeds shall be reported to
the Colorado Division of Insurance within the
Department of Regulatory Agencies.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN DISTRICT OF COLUMBIA
It is a crime to knowingly provide false, incomplete
or misleading information to an insurance company for
the purpose of defrauding the company. Penalties
include imprisonment, fines and denial of insurance
benefits.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN FLORIDA
Any person who knowingly and with intent to injure,
defraud, or deceive any insurer files a statement of
claim or an application containing any false,
incomplete, or misleading information is guilty of a
felony in the third degree.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN KENTUCKY, OHIO AND PENNSYLVANIA
Any person who knowingly and with intent to defraud
any insurance company or other person files an
application for insurance or a statement of claim
containing any materially false information or
conceals for the purpose of misleading, information
concerning any fact material thereto commits a
fraudulent insurance act, which is a crime and
subjects such person to criminal and civil penalties.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN NEW JERSEY
Any person who includes any false or misleading
information on an application for an insurance policy
is subject to criminal and civil penalties.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN NEW MEXICO
Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit or
knowingly presents false information in an
application for insurance is guilty of a crime and
may be subject to fines and criminal penalties.
______________________________ __________
Signature of Contract Owner Date
FOR CONTRACT OWNERS IN VIRGINIA/MAINE
It is a crime to knowingly provide false, incomplete
or misleading information to an insurance company for
the purpose of defrauding the company. Penalties
include imprisonment, fines and denial of insurance
benefits.
______________________________ __________
Signature of Contract Owner Date
AA00104 5
Exhibit (9)
Opinion and Consent of Thomas E. Pierpan, Esq., as to the
Legality of Securities Being Registered
<PAGE>
December 17, 1999
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
570 Carillon Parkway
St. Petersburg, Florida 33716
Gentlemen:
In my capacity as Vice President, Assistant Secretary and Associate General
Counsel of Western Reserve Life Assurance Co. of Ohio ("WRL"), I have
participated in the preparation and review of this Initial Registration
Statement on Form N-4 (File Nos. 333-_____; 811-5672) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, for the registration of flexible
payment variable accumulation deferred annuity contracts (the "Contracts") to be
issued with respect to the WRL Series Annuity Account (the "Account"). The
Account was established on April 12, 1988, by the Board of Directors of WRL as a
separate account for assets applicable to the Contracts, pursuant to the
provisions of Section 3907.15 of the Ohio Revised Code.
I am of the following opinion:
1. WRL has been duly organized under the laws of Ohio and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provision of Ohio law.
3. Section 3907.15 of the Ohio Revised Code provides that the portion of
the assets of the Account equal to the reserves and other liabilities
for variable benefits under the Contracts is not chargeable with
liabilities arising out of any other business WRL may conduct. Assets
allocated to the fixed account under the Contracts, however, are part
of WRL's general account and are subject to WRL's general liabilities
from business operations.
4. The Contracts, when issued as contemplated by the Registration
Statement, will be legal and binding obligations of WRL in accordance
with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Thomas E. Pierpan
Thomas E. Pierpan
Senior Vice President, Assistant Secretary
and General Counsel
