As filed with the Securities and Exchange Commission on April 25, 2000
Registration No. 333-24959/811-5672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ( )
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POST-EFFECTIVE AMENDMENT NO. 4 (X)
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Post-Effective Amendment No. 79 (X)
--
(Check appropriate box or boxes)
WRL SERIES ANNUITY ACCOUNT
(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
570 Carillon Parkway
St. Petersburg, Florida 33716
(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, General Counsel and Assistant Secretary
Western Reserve Life Assurance Co. of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
(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
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Title of securities being registered: Units of interest in the separate account
under flexible payment deferred variable annuity contracts.
It is proposed that this filing will become effective (check appropriate
space)
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on May 1, 2000, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on DATE , pursuant to paragraph (a) of Rule 485
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<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM WEALTH CREATOR/registered trademark/
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
MAY 1, 2000
This prospectus gives you important information about the WRL Freedom
Wealth Creator/registered trademark/, a flexible payment variable accumulation
deferred annuity contract. Please read this prospectus and the mutual fund
prospectuses 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 30 investment choices: a fixed account and 29
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 29 portfolios we currently offer through the subaccounts under this
Contract are:
<TABLE>
<S> <C>
WRL SERIES FUND, INC.
WRL VKAM Emerging Growth WRL Great Companies -- America(SM)
WRL T. Rowe Price Small Cap WRL Salomon All Cap
WRL Goldman Sachs Small Cap WRL C.A.S.E. Growth
WRL Pilgrim Baxter Mid Cap Growth WRL Dreyfus Mid Cap
WRL Alger Aggressive Growth WRL NWQ Value Equity
WRL Third Avenue Value WRL T. Rowe Price Dividend Growth
WRL Value Line Aggressive Growth WRL Dean Asset Allocation
WRL GE International Equity (formerly, WRL
GE/Scottish Equitable International Equity) WRL LKCM Strategic Total Return
WRL Janus Global WRL J.P. Morgan Real Estate Securities
WRL Great Companies -- Technology(SM) WRL Federated Growth & Income
WRL Janus Growth WRL AEGON Balanced
WRL Goldman Sachs Growth WRL AEGON Bond
WRL GE U.S. Equity WRL J.P. Morgan Money Market
</TABLE>
<TABLE>
<S><C>
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
</TABLE>
If you would like more information about the WRL Freedom Wealth
Creator/registered trademark/, you can obtain a free copy of the Statement of
Additional Information ("SAI") dated May 1, 2000. Please call us at
1-800-851-9777 or write us at: Western Reserve, Administrative Office - Annuity
Department, 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 (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 FUNDS:
/bullet/ ARE NOT BANK DEPOSITS
/bullet/ ARE NOT FEDERALLY INSURED
/bullet/ ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
/bullet/ ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
/bullet/ 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
EXAMPLES .................................................................. 11
1. THE ANNUITY CONTRACT ................................................. 12
The Contract ......................................................... 12
Other Contracts ...................................................... 13
2. ANNUITY PAYMENTS (THE INCOME PHASE) .................................. 13
Annuity Payment Options Under the Contract ........................... 13
Fixed Annuity Payment Options ........................................ 14
Variable Annuity Payment Options ..................................... 15
3. PURCHASE ............................................................. 16
Contract Issue Requirements .......................................... 16
Purchase Payments .................................................... 16
Initial Purchase Requirements ........................................ 16
Additional Purchase Payments ......................................... 16
Maximum Annual Purchase Payments ..................................... 17
Allocation of Purchase Payments ...................................... 17
Right to Cancel Period ............................................... 17
Annuity Value ........................................................ 17
Accumulation Units ................................................... 18
4. INVESTMENT CHOICES ................................................... 18
The Separate Account ................................................. 18
The Fixed Account .................................................... 20
Transfers ............................................................ 20
Dollar Cost Averaging Program ........................................ 21
Asset Rebalancing Program ............................................ 22
Telephone or Fax Transactions ........................................ 22
Third Party Investment Services ...................................... 23
5. EXPENSES ............................................................. 23
Mortality and Expense Risk Charge .................................... 23
Annual Contract Charge ............................................... 24
Transfer Charge ...................................................... 24
Loan Processing Fee .................................................. 24
Change in Purchase Payment Allocation Fee ............................ 24
Premium Taxes ........................................................ 25
Federal, State and Local Taxes ....................................... 25
Withdrawal Charge .................................................... 25
Portfolio Management Fees ............................................ 27
Reduced or Waived Charges and Expenses to Employees .................. 27
6. TAXES ................................................................ 28
Annuity Contracts in General ......................................... 28
Qualified and Nonqualified Contracts ................................. 28
Partial Withdrawals and Complete Surrenders -- Nonqualified Contracts 29
Multiple Contracts ................................................... 30
</TABLE>
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<TABLE>
<S> <C>
Diversification and Distribution Requirements .......................... 30
Partial Withdrawals and Complete Surrenders -- Qualified Contracts ..... 30
Taxation of Death Benefit Proceeds ..................................... 31
Annuity Payments ....................................................... 31
Transfers, Assignments or Exchanges of Contracts ....................... 32
Net Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) ............ 32
Possible Tax Law Changes ............................................... 32
7. ACCESS TO YOUR MONEY ................................................... 32
Partial Withdrawals and Complete Surrenders ............................ 32
Delay of Payment and Transfers ......................................... 34
Systematic Partial Withdrawals ......................................... 34
Contract Loans for Qualified Contracts ................................. 34
8. PERFORMANCE ............................................................ 36
9. DEATH BENEFIT .......................................................... 37
When We Pay a Death Benefit ............................................ 37
When We Do Not Pay a Death Benefit ..................................... 38
Amount of Death Benefit During the Accumulation Period ................. 38
Alternate Payment Elections Before the Maturity Date ................... 39
10. OTHER INFORMATION ...................................................... 39
Ownership .............................................................. 39
Annuitant .............................................................. 40
Beneficiary ............................................................ 40
Assignment ............................................................. 40
Western Reserve Life Assurance Co. of Ohio ............................. 40
The Separate Account ................................................... 40
Voting Rights .......................................................... 41
Distribution of the Contracts .......................................... 41
Non-Participating Contract ............................................. 42
Variations in Contract Provisions ...................................... 42
IMSA ................................................................... 42
Legal Proceedings ...................................................... 42
Financial Statements ................................................... 42
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ................ 43
APPENDIX A -- CONDENSED FINANCIAL INFORMATION ............................... 44
APPENDIX B -- HISTORICAL PERFORMANCE DATA ................................... 53
</TABLE>
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<PAGE>
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 we use to calculate subaccount values during
unit value the accumulation period.
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administrative Our administrative office and mailing address is P.O. Box 5068, Clearwater,
office Florida 33758-5068. Our street address is 570 Carillon Parkway,
St. Petersburg, Florida 33716. Our phone number is 1-800-851-9777.
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age The issue age, which is annuitant's age on the birthday nearest the Contract
date, 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 you named in the application (or later 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 we use 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) you elect to receive the death benefit proceeds under the
Contract.
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cash value The annuity value less any applicable premium taxes and any withdrawal
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 purchase payment is received or the
date that the properly completed application is received at Western Reserve's
administrative office. 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 have received both proof of annuitant's death
and your beneficiary's election regarding payment.
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fixed account An option to which you can direct your money under the Contract, other than
the separate account. It provides a guarantee of principal and interest. The
assets supporting the fixed account are held in the general account. The fixed
account is not available in all states.
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fixed account During the accumulation period, your Contract's value in the fixed account.
value
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funds Investment companies which are registered with the U.S. Securities and
Exchange Commission. The Contract allows you to invest in the portfolios of
the funds through our subaccounts. 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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</TABLE>
1
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<TABLE>
<S> <C>
maturity date The date on which the accumulation period ends and annuity payments begin.
The latest maturity date is the annuitant's 90th birthday. For Contracts issued
in conjunction with Net Income Makeup Charitable Remainder Unitrusts, the
latest maturity date is the annuitant's 100th birthday.
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NYSE New York Stock Exchange.
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nonqualified Contracts issued other than in connection with retirement plans.
Contracts
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owner The person(s) entitled to exercise all rights under the Contract. The annuitant
(you, your) 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. Joint ownership is not available in all
states.
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portfolio A separate investment portfolio of a fund.
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purchase 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 "purchase payment" in this prospectus, it has the same meaning as "net
purchase payment" in the Contract, which means the purchase 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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separate account WRL Series Annuity Account, a separate account composed of subaccounts
established to receive and invest purchase payments not allocated to the fixed
account.
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separate account During the accumulation period, your Contract's value in the separate
value account, 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 portfolio hold assets under the Contract during the accumulation period.
Other subaccounts corresponding to each portfolio will hold assets after the
maturity date if you select a variable annuity option.
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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
business day subaccount's corresponding portfolio does not value its shares. Western
Reserve is open for business on each day that the NYSE is open. When we
use the term "business day," it has the same meaning as valuation date.
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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
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.
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Western Reserve Western Reserve Life Assurance Co. of Ohio.
(we, us, our)
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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 Wealth Creator/registered trademark/ is a flexible payment
variable accumulation deferred annuity contract (the "Contract") offered by
Western Reserve. 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 29
subaccounts. Each subaccount invests exclusively in a single portfolio of a
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 certain limits on transfers from the fixed
account.
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 ordinary 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 annuity
payment option you choose, will largely determine the amount of any income
payments you receive during the income phase.
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. You cannot annuitize until your
Contract's fifth anniversary.
3. PURCHASE
You can buy this Contract with $5,000 ($1,000 for traditional or Roth IRAs
and $50 for other qualified Contracts) or more under most circumstances. You
can add as little as $50 at any time during the accumulation period.
3
<PAGE>
4. INVESTMENT CHOICES
You can invest your money in any of the 29 fund portfolios by directing it
to the corresponding subaccount. The portfolios are described in the fund
prospectuses. The portfolios now available to you under the Contract are:
WRL SERIES FUND, INC.
<TABLE>
<S> <C>
[ ] WRL VKAM Emerging Growth [ ] WRL Great Companies -- America(SM)
[ ] WRL T. Rowe Price Small Cap [ ] WRL Salomon All Cap
[ ] WRL Goldman Sachs Small Cap [ ] WRL C.A.S.E. Growth
[ ] WRL Pilgrim Baxter Mid Cap Growth [ ] WRL Dreyfus Mid Cap
[ ] WRL Alger Aggressive Growth [ ] WRL NWQ Value Equity
[ ] WRL Third Avenue Value [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL Value Line Aggressive Growth [ ] WRL Dean Asset Allocation
[ ] WRL GE International Equity [ ] WRL LKCM Strategic Total Return
[ ] WRL Janus Global [ ] WRL J.P. Morgan Real Estate Securities
[ ] WRL Great Companies -- Technology(SM) [ ] WRL Federated Growth & Income
[ ] WRL Janus Growth [ ] WRL AEGON Balanced
[ ] WRL Goldman Sachs Growth [ ] WRL AEGON Bond
[ ] WRL GE U.S. Equity [ ] WRL J.P. Morgan Money Market
</TABLE>
<TABLE>
<S><C>
VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
</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 purchase payments to the fixed account. The
fixed account is not available in all states. Residents of Washington, Oregon,
New Jersey, and Massachusetts may not direct or transfer any money to the fixed
account.
Transfers. You have the flexibility to transfer assets within your
Contract. At any time during the accumulation period you may transfer amounts
among the subaccounts and between the subaccounts and the fixed account.
Certain restrictions apply.
5. EXPENSES
We do not take any deductions from purchase payments at the time you buy
the Contract. You invest the full amount of each purchase payment in one or
more of the investment choices.
During the accumulation period and the income phase, we deduct a daily
mortality and expense risk charge of 1.40% each year from the money you have
invested in the subaccounts. We intend to reduce this charge to 1.25% (during
the accumulation period) after the first seven Contract years, although we do
not guarantee that we will do so.
During the accumulation period, we deduct an annual Contract charge of $35
from the annuity value on each Contract anniversary and at the time of
surrender. We currently waive
4
<PAGE>
this charge if the total purchase payments, minus all partial withdrawals
equals or exceeds $50,000 on the Contract anniversary when this charge is
payable. However, we will deduct this charge from your annuity value if you
surrender your Contract completely.
We impose a $25 charge per transfer if you make more than 12 transfers
among the subaccounts per Contract year.
We may deduct state premium taxes, which currently range from 0% to 3.50%,
when you make your purchase payments, or if you surrender the Contract or
partially withdraw 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 withdrawal or surrender your Contract completely, we
will deduct a withdrawal charge for purchase payments withdrawn within seven
years after we receive a purchase payment. This charge is 8% of amount that
must be withdrawn if the withdrawal occurs within 12 months or less of our
receipt of the purchase payment, and then declines gradually to 7% - 13 through
24 months; 6% - 25 through 36 months; 5% - 37 through 48 months; 4% - 49
through 60 months; 3% - 61 through 72 months; 2% - 73 through 84 months; and no
withdrawal charge - 85 months or more.
When we calculate withdrawal charges, we treat withdrawals as coming first
from the oldest purchase payment, then the next oldest and so forth. For the
first withdrawal you make in any Contract year, we will waive that portion of
the withdrawal charge that is based on the first 10% of your Contract's annuity
value at the time of the withdrawal. Amounts of the first withdrawal in excess
of the first 10% of your Contract's annuity value and all subsequent
withdrawals you make during the Contract year will be subject to a withdrawal
charge. We deduct the full withdrawal charge if you surrender your Contract
completely. We waive this charge under certain circumstances. See Expenses --
Withdrawal Charge on page 25 for how we calculate the withdrawal charge waiver.
The portfolios deduct management fees and expenses from amounts you have
invested in the portfolios. Some portfolios also deduct 12b-1 fees from
portfolio assets. These charges currently range from 0.44% to 1.20% annually,
depending on the portfolio. See the Annuity Contract Fee Table on page 9 of
this prospectus and the fund prospectuses.
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 59 1/2 when you take money out, you may 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 retirement plan.
5
<PAGE>
Death benefits are taxable and generally are included in the income of the
recipient as follows: if received under an annuity payment option, death
benefits are taxed in the same manner as annuity payouts; if not received under
an annuity option (for instance, if paid out in a lump sum), death benefits are
taxed in the same manner as a partial withdrawal or complete surrender.
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 withdrawal if it reduces the cash
value below $5,000. No partial withdrawals may be made from the fixed account
without prior consent from us. Access to amounts held in qualified Contracts
may be restricted or prohibited. Withdrawal charges may apply. You may also
have to pay federal income tax and a penalty tax on any money you take out.
Patial withdrawals may reduce the death benefit by more than the amount
withdrawn.
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. Death benefit
provisions may vary by state.
If you name different persons as owner and annuitant, you can affect
whether the death benefit is payable and who would receive it. Use care when
naming owners, annuitants and beneficiaries, and consult your agent if you have
questions.
If the annuitant dies during the accumulation period, the death benefit
will be the greatest of:
/bullet/ the annuity value of your Contract on the death report day:
/bullet/ the total purchase payments you make to the Contract, reduced by
any partial withdrawals;
/bullet/ the annuity value of your Contract on the seventh Contract
anniversary, reduced by any partial withdrawals; or
/bullet/ the highest annuity value of your Contract on any Contract
anniversary between your Contract date (as shown on your Contract
schedule page) and the earlier of:
/bullet/ the annuitant's date of death; or
/bullet/ the Contract anniversary nearest the annuitant's 80th
birthday.
The highest annuity value will be increased by purchase payments made and
decreased by adjusted partial withdrawals taken since the Contract
anniversary with the highest annuity value.
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The death benefit payable, if any, on or after the maturity date depends
on the annuity payment option selected. See Fixed Annuity Payment Options and
Variable Annuity Payment Options on pages 14 and 15 for a description of the
annuity payment options. Please note that not all payment options provide for a
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
generally be the total purchase payments we have received, plus (or minus) any
gains (or losses) in the amounts you invested in the subaccounts. You will keep
any gains, and bear any losses, on amounts that you invested in the
subaccounts. If state law requires, we will refund your original purchase
payment(s). We determine the value of the refund as of the date we receive the
returned Contract at our administrative office. 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 traditional IRAs and Roth IRAs, you should consider
carefully 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:
/bullet/ REDUCED MINIMUM INITIAL PURCHASE PAYMENT (FOR NONQUALIFIED
CONTRACTS) -- You may make a minimum initial purchase payment of
$1,000, rather than $5,000, if you indicate on your application
that you anticipate making minimum monthly payments of at least
$100 by electronic funds transfer.
/bullet/ SYSTEMATIC PARTIAL WITHDRAWALS -- You can arrange to have money
automatically sent to you while your Contract is in the
accumulation period. You may take systematic partial withdrawals
monthly, quarterly, semi-annually or annually without paying
withdrawal charges. Amounts you receive may be included in your
gross income and, in certain circumstances, may be subject to
penalty taxes.
/bullet/ 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.
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/bullet/ 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.
/bullet/ TELEPHONE OR FAX TRANSACTIONS -- You may make transfers,
withdrawals and/or change the allocation of additional purchase
payments by telephone or fax.
/bullet/ NURSING CARE FACILITY WAIVER -- If you are confined to a nursing
care facility, you may take partial withdrawals or surrender your
Contract completely without paying the withdrawal charge, under
certain circumstances.
/bullet/ CONTRACT LOANS -- If you own a qualified Contract, you may be
eligible to take out Contract loans during the accumulation
period, subject to certain restrictions. See Contract Loans for
Qualified Contracts on page 34 for details.
These features are not 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, on the annuity payment options and on other features
of the Contract. Consult your agent and the Contract form for details.
11. INQUIRIES
If you need additional information, please contact us at:
Western Reserve Life
Administrative Office
Attention: Annuity Department
P.O. Box 9051
Clearwater, FL 33758-9051
1-800-851-9777
www.westernreserve.com
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ANNUITY CONTRACT FEE TABLE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES
- --------------------------------------
<S> <C>
Sales Load On Purchase Payments..................None
Maximum Withdrawal Charge(1)(2)
(as a % of purchase payments)......................8%
Transfer Charge.................$25 After 12 Per Year
Loan Processing Fee(3)...................$30 Per Loan
Change in Purchase Payment
Allocation Fee(4)...............................$25
=====================================================
ANNUAL CONTRACT CHARGE(2)(5)....$35 Per Contract Year
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE SEPARATE ACCOUNT VALUE)
- -----------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge(6) ......... 1.40%
Administrative Charge ........................ None
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES ............................ 1.40%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO ANNUAL EXPENSES(7)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
MANAGEMENT OTHER
PORTFOLIO FEES EXPENSES
<S> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL VKAM Emerging Growth 0.80% 0.07%
WRL T. Rowe Price Small Cap(10) 0.75% 0.25%
WRL Goldman Sachs Small Cap(10) 0.90% 0.10%
WRL Pilgrim Baxter Mid Cap Growth(10) 0.90% 0.10%
WRL Alger Aggressive Growth 0.80% 0.09%
WRL Third Avenue Value 0.80% 0.20%
WRL Value Line Aggressive Growth(11) 0.80% 0.20%
WRL GE International Equity(12) 1.00% 0.20%
WRL Janus Global(13) 0.80% 0.12%
WRL Great Companies -- Technology(SM)(11) 0.80% 0.20%
WRL Janus Growth(14) 0.80% 0.05%
WRL Goldman Sachs Growth(10) 0.90% 0.10%
WRL GE U.S. Equity 0.80% 0.13%
WRL Great Companies -- America(SM)(11) 0.80% 0.20%
WRL Salomon All Cap(10) 0.90% 0.10%
WRL C.A.S.E. Growth 0.80% 0.20%
WRL Dreyfus Mid Cap(10) 0.85% 0.15%
WRL NWQ Value Equity 0.80% 0.10%
WRL T. Rowe Price Dividend Growth(10) 0.90% 0.10%
WRL Dean Asset Allocation 0.80% 0.07%
WRL LKCM Strategic Total Return 0.80% 0.06%
WRL J.P. Morgan Real Estate Securities 0.80% 0.20%
WRL Federated Growth & Income 0.75% 0.14%
WRL AEGON Balanced 0.80% 0.09%
WRL AEGON Bond 0.45% 0.08%
WRL J.P. Morgan Money Market 0.40% 0.04%
VARIABLE INSURANCE PRODUCTS FUND (VIP)(15)
Fidelity VIP Equity-Income Portfolio -- Service Class 2(16) 0.48% 0.10%
VARIABLE INSURANCE PRODUCTS FUND II (VIP II) (15)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2(16) 0.58% 0.12%
VARIABLE INSURANCE PRODUCTS FUND III (VIP III) (15)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2(16) 0.58% 0.13%
<CAPTION>
TOTAL PORTFOLIO
RULE 12B-1 ANNUAL
PORTFOLIO FEES EXPENSES
<S> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL VKAM Emerging Growth N/A 0.87%
WRL T. Rowe Price Small Cap(10) N/A 1.00%
WRL Goldman Sachs Small Cap(10) N/A 1.00%
WRL Pilgrim Baxter Mid Cap Growth(10) N/A 1.00%
WRL Alger Aggressive Growth N/A 0.89%
WRL Third Avenue Value N/A 1.00%
WRL Value Line Aggressive Growth(11) N/A 1.00%
WRL GE International Equity(12) N/A 1.20%
WRL Janus Global(13) N/A 0.92%
WRL Great Companies -- Technology(SM)(11) N/A 1.00%
WRL Janus Growth(14) N/A 0.85%
WRL Goldman Sachs Growth(10) N/A 1.00%
WRL GE U.S. Equity N/A 0.93%
WRL Great Companies -- America(SM)(11) N/A 1.00%
WRL Salomon All Cap(10) N/A 1.00%
WRL C.A.S.E. Growth N/A 1.00%
WRL Dreyfus Mid Cap(10) N/A 1.00%
WRL NWQ Value Equity N/A 0.90%
WRL T. Rowe Price Dividend Growth(10) N/A 1.00%
WRL Dean Asset Allocation N/A 0.87%
WRL LKCM Strategic Total Return N/A 0.86%
WRL J.P. Morgan Real Estate Securities N/A 1.00%
WRL Federated Growth & Income N/A 0.89%
WRL AEGON Balanced N/A 0.89%
WRL AEGON Bond N/A 0.53%
WRL J.P. Morgan Money Market N/A 0.44%
VARIABLE INSURANCE PRODUCTS FUND (VIP)(15)
Fidelity VIP Equity-Income Portfolio -- Service Class 2(16) 0.25% 0.83%
VARIABLE INSURANCE PRODUCTS FUND II (VIP II) (15)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2(16) 0.25% 0.95%
VARIABLE INSURANCE PRODUCTS FUND III (VIP III) (15)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2(16) 0.25% 0.96%
</TABLE>
(1) The withdrawal charge decreases based on the number of years since the
purchase payment was made, from 8% in the year in which the purchase
payment was made to 0% in the seventh year after the purchase payment was
made. To calculate withdrawal charges, the first purchase payment made is
considered to come out first. This charge is waived under certain
circumstances.
(2) We may reduce or waive the withdrawal 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 is not
applicable in all states.
9
<PAGE>
(4) Although we do not currently impose this charge, we reserve the right to
impose a $25 charge each time you change your allocation of purchase
payments among the subaccounts and the fixed account more than once each
Contract quarter.
(5) We currently waive this charge if the total purchase payments, minus all
partial withdrawals, 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.
(6) This charge applies to each subaccount. It does not apply to the fixed
account. This charge applies during the accumulation period and the income
phase. We intend to reduce this charge to 1.25% after the first seven
Contract years, but we do not guarantee that we will do so. If we reduce
this charge during the accumulation period, we will restore it to 1.40% in
the income phase.
(7) The fee table information relating to the portfolios was provided to
Western Reserve by the funds. Western Reserve has not independently
verified such information.
(8) Effective January 1, 1997, the Board of the WRL Series Fund Inc. (the "WRL
Fund") authorized the WRL Fund to charge each portfolio of the WRL Fund an
annual Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net
assets. However, the WRL Fund will not deduct the fee from any portfolio
before April 30, 2001. You will receive advance written notice if a Rule
12b-1 fee is to be deducted. See the WRL Fund prospectus for more details.
(9) WRL Investment Management, Inc. ("WRL Management"), the investment adviser
of the WRL Fund, has undertaken, until at least April 30, 2001, to pay
expenses on behalf of the portfolios of the WRL Fund, to the extent normal
total operating expenses of a portfolio exceed a stated percentage of the
WRL portfolio's average daily net assets. The expense limit, the amount
reimbursed by WRL Management during 1999, and the expense ratio without
the reimbursement are listed below for each portfolio:
<TABLE>
<CAPTION>
Expense Reimbursement Expense Ratio
Limit Amount Without Reimbursement
<S> <C> <C> <C>
WRL VKAM Emerging Growth ....................... 1.00% $ N/A N/A
WRL T. Rowe Price Small Cap .................... 1.00% 63,542 2.46%
WRL Goldman Sachs Small Cap .................... 1.00% 60,555 5.57%
WRL Pilgrim Baxter Mid Cap Growth .............. 1.00% 34,986 1.40%
WRL Alger Aggressive Growth .................... 1.00% N/A N/A
WRL Third Avenue Value ......................... 1.00% 10,734 1.06%
WRL Value Line Aggressive Growth ............... 1.00% N/A N/A
WRL GE International Equity .................... 1.20% 112,088 1.84%
WRL Janus Global ............................... 1.00% N/A N/A
WRL Great Companies -- Technology(SM) .......... 1.00% N/A N/A
WRL Janus Growth ............................... 1.00% N/A N/A
WRL Goldman Sachs Growth ....................... 1.00% 49,677 2.68%
WRL GE U.S. Equity ............................. 1.00% N/A N/A
WRL Great Companies -- America(SM) ............. 1.00% N/A N/A
WRL Salomon All Cap ............................ 1.00% 53,174 2.87%
WRL C.A.S.E. Growth ............................ 1.00% N/A N/A
WRL Dreyfus Mid Cap ............................ 1.00% 34,541 4.89%
WRL NWQ Value Equity ........................... 1.00% N/A N/A
WRL T. Rowe Price Dividend Growth .............. 1.00% 46,989 2.35%
WRL Dean Asset Allocation ...................... 1.00% N/A N/A
WRL LKCM Strategic Total Return ................ 1.00% N/A N/A
WRL J.P. Morgan Real Estate Securities ......... 1.00% 51,924 2.69%
WRL Federated Growth & Income .................. 1.00% N/A N/A
WRL AEGON Balanced ............................. 1.00% N/A N/A
WRL AEGON Bond ................................. 0.70% N/A N/A
WRL J.P. Morgan Money Market ................... 0.70% N/A N/A
</TABLE>
(10) Because these portfolios commenced operations on May 3, 1999, the
percentages set forth as "Other Expenses" and "Total Portfolio Annual
Expenses" are annualized.
(11) Because these portfolios commenced operations on May 1, 2000, the
percentages set forth as "Other Expenses" and "Total Portfolio Annual
Expenses" are estimates.
(12) The fee table reflects estimated 2000 expenses because the expense limit
for this portfolio will be reduced from 1.50% to 1.20% effective May 1,
2000.
(13) WRL Management currently waives 0.025% of its advisory fee on portfolio
average daily net assets over $2 billion (net fee -- 0.775%.) This waiver
will be terminated on June 25, 2000.
(14) 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%). The fee table reflects estimated 2000 expenses
because of the termination of the fee waiver. This waiver will be
terminated on June 25, 2000.
(15) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and Variable Insurance
Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain
shareholder support services provided by companies selling variable
contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed
against the Fidelity VIP Funds shares held for the Contracts will be
remitted to AFSG Securities Corporation ("AFSG"), the principal
underwriter for the Contracts.
(16) Service Class 2 expenses are based on estimated expenses for year 2000.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire $1,000 is
invested in the subaccount listed.
<TABLE>
<CAPTION>
IF YOU SURRENDER THE CONTRACT
AT THE END OF THE APPLICABLE
SUBACCOUNTS TIME PERIOD
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
WRL SERIES FUND, INC.
WRL VKAM Emerging Growth $104 $133 $165 $269
WRL Goldman Sachs Small Cap 105 137 172 282
WRL T. Rowe Price Small Cap 105 137 172 282
WRL Pilgrim Baxter Mid Cap Growth 105 137 172 282
WRL Alger Aggressive Growth 104 134 166 271
WRL Third Avenue Value 105 137 172 282
WRL Value Line Aggressive Growth 105 137 172 282
WRL GE International Equity 107 143 182 301
WRL Janus Global 104 135 168 274
WRL Great Companies -- Technology(SM) 105 137 172 282
WRL Janus Growth 104 133 164 267
WRL Goldman Sachs Growth 105 137 172 282
WRL GE U.S. Equity 104 135 168 275
WRL Great Companies -- America(SM) 105 137 172 282
WRL Salomon All Cap 105 137 172 282
WRL C.A.S.E Growth 105 137 172 282
WRL Dreyfus Mid Cap 105 137 172 282
WRL NWQ Value Equity 104 134 167 272
WRL T. Rowe Price Dividend Growth 105 137 172 282
WRL Dean Asset Allocation 104 133 165 269
WRL LKCM Strategic Total Return 104 133 165 268
WRL J.P. Morgan Real Estate Securities 105 137 172 282
WRL Federated Growth & Income 104 134 166 271
WRL AEGON Balanced 104 134 166 271
WRL AEGON Bond 100 123 148 234
WRL J.P. Morgan Money Market 99 120 144 224
Fidelity VIP Equity-Income Portfolio --
Service Class 2 103 132 163 264
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 105 136 169 277
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2 105 136 170 278
<CAPTION>
IF YOU ANNUITIZE* OR REMAIN
INVESTED IN THE CONTRACT AT THE
END OF THE APPLICABLE TIME
PERIOD OR IF YOU DO NOT
SURRENDER OR ANNUITIZE
SUBACCOUNTS UNDER THE CONTRACT
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
WRL SERIES FUND, INC.
WRL VKAM Emerging Growth $24 $73 $125 $269
WRL Goldman Sachs Small Cap 25 77 132 282
WRL T. Rowe Price Small Cap 25 77 132 282
WRL Pilgrim Baxter Mid Cap Growth 25 77 132 282
WRL Alger Aggressive Growth 24 74 126 271
WRL Third Avenue Value 25 77 132 282
WRL Value Line Aggressive Growth 25 77 132 282
WRL GE International Equity 27 83 142 301
WRL Janus Global 24 75 128 274
WRL Great Companies -- Technology(SM) 25 77 132 282
WRL Janus Growth 24 73 124 267
WRL Goldman Sachs Growth 25 77 132 282
WRL GE U.S. Equity 24 75 128 275
WRL Great Companies -- America(SM) 25 77 132 282
WRL Salomon All Cap 25 77 132 282
WRL C.A.S.E Growth 25 77 132 282
WRL Dreyfus Mid Cap 25 77 132 282
WRL NWQ Value Equity 24 74 127 272
WRL T. Rowe Price Dividend Growth 25 77 132 282
WRL Dean Asset Allocation 24 73 125 269
WRL LKCM Strategic Total Return 24 73 125 268
WRL J.P. Morgan Real Estate Securities 25 77 132 282
WRL Federated Growth & Income 24 74 126 271
WRL AEGON Balanced 24 74 126 271
WRL AEGON Bond 20 63 108 234
WRL J.P. Morgan Money Market 19 60 104 224
Fidelity VIP Equity-Income Portfolio --
Service Class 2 N/A N/A N/A N/A
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 25 76 129 277
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2 25 76 130 278
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
The fee table and examples above will help you understand the costs of
investing in the subaccounts. The fee table and examples reflect the 1999
expenses (except as noted in the footnotes) of the portfolios and the
subaccount fees and charges but do not reflect premium taxes which may range up
to 3.50%, depending on the jurisdiction.
PLEASE REMEMBER THAT THE EXAMPLES ARE ILLUSTRATIONS AND DO NOT REPRESENT
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES PAID MAY BE HIGHER OR LOWER THAN
THOSE SHOWN. SIMILARLY, YOUR RATE OF RETURN MAY BE MORE OR LESS THAN THE 5%
ASSUMED IN THE EXAMPLES.
11
<PAGE>
The examples above assume that no transfer charges have been assessed. In
addition, the $35 annual Contract charge is reflected as a charge of 0.08%
based on an average Contract size of $44,369.
Financial Information. We have included in Appendix A a financial history
of the accumulation unit values for the subaccounts.
1. THE ANNUITY CONTRACT
THE CONTRACT
This prospectus describes the WRL Freedom Wealth Creator/registered
trademark/ 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 you
an income in the form of annuity payments. These payments begin after the
maturity date. (See Section 2 on page 13.) 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 payment 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 payment" 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 annuity 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 investment performance.
The Contract also contains a fixed account. 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 equal to or 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 is not available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not direct or transfer any money to
the fixed account.
12
<PAGE>
OTHER CONTRACTS
We offer other variable annuity contracts which also invest in the same
portfolios of the funds. 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.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments start under the Contract. 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 annuitant's 90th birthday. 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 below) 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.
Supplemental Contract. Once you annuitize and if you have selected a fixed
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 $100, then we
will pay you the annuity proceeds in one lump sum.
13
<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:
/bullet/ The amount of the annuity proceeds on the maturity date;
/bullet/ The interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 3%); and
/bullet/ The specific payment option you choose.
Variable Annuity Income Payments. 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 matches the Contract's assumed investment return
of 5% at all times, then the dollar 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 mortality and expense risk charge of 1.40%
annually) 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. Some of the annuity
payment options may not be available in all states. Options A, B, and C are
fixed only. Options D and E are variable only.
FIXED ANNUITY PAYMENT 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.
/bullet/ No Period Certain -- We will make level payments only during the
annuitant's lifetime; or
/bullet/ 10 Years Certain -- We will make level payments for the longer of
the annuitant's lifetime or 10 years; or
/bullet/ 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.
14
<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 joint
annuitant of your choice. Payments will be made as long as either person is
living.
VARIABLE ANNUITY PAYMENT OPTIONS
Payment Option D -- Variable Life Income. The annuity proceeds are used to
purchase variable annuity units in the subaccounts you select. You may choose
between:
/bullet/ No Period Certain - We will make variable payments only during
the annuitant's lifetime; or
/bullet/ 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 joint
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:
/bullet/ you choose Life Income with No Period Certain or a Joint and
Survivor Life Income (fixed or variable); and
/bullet/ the annuitant(s) dies, for example, before the due date of the
second annuity payment;
Then:
/bullet/ we may make only one annuity payment and there will be no death
benefit payable.
If:
/bullet/ you choose Fixed Installments, Life Income with 10 Years Certain,
Life Income with Guaranteed Return of Annuity Proceeds or
Variable Life Income with 10 Years Certain; and
/bullet/ the person receiving payments dies prior to the end of the
guaranteed period;
Then:
/bullet/ 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 annuitant's address of record. The annuitant is responsible to
keep Western Reserve informed of the annuitant's current address of record.
15
<PAGE>
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
Western Reserve will issue a Contract IF:
/bullet/ we receive the information we need to issue the Contract;
/bullet/ we receive a minimum initial purchase payment; and
/bullet/ you (annuitant and any joint owner) are age 85 or younger.
PURCHASE PAYMENTS
You should make checks or drafts for purchase 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 PURCHASE REQUIREMENTS
The initial purchase payment for nonqualified Contracts must be at least
$5,000. However, you may make a minimum initial purchase payment of $1,000,
rather than $5,000, if you indicate on your application that you anticipate
making minimum monthly payments of at least $100 by electronic funds transfer.
For traditional or Roth IRAs, the minimum initial purchase payment is $1,000
and for qualified Contracts other than traditional or Roth IRAs, the minimum
initial purchase payment is $50.
We will credit your initial purchase payment to your Contract within two
business days after the day we receive it at our administrative office and your
complete Contract information. If we are unable to credit your initial purchase
payment, we will contact you within five business days and explain why. We will
also return your initial purchase payment at that time unless you tell us to
keep it. We will credit your initial purchase payment as soon as we receive all
necessary application information.
The date on which we credit your initial purchase 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 purchase payments by bank wire, please instruct your
bank to wire federal funds as follows:
All First Bank of Baltimore
ABA #: 052000113
For credit to: Western Reserve Life
Account #: 89539600
Owner's Name:
Contract Number:
Attention: Annuity Accounting
We may reject any application or purchase payments for any reason permitted
by law.
ADDITIONAL PURCHASE PAYMENTS
You are not required to make any additional purchase payments. However,
you can make additional purchase payments as often as you like during the
lifetime of the annuitant
16
<PAGE>
and prior to the maturity date. We will accept purchase payments by bank wire
or check. Additional purchase payments must be at least $50 ($100 monthly in
the case of nonqualified Contracts with a $1,000 initial purchase payment and
$1,000 if by wire). We will credit any additional purchase payments you make to
your Contract at the accumulation unit value computed at the end of the
business day on which we recieve them at our administrative office. Our
business day closes at 4:00 p.m. Eastern Time. If we receive your purchase
payments after the close of our business day, we will calculate and credit them
as of the close of the next business day.
MAXIMUM ANNUAL PURCHASE PAYMENTS
We allow purchase payments up to a total of $1,000,000 per Contract year
without prior approval.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your purchase payment to
the investment choices you selected on your application. Your allocation must
be in whole percentages and must total 100%. We will allocate additional
purchase payments as you selected on your application, unless you request a
different allocation.
You may change allocations for future additional purchase payments by
writing or telephoning the administrative office, sending written instructions
or by telephone, subject to the limitations described below under Telephone or
Fax Transactions on page 22. The allocation change will apply to purchase
payments received after the date we receive the change request. We reserve the
right to impose a $25 charge each time you change your allocation of purchase
payments among the subaccounts and the fixed account more than once each
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 generally be the total
purchase payments we have received, plus (or minus) any gains (or losses) in
the amounts you invested in the subaccounts. You will keep any gains, and bear
any losses, on amounts that you invested in the subaccounts. If state law
requires, we will refund your original purchase payment(s). We determine the
value of the refund as of the date we receive the returned Contract at our
administrative office. 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.
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
17
<PAGE>
value in the fixed account, and the fees and charges we deduct. A valuation
period begins at the close of business on each business day 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 closes when the NYSE closes, 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 measurement 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 withdraw or transfer
out of a subaccount, or if we assess a transfer charge, annual Contract charge
or any withdrawal charge, 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. For a detailed discussion of how we
determine accumulation unit values, see the SAI.
4. INVESTMENT CHOICES
THE SEPARATE ACCOUNT
The separate account currently consists of 29 subaccounts.
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The Funds. Each subaccount invests exclusively in one portfolio of a fund.
The portfolios and their advisers or sub-advisers are listed below.
<TABLE>
<CAPTION>
PORTFOLIO ADVISER OR SUB-ADVISER
<S> <C>
WRL VKAM EMERGING GROWTH Van Kampen Asset Management Inc.
WRL T. ROWE PRICE SMALL CAP T. Rowe Price Associates, Inc.
WRL GOLDMAN SACHS SMALL CAP Goldman Sachs Asset Management
WRL PILGRIM BAXTER MID CAP GROWTH Pilgrim Baxter & Associates, Ltd.
WRL ALGER AGGRESSIVE GROWTH Fred Alger Management, Inc.
WRL THIRD AVENUE VALUE EQSF Advisers, Inc.
WRL VALUE LINE AGGRESSIVE GROWTH Value Line, Inc.
WRL GE INTERNATIONAL EQUITY GE Asset Management Incorporated*
WRL JANUS GLOBAL Janus Capital Corporation
WRL GREAT COMPANIES -- TECHNOLOGY(SM) Great Companies, L.L.C.
WRL JANUS GROWTH Janus Capital Corporation
WRL GOLDMAN SACHS GROWTH Goldman Sachs Asset Management
WRL GE U.S. EQUITY GE Asset Management Incorporated
WRL GREAT COMPANIES -- AMERICA(SM) Great Companies, L.L.C.
WRL SALOMON ALL CAP Salomon Brothers Asset Management Inc
WRL C.A.S.E GROWTH C.A.S.E Management, Inc.
WRL DREYFUS MID CAP The Dreyfus Corporation
WRL NWQ VALUE EQUITY NWQ Investment Management Company, Inc.
WRL T. ROWE PRICE DIVIDEND GROWTH T. Rowe Price Associates, Inc.
WRL DEAN ASSET ALLOCATION Dean Investment Associates
WRL LKCM STRATEGIC TOTAL RETURN Luther King Capital Management Corporation
WRL J.P. MORGAN REAL ESTATE SECURITIES J.P. Morgan Investment Management Inc.
WRL FEDERATED GROWTH & INCOME Federated Investment Counseling
WRL AEGON BALANCED AEGON USA Investment Management, Inc.
WRL AEGON BOND
WRL J.P. MORGAN MONEY MARKET J.P. Morgan Investment Management Inc.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- SERVICE CLASS 2 Fidelity Management & Research Company
FIDELITY VIP II CONTRAFUND/registered trademark/ PORTFOLIO -- SERVICE CLASS 2
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO -- SERVICE CLASS 2
</TABLE>
* Effective May 1, 2000, GE Asset Management Incorporated is the sole
sub-adviser.
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 sub-adviser that are sold directly to
the public. You should not expect that the investment results of the other
portfolios and mutual funds would be similar to those portfolios offered by
this prospectus.
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 PROSPECTUSES. YOU
SHOULD READ THE FUND PROSPECTUSES CAREFULLY BEFORE YOU INVEST.
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<PAGE>
THE FIXED ACCOUNT
Purchase payments you allocate to and amount you transfer 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 Act or 1940 Act. Western
Reserve has been advised that the staff of the SEC has not reviewed the
disclosure in this prospectus which relate 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
interest rates. We establish the interest rate, at our sole discretion, for
each purchase 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 withdrawal 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
withdrawals from the fixed account unless we consent.
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 asset rebalancing program, you may not make any transfers if you
want to continue in the program. A transfer would automatically cancel your
participation in the asset rebalancing program. We may also limit "substantive"
transfers as discussed below.
Transfers from the fixed account are allowed 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
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<PAGE>
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 below under Telephone or Fax Transactions on page 22.
If you make more than 12 transfers from the subaccounts in any Contract
year, we will charge you $25 for each additional transfer you make during that
year. Currently, there is no charge for transfers from the fixed account.
Transfers to and from the subaccounts will be processed based on the
accumulation unit values determined at the end of the business day on which we
receive your written, telephoned, or faxed request at our administrative
office, provided we receive your request at our administrative office before
the close of our business day (usually 4:00 p.m. Eastern Time). If we receive
your request after the close of our business day, we will process the transfer
request using the accumulation unit value for the next business day.
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.
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 a total of $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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<PAGE>
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 if you elect to participate in any
asset allocation service provided by a third party.
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, you elect to participate in any asset
allocation service provided by a third party or if you request any other
transfer. Asset rebalancing ignores amounts in the fixed account. You can
choose to rebalance quarterly, semi-annually, or annually.
To qualify for asset rebalancing, a minimum annuity value of $5,000 for an
existing Contract, or a minimum initial purchase payment of $5,000 for a new
Contract, is required. Asset rebalancing does not guarantee gains, nor does it
assure that any subaccount will not have losses.
There is no charge for this program. 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 withdrawals and change the
allocation of additional purchase payments by telephone. Telephone withdrawals
are not allowed in the following situations:
/bullet/ for qualified Contracts (except IRAs);
/bullet/ if the amount you want to withdraw is greater than $50,000; or
/bullet/ 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 withdrawals for you. If
you do not want the ability to make transfers or withdrawals by telephone, you
should notify us in writing.
You may make telephone transfers or withdrawals by calling our toll-free
number: 1-800-851-9777. You will be required to provide certain information for
identification
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<PAGE>
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.
Please use the following fax numbers for the following types of
transactions:
/bullet/ To request a transfer, please fax your request to us at
727-299-1648. WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING
OF TRANSFERS IF YOU FAX YOUR TRANSFER REQUEST TO A NUMBER OTHER
THAN THIS FAX NUMBER; and
/bullet/ To request a partial withdrawal, please fax your request to us at
727-299-1620.
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 described 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 include a guarantee of annuity rates, the
death benefits, certain
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<PAGE>
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 1.40% of the
average daily net assets that you have invested in each subaccount. We intend
to reduce this charge to 1.25% (during the accumulation period) after the first
seven Contract years, although we do not guarantee that we will do so. This
charge is deducted daily from the subaccounts during both the accumulation
period and the income phase. If we reduce this charge during the accumulation
period, we will restore it to 1.40% in the income phase.
If this charge does not cover our actual mortality and expense risk costs,
we absorb the loss. Conversely, if the charge covers more than 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.
ANNUAL CONTRACT CHARGE
We deduct an annual Contract charge of $35 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 the charge to cover our costs of administering the
Contract. We currently waive this charge if the total purchase payments, minus
all partial withdrawals, equals or exceeds $50,000 on the Contract anniversary
for which the charge is payable.
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 $25 for each additional
transfer. We deduct the charge from the amount transferred. Dollar cost
averaging transfers and asset rebalancing 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 either to send us a $30 check for this fee or to have us deduct
the $30 from the loan amount. This fee is not applicable in 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 PURCHASE PAYMENT ALLOCATION FEE
During the accumulation period, you may allocate a percentage of your
purchase payments to one or more subaccounts, the fixed account, or a
combination of both. If, in any Contract quarter, you change the way you
allocate your purchase payments more than once, we reserve the right to impose
a $25 charge for the second and each additional change in allocation you make
during that Contract quarter. If in the future we impose this charge, we will
deduct the charge from the subaccounts on a pro rata basis.
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<PAGE>
PREMIUM TAXES
Some states assess premium taxes on the purchase payments you make. A
premium tax is a regulatory tax that some states assess on the purchase
payments made into a contract. If we should have to pay any premium tax, we may
deduct the tax from each purchase payment or from the accumulation unit value
as we incur the tax. We may deduct the total amount of premium taxes, if any,
from the annuity value when:
/bullet/ you elect to begin receiving annuity payments;
/bullet/ you surrender the Contract;
/bullet/ you request a partial withdrawal; or
/bullet/ a death benefit is paid.
As of the date of this prospectus, the following states assess a premium
tax on all initial and subsequent purchase payments:
<TABLE>
<CAPTION>
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
<S> <C> <C>
South Dakota 0.00% 1.25%
Wyoming 0.00% 1.00%
</TABLE>
As of the date of this prospectus, the following states assess a premium
tax against the accumulation unit value if you choose an annuity payment option
instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
<S> <C> <C>
California 0.50% 2.35%
Kentucky 2.00% 2.00%
Maine 0.00% 2.00%
Nevada 0.00% 3.50%
West Virginia 1.00% 1.00%
</TABLE>
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.
WITHDRAWAL CHARGE
During the accumulation period, you may withdraw part or all of the
Contract's annuity value. We impose a withdrawal charge to help us recover
sales expenses, including broker/dealer compensation and printing, sales
literature and advertising costs. We expect to profit from this charge. We
deduct this charge from your annuity value at the time you request the
withdrawal.
If you take a partial withdrawal or if you surrender your Contract
completely, we will deduct a withdrawal charge of up to 8.0% of purchase
payments withdrawn within seven
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<PAGE>
years after we receive a purchase payment. We calculate the withdrawal charge
on the full amount that must be withdrawn from your annuity value in order to
pay the withdrawal amount, including the withdrawal charge. To calculate
withdrawal charges, we treat withdrawals as coming first from the oldest
purchase payment, then the next oldest and so forth.
For the first withdrawal you make in any Contract year, we waive that
portion of the withdrawal charge that is based on the first 10% of your
Contract's annuity value on the time of the withdrawal. Amounts of the first
withdrawal in excess of the first 10% of your Contract's annuity value and all
subsequent withdrawals you make during the Contract year will be subject to a
withdrawal charge. We will deduct the full withdrawal charge if you surrender
your Contract completely. We do not assess withdrawal charges when you
annuitize. We waive the withdrawal charge under certain circumstances (see
below).
The following schedule shows the withdrawal charges that apply during the
seven years following each purchase payment:
<TABLE>
<CAPTION>
NUMBER OF MONTHS SINCE WITHDRAWAL
PURCHASE PAYMENT DATE CHARGE
<S> <C>
12 or less 8%
13 through 24 7%
25 through 36 6%
37 through 48 5%
49 through 60 4%
61 through 72 3%
73 through 84 2%
85 or more 0%
</TABLE>
For example, assume your Contract's annuity value is $100,000 at the end
of the 13th month since your initial purchase payment and you withdraw $30,000
as your first withdrawal of the Contract year. Because the $30,000 is more than
10% of your Contract's annuity value ($10,000), you would pay a withdrawal
charge of $1,505.37 on the remaining $20,000 (7% of $21,505.37, which is
$20,000 plus the $1,505.37 withdrawal charge).
Keep in mind that withdrawals may be taxable, and if made before age
591/2, may be subject to a 10% federal penalty tax. For tax purposes,
withdrawals are considered to come from earnings first.
Systematic Partial Withdrawals. During any Contract year, you may make
systematic partial withdrawals on a monthly, quarterly, semi-annual or annual
basis without paying withdrawal charges. Systematic partial withdrawals must be
at least $200 ($50 if by direct deposit). The amount of the systematic partial
withdrawals may not exceed 10% of the annuity value at the time the withdrawal
is made, divided by the number of withdrawals made per calendar year. We
reserve the right to discontinue systematic partial withdrawals if any
surrender would reduce your annuity value below $5,000.
You may elect to begin or discontinue systematic partial withdrawals at
any time. However, we must receive written notice at least 30 days prior to the
date systematic partial withdrawals are to be discontinued. (See Systematic
Partial Withdrawals on page 34.)
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<PAGE>
Nursing Care Facility Waiver. If your Contract contains a nursing care
facility waiver, we will waive the withdrawal charge, provided:
/bullet/ you (or any joint owner) have been confined to a nursing care
facility for 30 consecutive days or longer;
/bullet/ your confinement began after the Contract date; and
/bullet/ you provide us with written evidence of your confinement within
two months after your confinement ends.
We will waive the withdrawal charge under the endorsement only for partial
withdrawals and complete surrenders made during your confinement or within two
months after your confinement ends. This waiver is not available in all states.
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 withdrawal from a NIMCRUT Contract, we will deduct withdrawal
charges. However, once each calendar quarter, the NIMCRUT owner may withdraw
from the NIMCRUT Contract any portion of the annuity value that is greater than
the total purchase payments made, then we will not deduct withdrawal charges on
such withdrawals.
If the NIMCRUT owner surrenders the Contract completely within the
withdrawal charge period, we will deduct withdrawal charges as specified above.
The withdrawal charges will be applied to total purchase payments made, less
any previous withdrawals on which you paid withdrawal charges. For important
information regarding ownership of a Contract by a NIMCRUT see Taxes -- Net
Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) on page 32.
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount is reduced by the management
fees and expenses paid by the portfolios. Some portfolios also deduct 12b-1
fees from portfolio assets. A description of these fees and expenses is found
in the Annuity Contract Fee Table section on page 9 of this prospectus and in
the fund prospectuses.
Our affiliate, AFSG, the principal underwriter for the Contracts, will
receive the 12b-1 fees deducted from portfolio assets for providing shareholder
support services to the portfolios. We and our affiliates, including the
principal underwriter for the Contracts, may receive compensation from the
investment advisers, administrators, and/or distributors (and an affiliate
thereof) of the portfolios in connection with administrative or other services
and cost savings experienced by the investment advisers, administrators or
distributors. It is anticipated that such compensation will be based on assets
of the particular portfolios attributable to the Contract and may be
significant. Some advisers, administrators, distributors or portfolios may pay
us (and our affiliates) more than others.
REDUCED OR WAIVED CHARGES AND EXPENSES TO EMPLOYEES
We may reduce or waive the withdrawal charge and annual Contract charge
for Contracts sold to large groups of full-time employees of the same employer,
including
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<PAGE>
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 generally not be taxed on increases in the value of your Contract
until a distribution occurs - either as a partial withdrawal, complete
surrender or as annuity payments.
When a non-natural person (e.g., corporations 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.
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<PAGE>
A qualified Contract may be used in connection with the following plans:
/bullet/ Individual Retirement Annuity (IRA): A traditional IRA allows
individuals to make contributions, which may be deductible, to
the Contract. A Roth IRA 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.
/bullet/ Tax-Sheltered Annuity (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.
/bullet/ Corporate Pension and 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.
/bullet/ 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 WITHDRAWALS AND COMPLETE SURRENDERS -- NONQUALIFIED CONTRACTS
In general, if you make a withdrawal (partial or systematic) from your
Contract, the Code treats that withdrawal as first coming from earnings and
then from your purchase payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings. When you make a complete
surrender you are generally taxed on the amount that your surrender proceeds
exceeds your total purchase payments. Loans, pledges and assignments are taxed
in the same manner as partial withdrawals and complete surrenders. Different
rules apply for annuity payments.
In the event of a partial withdrawal or systematic partial withdrawal
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.
The Code also provides that withdrawn 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 withdrawals will be exempt from the penalty. They
include any amounts:
/bullet/ paid on or after the taxpayer reaches age 591/2;
/bullet/ paid after the owner dies;
/bullet/ paid if the taxpayer becomes totally disabled (as that term is
defined in the Code);
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/bullet/ paid in a series of substantially equal payments made annually
(or more frequently) under a lifetime annuity;
/bullet/ paid under an immediate annuity; or
/bullet/ which come from purchase 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 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. Qualified and nonqualified 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. Western
Reserve may modify the Contract to attempt to maintain favorable tax treatment.
PARTIAL WITHDRAWALS AND COMPLETE 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
distributed 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.
In the case of a partial withdrawal, systematic partial withdrawal, or
complete surrender distributed to a participant or beneficiary under a qualifed
Contract (other than a Roth IRA 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 purchase payments paid by or on behalf of an
individual under a Contract which is not excluded from the individual's gross
income. For Contracts issued in connection with qualified plans, the
"investment in the contract" can be zero.
The Code limits the distribution of purchase payments from certain 403(b)
Contracts. Distributions generally can only be made when an owner:
/bullet/ reaches age 59 1/2;
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/bullet/ leaves his/her job;
/bullet/ dies;
/bullet/ becomes disabled (as that term is defined in the Code); or
/bullet/ in the case of hardship. However, in the case of hardship, the
owner can only withdraw the purchase payments and not any
earnings.
Loans, pledges and assignments of qualified Contracts are taxed in the
same manner as withdrawals 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:
/bullet/ if distributed in a lump sum, these amounts are taxed in the same
manner as a full surrender; or
/bullet/ 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 purchase payments, less amounts received which were
not includable in gross income.
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment
option you select, in general, for nonqualified and certain qualified Contracts
(other than a Roth IRA as to which there are special rules), 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:
/bullet/ 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.
/bullet/ 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
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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.
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.
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.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes 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
legal developments and their effect on the Contract.
7. ACCESS TO YOUR MONEY
PARTIAL WITHDRAWALS AND COMPLETE SURRENDERS
You can have access to the money in your Contract in several ways:
/bullet/ by making a withdrawal (either a partial withdrawal or complete
surrender); or
/bullet/ by taking annuity payments.
If you want to surrender your Contract completely, you will receive cash
value, which equals the annuity value of your Contract minus:
/bullet/ any withdrawal charges;
/bullet/ any premium taxes;
/bullet/ any loans; and
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/bullet/ the annual Contract charge.
The cash value will be determined at the accumulation unit value next
determined as of the end of the business day (usually 4:00 p.m. Eastern Time)
on which we receive your request for partial withdrawal or complete surrender
at our administrative office, unless you specify a later date in your request.
No partial withdrawal is permitted if the withdrawal would reduce the cash
value below $5,000. You may not make partial withdrawals from the fixed account
unless we consent. Unless you tell us otherwise, we will take the withdrawal
from each of the investment choices in proportion to the cash value.
Remember that any withdrawal you make will reduce the annuity value. Under
some circumstances, a partial withdrawal will reduce the death benefit by more
than the dollar amount of the withdrawal. See Section 9, Death Benefit, and the
SAI for more details.
Income taxes, federal tax penalties and certain restrictions may apply to
any partial withdrawals or any 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 withdrawals as long as the withdrawal proceeds are being sent to
the address of record. The maximum withdrawal 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 withdrawal or complete surrender payment,
we will deduct that charge from the payment. We charge $20 for an overnight
delivery ($30 for Saturday delivery).
For your protection, we will require a signature guarantee for:
/bullet/ all requests for partial withdrawals or surrenders over $500,000;
or
/bullet/ where the partial withdrawal or surrender proceeds will be sent
to an address other than the address of record.
All signature guarantees must be made by:
/bullet/ a national or state bank;
/bullet/ a member firm of a national stock exchange; or
/bullet/ 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 withdrawal. 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.
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DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the separate account for a partial
withdrawal, a 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:
/bullet/ the NYSE is closed for other than usual weekends or holidays or
trading on the NYSE is otherwise restricted; or
/bullet/ an emergency exists as defined by the SEC or the SEC requires
that trading be restricted; or
/bullet/ 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 withdrawals, complete surrenders and
loan amounts from the fixed account for up to six months.
SYSTEMATIC PARTIAL WITHDRAWALS
You can elect to receive regular payments from your Contract without
paying withdrawal charges by using systematic partial withdrawals. You can
withdraw up to 10% of your cash value annually (or up to 10% of your initial
purchase payment if a new Contract), in equal monthly, quarterly, semi-annual
or annual payments of at least $200 ($50 if by direct deposit). Your initial
purchase payment, if a new Contract, or your cash value, if an existing
Contract, must equal at least $25,000. We will not process a systematic partial
withdrawal if the cash value for the entire Contract would be reduced below
$5,000. No systematic partial withdrawals are permitted from the fixed account.
You may stop systematic partial withdrawals at any time, but we must
receive written notice at least 30 days prior to the date systematic partial
withdrawals are to be discontinued. We reserve the right to discontinue
offering systematic partial withdrawals 30 days after we send you written
notice.
Income taxes, federal tax penalties and other restrictions may apply to
any systematic partial withdrawal you receive.
CONTRACT LOANS FOR QUALIFIED CONTRACTS
You can take Contract loans during the accumulation period when the
Contract:
/bullet/ is used in connection with a tax-sheltered annuity plan under
Section 403(b) of the Code (limit of one Contract loan per
calendar year);
/bullet/ is purchased by a pension, profit-sharing, or other similar plan
qualified under section 401(a) of the Code (including Section
401(k) plans - please contact your plan administrator); and
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/bullet/ has been in force for at least 10 days.
The maximum amount you may borrow against the Contract is the lesser of:
/bullet/ 50% of the annuity value; or
/bullet/ $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
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 purchase 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 exceed the cash
value, we will mail to your last known address and to any assignee of record a
notice stating the amount due in order to reduce the loan amount so that the
loan amount no longer exceeds the cash value. If the excess amount is not paid
within 31 days after we mail the notice, the Contract will terminate without
value.
You can repay any Contract loan in full:
/bullet/ while the Contract is in force; and
/bullet/ during the accumulation period.
NOTE CAREFULLY: If you do not repay your Contract loan, we will subtract
the amount of the unpaid loan plus interest from:
/bullet/ the amount of any death benefit proceeds; or
/bullet/ the amount we pay upon a partial withdrawal or complete
surrender; or
/bullet/ the amount we apply on the maturity date to provide annuity
payments.
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:
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/bullet/ in level quarterly or monthly payments over a 5-year period; or
/bullet/ 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:
/bullet/ a repayment is not received within 31 days from the original due
date;
Then:
/bullet/ a distribution of all Contract loans and unpaid accrued interest,
and any applicable charges, including any withdrawal 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
to not 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 impose a $30 fee
to cover loan processing and expenses associated with establishing and
administering the loan reserve (not applicable in all states). We reserve the
right to limit the number of Contract loans made to one per Contract year.
Contract loans may not be available in all states.
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
charge, the annual Contract charge and the withdrawal charge. THESE FIGURES ARE
BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE SUBACCOUNTS INVESTING IN THE
UNDERLYING PORTFOLIOS SINCE SINCE THEIR INCEPTION, ADJUSTED TO REFLECT CURRENT
CONTRACT CHARGES.
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 withdrawal 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
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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 WRL Fund prospectus presents the total return of certain existing
SEC-registered funds that are managed by sub-advisers to the WRL portfolios.
These funds have investment objectives, policies and strategies that are
substantially similar to those of certain portfolios. We call these funds the
"Similar Sub-Adviser Funds." None of the fees and charges under the Contract
has been deducted from the performance data of the Similar Sub-Adviser Funds.
If Contract fees and charges were deducted, the investment returns would be
lower. The Similar Sub-Adviser 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.
WHEN WE PAY A DEATH BENEFIT
Before the Maturity Date. We will pay a death benefit to your beneficiary:
If:
/bullet/ you are both the annuitant and the owner of the Contract; and
/bullet/ you die before the maturity date.
If:
/bullet/ you are not the annuitant; and
/bullet/ you die prior to the maturity date; and
/bullet/ there is no surviving joint owner.
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 Payment Options
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and Variable Annuity Payment 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:
/bullet/ you are not the annuitant; and
/bullet/ you die on or after the maturity date; and
/bullet/ the entire interest in the Contract has not been paid to you;
Then:
/bullet/ 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:
/bullet/ you are not the annuitant; and
/bullet/ the annuitant dies prior to the maturity date;
Then:
/bullet/ you will become the new annuitant and the Contract will continue.
In the case of joint owners, the younger joint owner will
automatically become the annuitant.
If:
/bullet/ you are not the annuitant; and
/bullet/ you die prior to the maturity date;
Then:
/bullet/ if there is a surviving joint owner, then the Contract will
continue with the surviving joint owner as sole owner;
/bullet/ if the beneficiary is alive and is your spouse, the Contract will
continue with the spouse as the new owner; or
/bullet/ if the beneficiary is alive and is not your spouse, the
beneficiary will become the new owner. This new owner generally
must surrender the Contract for the cash value within five years
of your death.
NOTE CAREFULLY: If the surviving owner does not name a beneficiary or if
no beneficiary is alive, the owner's estate will become the new owner. The
Contract's cash value must generally be distributed within five years of your
death. 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.
AMOUNT OF DEATH BENEFIT DURING THE ACCUMULATION PERIOD
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 and state laws, rules and
regulations.
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If the annuitant dies during the accumulation period and if a death
benefit is payable, the death benefit will be the greatest of the following:
/bullet/ the annuity value of your Contract on the death report day;
/bullet/ the total purchase payment you make to the Contract, reduced by
any partial withdrawals;
/bullet/ the annuity value of your Contract on the seventh Contract
anniversary, reduced by any partial withdrawals; or
/bullet/ the highest annuity value of your Contract on any Contract
anniversary between your Contract date (as shown on your Contract
schedule page) and the earlier of:
/bullet/ the annuitant's date of death; or
/bullet/ the Contract anniversary nearest the annuitant's 80th
birthday.
The highest annuity value will be increased by purchase payments made
and decreased by adjusted partial withdrawals taken following the
Contract anniversary date with the highest annuity value. The
adjusted partial withdrawal is equal to (a) times (b) where:
/bullet/ (a) is the ratio of the death benefit to the annuity value,
calculated on the date the partial withdrawal is processed,
but prior to the processing; and
/bullet/ (b) is the amount of the partial withdrawal.
ALTERNATE PAYMENT ELECTIONS BEFORE THE MATURITY DATE
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.
Multiple beneficiaries may choose individually among any of the three
options.
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 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 (subject to any assignee or
irrevocable beneficiary's consent). 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. Joint ownership is not
available in all states.
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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 upon the
death of the annuitant when the owner is 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
owner or beneficiary survives the annuitant, 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 prior to the maturity date.
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 Reserve is wholly-owned by First AUSA Life Insurance
Company, a stock life insurance company which is wholly-owned indirectly 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
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divided into subaccounts, each of which invests exclusively in shares of a
mutual fund portfolio. Currently, there are 29 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 Contracts 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 (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 accordance with 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.
DISTRIBUTION OF THE CONTRACTS
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.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds'
shares held for the Contracts as compensation for providing certain shareholder
support services. AFSG will also receive an additional fee based on the value
of shares of the Fidelity VIP Funds held for the Contracts as compensation for
providing certain recordkeeping services.
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, including InterSecurities, Inc.,
Transamerica Capital, Inc. and Transamerica Financial Resources, Inc., all
affiliates of Western Reserve. Western Reserve will generally pay
broker/dealers sales commissions in an amount equal to 6% of purchase payments.
In addition, broker/dealers may receive trail commissions of 0.20% of the
annuity
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value in each Contract year, starting at the end of the first quarter of the
second Contract year, provided the Contract has an annuity value of $5,000 or
more in the subaccounts. These commissions are not deducted from purchase
payments. Certain production, persistency and managerial bonuses may also be
paid. Subject to applicable federal and state laws and regulations, Western
Reserve may also pay compensation to banks and other financial institutions for
their services in connection with the sale and servicing of the Contracts. The
level of such compensation will not exceed that paid to broker/dealers for
their sale of the Contracts. The offering of 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 is not available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not direct or transfer any money to
the fixed account.
IMSA
We are a member of the Insurance Maketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising 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 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.
42
<PAGE>
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
Administrative Office
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
43
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accumulation unit values and the number of accumulation units
outstanding for each subaccount from the date of inception are shown in the
following tables. The number of accumulation units combines the units
outstanding for four variable annuity contracts issued by Western Reserve
through the subaccount.
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/1992(1)-12/31/1992 $10.000 $10.009 10,000
12/31/1993 $10.009 $10.110 869,019
12/31/1994 $10.110 $10.319 2,765,589
12/31/1995 $10.319 $10.728 2,658,931
12/31/1996 $10.728 $11.119 5,253,582
12/31/1997 $11.119 $11.546 5,382,846
12/31/1998 $11.546 $11.989 7,839,228
12/31/1999 $11.989 $12.396 21,724,144
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/1992(1)-12/31/1992 $10.000 $10.136 10,000
12/31/1993 $10.136 $11.330 1,524,761
12/31/1994 $11.330 $10.400 1,693,632
12/31/1995 $10.400 $12.613 2,598,178
12/31/1996 $12.613 $12.455 3,055,305
12/31/1997 $12.455 $13.407 4,801,744
12/31/1998 $13.407 $14.452 6,350,826
12/31/1999 $14.452 $13.832 6,280,541
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/1992(1)-12/31/1992 $10.000 $10.240 10,000
12/31/1993 $10.240 $10.499 8,326,400
12/31/1994 $10.499 $ 9.493 11,839,096
12/31/1995 $ 9.493 $13.771 14,387,637
12/31/1996 $13.771 $16.019 19,832,582
12/31/1997 $16.019 $18.568 23,272,252
12/31/1998 $18.568 $30.116 27,434,976
12/31/1999 $30.116 $47.419 32,275,260
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/1992(1)-12/31/1992 $10.000 $10.151 25,000
12/31/1993 $10.151 $13.518 2,212,212
12/31/1994 $13.518 $13.364 7,170,632
12/31/1995 $13.364 $16.217 6,903,573
12/31/1996 $16.217 $20.428 11,159,128
12/31/1997 $20.428 $23.921 15,530,666
12/31/1998 $23.921 $30.669 17,104,721
12/31/1999 $30.669 $51.748 18,875,171
</TABLE>
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/1993(1)-12/31/1993 $10.000 $11.243 2,518,263
12/31/1994 $11.243 $11.027 6,504,999
12/31/1995 $11.027 $13.555 7,498,916
12/31/1996 $13.555 $15.372 12,770,554
12/31/1997 $15.372 $18.471 15,124,297
12/31/1998 $18.471 $19.969 16,461,563
12/31/1999 $19.969 $22.069 16,136,973
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/1993(1)-12/31/1993 $10.000 $12.354 2,059,530
12/31/1994 $12.354 $11.286 5,547,915
12/31/1995 $11.286 $16.337 6,434,051
12/31/1996 $16.337 $19.152 9,376,917
12/31/1997 $19.152 $22.938 11,279,603
12/31/1998 $22.938 $31.063 12,278,821
12/31/1999 $31.063 $62.846 14,178,995
</TABLE>
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/1994(1)-12/31/1994 $10.000 $ 9.782 1,165,716
12/31/1995 $ 9.782 $13.313 4,538,244
12/31/1996 $13.313 $14.500 6,954,084
12/31/1997 $14.500 $17.766 9,141,315
12/31/1998 $17.766 $26.048 10,807,100
12/31/1999 $26.048 $43.416 13,252,453
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/1994(1)-12/31/1994 $10.000 $ 9.339 849,727
12/31/1995 $ 9.339 $11.032 1,456,512
12/31/1996 $11.032 $12.045 2,385,500
12/31/1997 $12.045 $13.909 3,156,354
12/31/1998 $13.909 $14.666 4,024,017
12/31/199 $14.666 $14.900 4,467,001
</TABLE>
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH & INCOME SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/1994(1)-12/31/1994 $10.000 $ 9.453 400,544
12/31/1995 $ 9.453 $11.676 863,789
12/31/1996 $11.676 $12.853 1,553,811
12/31/1997 $12.853 $15.799 2,315,992
12/31/1998 $15.799 $16.055 3,248,069
12/31/1999 $16.055 $15.127 3,023,724
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
WRL DEAN ASSET ALLOCATION SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/3/1995(1)-12/31/1995 $10.000 $11.843 6,104,685
12/31/1996 $11.843 $13.363 9,397,631
12/31/1997 $13.363 $15.363 12,633,177
12/31/1998 $15.363 $16.411 14,496,370
12/31/1999 $16.411 $15.270 10,938,985
</TABLE>
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/1996(1)-12/31/1996 $10.000 $10.773 1,164,233
12/31/1997 $10.773 $12.220 2,618,284
12/31/1998 $12.220 $12.348 3,043,446
12/31/1999 $12.348 $16.297 3,137,092
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/1996(1)-12/31/1996 $10.000 $11.213 2,118,820
12/31/1997 $11.213 $13.827 7,035,132
12/31/1998 $13.827 $12.983 7,102,945
12/31/1999 $12.983 $13.820 5,579,088
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
WRL GE INTERNATIONAL EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/1997(1)-12/31/1997 $10.000 $10.601 1,050,984
12/31/1998 $10.601 $11.797 1,642,437
12/31/1999 $11.797 $14.536 1,407,842
</TABLE>
<TABLE>
<CAPTION>
WRL GE U.S. EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/1997(1)-12/31/1997 $10.000 $12.526 2,141,414
12/31/1998 $12.526 $15.177 4,840,127
12/31/1999 $15.177 $17.721 6,781,197
</TABLE>
<TABLE>
<CAPTION>
WRL THIRD AVENUE VALUE SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/1998(1)-12/31/1998 $10.000 $ 9.187 1,025,234
12/31/1999 $ 9.187 $10.483 968,035
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
WRL J.P. MORGAN REAL ESTATE SECURITIES SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/1998(1)-12/31/1998 $10.000 $8.427 157,193
12/31/1999 $ 8.427 $7.996 203,365
</TABLE>
<TABLE>
<CAPTION>
WRL GOLDMAN SACHS GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $11.640 503,875
</TABLE>
<TABLE>
<CAPTION>
WRL GOLDMAN SACHS SMALL CAP SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $11.631 166,378
</TABLE>
<TABLE>
<CAPTION>
WRL T. ROWE PRICE DIVIDEND GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $9.173 691,875
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
WRL T. ROWE PRICE SMALL CAP SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $13.719 359,295
</TABLE>
<TABLE>
<CAPTION>
WRL SALOMON ALL CAP SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $11.449 425,168
</TABLE>
<TABLE>
<CAPTION>
WRL PILGRIM BAXTER MID CAP GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $17.633 1,452,014
</TABLE>
<TABLE>
<CAPTION>
WRL DREYFUS MID CAP SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/3/1999(1)-12/31/1999 $10.000 $10.620 209,699
</TABLE>
(1) Commencement of operations of these subaccounts.
Because the WRL Value Line Aggressive Growth, WRL Great Companies --
America(SM) and WRL Great Companies -- Technology(SM) portfolios did not
commence operations until May 1, 2000, and because the Fidelity VIP
Equity-Income Portfolio -- Service Class 2, Fidelity VIP II
Contrafund/registered trademark/ Portfolio -- Service Class 2 and Fidelity VIP
III Growth Opportunities Portfolio -- Service Class 2 were not offered under
this prospectus until May 1, 2000, there is no condensed financial information
for these subaccounts for the year ended December 31, 1999.
52
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STANDARDIZED PERFORMANCE DATA
Western Reserve 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. For
the seven days ended December 31, 1999, the yield of the WRL J.P. Morgan Money
Market subaccount was 3.74% and the effective yield was 3.81%.
OTHER SUBACCOUNTS. The YIELD of a subaccount, other than the WRL J.P.
Morgan Money Market subaccount, refers to the annualized income generated by an
investment 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 a subaccount for various periods of time including a period measured from
the date the first subaccount investing in the underlying portfolios began
operations. When the first subaccount investing in the underlying portfolios
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 $1,000 in the subaccount as of the last day of each
period.
The yield and total return calculations for a subaccount 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, five and ten year periods ended December 31, 1999 are shown in
Table 1 below. Total returns shown in Table 1 reflect deductions of 1.40% for
the mortality and expense risk charge and $35 for the annual Contract charge.
(Based on an average Contract size of $44,369, the annual Contract charge
translates into a charge of 0.08%.) Total returns also assume a complete
surrender of the Contract at the end of the period; therefore, the withdrawal
charge is deducted.
53
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER)
1 YEAR 5 YEARS 10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99 12/31/99 12/31/99** DATE**
<S> <C> <C> <C> <C> <C>
WRL J.P Morgan Money Market* -4.69% 3.02% 3.25% 3.52% 02/24/1989
WRL AEGON Bond -12.36% 5.21% 5.78% 6.47% 02/24/1989
WRL Janus Growth 49.33% 37.70% 21.88% 23.27% 02/24/1989
WRL Janus Global 60.60% 30.80% N/A 26.12% 12/03/1992
WRL LKCM Strategic Total Return 2.43% 14.40% N/A 12.11% 03/01/1993
WRL VKAM Emerging Growth 94.16% 40.75% N/A 30.75% 03/01/1993
WRL Alger Aggressive Growth 58.54% 34.46% N/A 28.41% 03/01/1994
WRL AEGON Balanced -6.49% 9.22% N/A 6.68% 03/01/1994
WRL Federated Growth & Income -13.86% 9.29% N/A 6.96% 03/01/1994
WRL Dean Asset Allocation -15.03% N/A N/A 8.26% 01/03/1995
WRL C.A.S.E. Growth 23.88% N/A N/A 16.60% 05/01/1995
WRL NWQ Value Equity -1.64% N/A N/A 8.10% 05/01/1996
WRL GE International Equity 15.12% N/A N/A 11.71% 01/02/1997
WRL GE U.S. Equity 8.67% N/A N/A 19.67% 01/02/1997
WRL Third Avenue Value 6.02% N/A N/A -1.14% 01/02/1998
WRL J.P. Morgan Real Estate Securities -13.19% N/A N/A -17.24% 05/01/1998
WRL Goldman Sachs Growth N/A N/A N/A 8.34% 05/03/1999
WRL Goldman Sachs Small Cap N/A N/A N/A 8.24% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A N/A N/A -16.32% 05/03/1999
WRL T. Rowe Price Small Cap N/A N/A N/A 29.12% 05/03/1999
WRL Salomon All Cap N/A N/A N/A 6.43% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 68.24% 05/03/1999
WRL Dreyfus Mid Cap N/A N/A N/A -1.86% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio --
Service Class 2 N/A N/A N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 N/A N/A N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2 N/A N/A N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
54
<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 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 withdrawals
or annuity payments.
All non-standardized performance data will be advertised only if the
standardized performance data as shown in Table 1 is also disclosed. For
additional information regarding the calculation of other performance data,
please refer to the SAI.
Based on the method of calculation described in the SAI, the
non-standardized average annual total returns for periods from inception of the
subaccounts to December 31, 1999, and for the one, five and ten-year periods
ended December 31, 1999 are shown in Table 2 below. Total returns shown in
Table 2 reflect deductions of 1.40% for the mortality and expense risk charge
and $35 for the annual Contract charge. (Based on an average Contract size of
$44,369, the annual Contract charge translates into a charge of 0.08%.) Total
returns assume that the Contract is not surrendered and therefore the
withdrawal charge is not deducted.
55
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES NO SURRENDER)
1 YEAR 5 YEARS 10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99 12/31/99 12/31/99** DATE**
<S> <C> <C> <C> <C> <C>
WRL J.P Morgan Money Market* 3.31% 3.72% 3.25% 3.52% 02/24/1989
WRL AEGON Bond -4.36% 5.85% 5.78% 6.47% 02/24/1989
WRL Janus Growth 57.33% 37.93% 21.88% 23.27% 02/24/1989
WRL Janus Global 68.60% 31.08% N/A 26.12% 12/03/1992
WRL LKCM Strategic Total Return 10.43% 14.87% N/A 12.26% 03/01/1993
WRL VKAM Emerging Growth 102.16% 40.95% N/A 30.81% 03/01/1993
WRL Alger Aggressive Growth 66.54% 34.70% N/A 28.57% 03/01/1994
WRL AEGON Balanced 1.51% 9.78% N/A 7.05% 03/01/1994
WRL Federated Growth & Income -5.86% 9.84% N/A 7.33% 03/01/1994
WRL Dean Asset Allocation -7.03% N/A N/A 8.84% 01/03/1995
WRL C.A.S.E. Growth 31.88% N/A N/A 17.08% 05/01/1995
WRL NWQ Value Equity 6.36% N/A N/A 9.19% 05/01/1996
WRL GE International Equity 23.12% N/A N/A 13.30% 01/02/1997
WRL GE U.S. Equity 16.67% N/A N/A 21.06% 01/02/1997
WRL Third Avenue Value 14.02% N/A N/A 2.36% 01/02/1998
WRL J.P. Morgan Real Estate Securities -5.19% N/A N/A -12.57% 05/01/1998
WRL Goldman Sachs Growth N/A N/A N/A 16.34% 05/03/1999
WRL Goldman Sachs Small Cap N/A N/A N/A 16.24% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A N/A N/A -8.32% 05/03/1999
WRL T. Rowe Price Small Cap N/A N/A N/A 37.12% 05/03/1999
WRL Salomon All Cap N/A N/A N/A 14.43% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 76.24% 05/03/1999
WRL Dreyfus Mid Cap N/A N/A N/A 6.14% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio --
Service Class 2 N/A N/A N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 N/A N/A N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2 N/A N/A N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
56
<PAGE>
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 would
include 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.
Because the separate account has been invested in portfolio shares since
the inception of the class of portfolio shares held by the separate account,
the adjusted historic portfolio data for the Contract corresponds to the
performance data displayed in Tables 1 and 2 of Appendix B.
57
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM WEALTH CREATOR(R)
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 Wealth Creator(R) Variable Annuity
offered by Western Reserve Life Assurance Co. of Ohio. You may obtain a copy of
the prospectus dated May 1, 2000, by calling 1-800-851-9777, or by writing to
the administrative office, Western Reserve Life, 570 Carillon Parkway, St.
Petersburg, Florida 33716. 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 IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT AND THE WRL SERIES
ANNUITY ACCOUNT.
DATED: MAY 1, 2000
WRL00175
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS OF SPECIAL TERMS..................................................................... 1
THE CONTRACT--GENERAL PROVISIONS ................................................................ 3
Owner ......................................................................................... 3
Entire Contract ............................................................................... 3
Misstatement of Age or Gender ................................................................. 3
Addition, Deletion or Substitution of Investments ............................................. 3
Annuity Payment Options........................................................................ 4
Death Benefit.................................................................................. 4
Assignment .................................................................................... 5
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 ................................................................... 8
INVESTMENT EXPERIENCE ........................................................................... 9
Accumulation Units............................................................................. 9
Accumulation Unit Value........................................................................ 9
Annuity Unit Value and Annuity Payment Rates .................................................. 9
HISTORICAL PERFORMANCE DATA ..................................................................... 11
Money Market Yields ........................................................................... 11
Other Subaccount Yields ....................................................................... 12
Total Returns ................................................................................. 12
Other Performance Data ........................................................................ 13
Advertising and Sales Literature .............................................................. 13
PUBLISHED RATINGS. .............................................................................. 13
ADMINISTRATION .................................................................................. 14
RECORDS AND REPORTS ............................................................................. 14
DISTRIBUTION OF THE CONTRACTS ................................................................... 14
OTHER PRODUCTS .................................................................................. 14
CUSTODY OF ASSETS ............................................................................... 14
LEGAL MATTERS ................................................................................... 14
INDEPENDENT ACCOUNTANTS ......................................................................... 15
OTHER INFORMATION ............................................................................... 15
FINANCIAL STATEMENTS ............................................................................ 15
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<CAPTION>
<S> <C>
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accumulation period The period between the Contract date and the maturity date while the Contract is in force.
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accumulation unit value An accounting unit of measure we use to calculate subaccount values during the accumulation
period.
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administrative Our administrative office and mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068.
office Our street address is 570 Carillon Parkway, St. Petersburg, Florida 33716. Our phone number is
1-800-851-9777.
- ------------------------------------------------------------------------------------------------------------------------------------
age The issue age, which is annuitant's age on the birthday nearest the Contract date, 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.
- ------------------------------------------------------------------------------------------------------------------------------------
annuitant The person you named in the application (or later 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 we use to calculate annuity payments from the subaccounts after the
maturity date.
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annuity value The sum of the separate account value and the fixed account value.
- ------------------------------------------------------------------------------------------------------------------------------------
beneficiary(ies) The person(s) you elect to receive the death benefit proceeds under the Contract.
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cash value The annuity value less any applicable premium taxes, and any withdrawal charge.
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Code The Internal Revenue Code of 1986, as amended.
- ------------------------------------------------------------------------------------------------------------------------------------
Contract date The later of the date on which the initial purchase payment is received or the date that the
properly completed application is received at Western Reserve's administrative office. We
measure Contract years and Contract anniversaries from the Contract date.
- ------------------------------------------------------------------------------------------------------------------------------------
death report day The valuation date on which we
have received both proof of annuitant's death
and your beneficiary's election regarding
payment.
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fixed account An option to which you can direct your money under the Contract, other than the separate
account. It provides a guarantee of principal and interest. The assets supporting the fixed
account are held in the general account. The fixed account is not available in all states.
- ------------------------------------------------------------------------------------------------------------------------------------
fixed account value During the accumulation period, your Contract's value in the fixed account.
- ------------------------------------------------------------------------------------------------------------------------------------
funds Investment companies which are registered with the U.S. Securities and Exchange Commission. The
Contract allows you to invest in the portfolios of the funds through our subaccounts. 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 90th birthday. For Contracts issued in conjunction with Net Income
Makeup Charitable Remainder Unitrusts, the lastest 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 The person(s) entitled to exercise all rights under the Contract. The annuitant is the owner
(you, your) 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. Joint
ownership is not available in all states.
- ------------------------------------------------------------------------------------------------------------------------------------
portfolio A separate investment portfolio of a fund.
- ------------------------------------------------------------------------------------------------------------------------------------
purchase payments Amounts paid by an owner or on the owner's behalf to Western Reserve as consideration for the
benefits provided by the Contract. When we use the term "purchase payment" in this prospectus,
it has the same meaning as "net purchase payment" in the Contract, which means the purchase
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.
- ------------------------------------------------------------------------------------------------------------------------------------
separate account WRL Series Annuity Account, a separate account composed of subaccounts established to receive
and invest purchase payments not allocated to the fixed account.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
separate account value During the accumulation period, your 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 portfolio hold assets
under the Contract during the accumulation period. Other subaccounts corresponding to each
portfolio will hold assets after the maturity date if you select a variable annuity option.
- ------------------------------------------------------------------------------------------------------------------------------------
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
business day portfolio does not value its shares. Western Reserve is open for business on each day that the
NYSE is open. When we use the term "business day," it has the same meaning as valuation date.
- ------------------------------------------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------------------------------------
Western Reserve Western Reserve Life Assurance Co. of Ohio.
(we, us, our)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<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 purchase 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 sole 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 if no beneficiary is named and alive.
However, if a beneficiary is named and alive, the beneficiary will receive the
death benefit.
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 purchase 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 Western
Reserve makes 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 a fund and to substitute
shares of another portfolio of a 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 a 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
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.
3
<PAGE>
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 $100 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
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 on
page 6 for a detailed description of these rules. Other rules may apply to
qualified Contracts.
4
<PAGE>
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 who is not an owner 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 an 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. The new owner generally must surrender the Contract for the annuity
value within five years of death.
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 withdrawal
during the five-year period. That partial withdrawal must be made at the time
option (1) is elected. No withdrawal charges will apply to this partial
withdrawal; (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
withdrawal 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 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.
5
<PAGE>
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 purchase
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 withdrawal 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 funds and their portfolios, intends
to comply with the diversification requirements of the Treasury.
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
6
<PAGE>
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 funds) 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. 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 purchase payments 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. 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 the Contracts andour 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.
For qualified plans under sections 401(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), and for IRAs under section 408(a), 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
7
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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 purchase 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 withdrawals 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. If your Contract is used in
connection with an IRA, only rollover or transfer contributions are permitted.
No regular contributions may be made. 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.
No part of the funds for an IRA, including a Roth 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 purchase payments 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 as an IRA 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 to the rollover or conversion and to
distributions attributable thereto. 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 modified 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. As with the traditional IRA, only
rollover or transfer contributions are permitted. 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 of the individual 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 generally 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 purchase 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.
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 purchase 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
8
<PAGE>
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 purchase 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 purchase
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 a fund less any applicable charges or fees.
Upon allocation to the selected subaccount of the separate account, purchase
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 purchase payments are allocated to the
subaccount; plus
3. Units purchased through transfers from another subaccount or the fixed
account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another subaccount or
the fixed account; minus
6. Any units that are redeemed to pay the annual Contract charge, any premium
taxes and any transfer charge.
The value of an accumulation unit was arbitrarily established at $10 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.
ACCUMULATION UNIT VALUE
The accumulation unit value will vary from one valuation period to the next
depending on the investment results 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
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
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<PAGE>
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 1.40% of net assets for each day in the valuation
period and compensates us for certain mortality and expense risks. 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 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 mortality and expense risk charge. This
factor is equal, on an annual basis, to 1.40% of the daily net asset value
of the portfolio share held in that 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. See Annuity
Payment Options - Determination of the First Variable Payment on page ___, which
contains a table for determining the adjusted age of the annuitant.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = ABC
<TABLE>
<CAPTION>
<S> <C> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume.............................................................................. = $X
B = Net investment factor for the valuation period for which the annuity unit value is being
calculated.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 = AB
--
$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
</TABLE>
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
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<PAGE>
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 $35 annual Contract charge, calculated on the
basis of an average Contract size of $44,369, which translates into a charge of
0.08%. The yield and effective yield quotations do not reflect any deduction for
premium taxes or transfer charges that may be applicable to a particular
Contract, nor do they reflect the withdrawal charge that may be assessed at the
time of withdrawal in an amount ranging up to 8% of the requested withdrawal
amount. The specific withdrawal charge percentage applicable to a particular
withdrawal depends on the length of time purchase payments have been held under
the Contract and whether withdrawals have been made previously during that
Contract year. (See Expenses--Withdrawal Charge on page 25 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 funds 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 3.74%, and the effective yield was 3.81%,
assuming no surrender.
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 a 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.
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 $35 annual Contract charge, calculated on the basis of an average
Contract size of $44,369, which translates into a charge of 0.08%. The
calculations do not take into account any premium taxes or any transfer or
withdrawal charges.
Premium taxes currently range from 0% to 3.5% of purchase payments depending
upon the jurisdiction in which the Contract is delivered. A withdrawal charge
may be assessed at the time of withdrawal in an amount ranging up to 8% of the
requested withdrawal amount, with the specific percentage applicable to a
particular withdrawal depending on the length of time purchase payments were
held under the Contract, and whether withdrawals had been made previously during
that Contract year. (See Expenses--Withdrawal Charge on page 25 of the
prospectus.)
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<PAGE>
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 4.44%, assuming no surrender.
TOTAL RETURNS
The total return quotations set forth in the prospectus for all of these
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 or 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 first date any subaccount
investing in an underlying portfolio 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, adjusted to reflect current subaccount
charges, according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical
$1,000 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
current fees that are charged under the Contract to all owner accounts during
the accumulation period. Such fees include the mortality and expense risk charge
of 1.40% and the $35 annual Contract charge, calculated on the basis of an
average Contract size of $44,369, which translates into a charge of 0.08%. 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 or withdrawal charges 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-standardized basis. This means that the data will not be reduced by the
withdrawal charge under the Contract and that the data may be presented for
different time periods and for different purchase payment amounts.
NON-STANDARDIZED PERFORMANCE DATA WILL ONLY BE DISCLOSED IF STANDARDIZED
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. 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 1.40% and the $35 annual Contract charge (based on an average Contract
size of $44,369, the annual Contract charge translates into a charge of 0.08%).
Such data assumes a complete surrender of the Contract at the end of the period.
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<PAGE>
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 purchase payments made on a
"before tax" basis through a tax-qualified plan with those made on an "after
tax" basis outside of a tax-qualified plan, and a comparison of tax-deferred
versus non tax-deferred accumulation of purchase payments.
As described in the prospectus, 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 Rating Services, Moody's Investors Service, Inc. 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 funds or their portfolios, or to their
performance.
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
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National Association of Securities Dealers, Inc. AFSG will not be compensated
for its services as principal underwriter of the Contracts.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds' shares
held for the Contracts as compensation for providing certain shareholder support
services. AFSG will also receive an additional fee based on the value of shares
of the Fidelity VIP Funds held for the Contracts as compensation for providing
certain recordkeeping services.
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 first year sales commissions in an amount no greater than 6% of
purchase payments. In addition, broker/dealers may receive trail commissions of
0.20% of the annuity value (excluding the fixed account) in each Contract year,
starting at the end of the first quarter of the second Contract year, provided
the Contract has an annuity value of $5,000 or more in the subaccounts. These
commissions are not deducted from purchase payments. Certain production,
persistency and managerial bonuses may also be paid. Subject to applicable
federal and state laws and regulations, Western Reserve may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the Contracts. The level of such
compensation will not exceed that paid to broker/dealers for their sale of the
Contracts. The offering of 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 funds.
Additional protection for the assets of the separate account is provided by a
blanket bond issued to AEGON USA, Inc. ("AEGON USA") in the aggregate amount of
$12 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 certified public
accountants, provided audit services to the separate account for the year ended
December 31, 1999. The principal business address of PricewaterhouseCoopers LLP
is 400 North Ashley Street, Suite 2800, Tampa, Florida 33602-4319. 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.
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
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The values of an owner's interest in the separate account will be affected
solely by the investment results 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.
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.
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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 Western Reserve Life Assurance Co. of
Ohio ("Western Reserve") are included in Part B.
(b) Exhibits
(1) Resolution of the Board of Directors of Western
Reserve establishing the separate account. 1/
(2) Not Applicable.
(3) Distribution of Contracts.
(a) Form of Master Service and Distribution
Compliance Agreement. 1/
(b) Amendment to Master Service and
Distribution Compliance Agreement. 2/
(c) Form of Broker/Dealer Supervisory and
Service Agreement. 2/
(d) Principal Underwriting Agreement. 2/
(e) First Amendment to Principal Underwriting
Agreement. 2/
(4) (a) Specimen Flexible Payment Variable
Accumulation Deferred Annuity Contract. 3/
(b) (b) Endorsement (EA128). 4/
(c) Endorsement (EA124). 4/
(5) Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract. 5/
(6) (a) Second Amended Articles of Incorporation
of Western Reserve. 1/
(b) Certificate of First Amendment to Second
Amended Articles of Incorporation of
Western Reserve. 5/
(c) Amended Code of Regulations of Western
Reserve. 1/
(7) Not Applicable.
(8) (a) Participation Agreement Among Variable
Insurance Products Fund, Fidelity
Distributors Corporation and Western
Reserve Life Assurance Co. of Ohio dated
June 14, 1999. 6/
(b) Amendment No.1 dated March 15, 2000 to
Participation Agreement -Variable
Insurance Products Fund. 7/
(c) Participation Agreement Among Variable
Insurance Products Fund II, Fidelity
Distributors Corporation and Western
Reserve Life Assurance Co. of Ohio dated
June 14, 1997. 6/
(d) Amendment No.1 dated March 15, 2000 to
Participation Agreement -Variable
Insurance Products Fund II. 7/
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(e) Participation Agreement Among Variable
Insurance Products Fund III, Fidelity
Distributors Corporation and Western
Reserve Life Assurance Co. of Ohio dated
June 14, 1999. 6/
(f) Amendment No.1 dated March 15, 2000 to
Participation Agreement - Variable
Insurance Products Fund III. 7/
(9) Opinion and Consent of Thomas E. Pierpan, Esq.
as to Legality of Securities Being Registered.
8/
(10) (a) Written Consent of Sutherland Asbill &
Brennan LLP.
(b) Written Consent of Ernst & Young LLP.
(c) Written Consent of PricewaterhouseCoopers
LLP.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedules for Computation of Performance
Quotations. 9/
(14) Not Applicable.
(15) (a) Powers of Attorney. 1/
(b) Power of Attorney - James R. Walker. 10/
- --------------------------------------
1/ This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 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. 4 to
Form S-6 dated April 21, 1999 (File No. 333-23359) and is incorporated
herein by reference.
3/ This exhibit was previously filed on Initial Registration Statement on
Form N-4 dated April 11, 1997 (File No. 333-24959) and is incorporated
herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment No. 3
dated April 22, 1999 (File No. 333-24959) and is incorporated herein by
reference.
5/ This exhibit was previously filed on Post-Effective Amendment No. 1 to
Form N-4 dated April 21, 2000 (File No. 333-82705) and is incorporated
herein by reference.
6/ This exhibit was previously filed on the Initial Registration Statement
to Form S-6 dated September 23, 1999 (File No. 333-57681) and is
incorporated herein by reference.
7/ This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form N-4 dated April 10, 2000 (File No. 333-93169) and is incorporated
herein by reference.
8/ This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form N-4 dated June 26, 1997 (File No. 333-24959) and is incorporated
herein by reference.
9/ This exhibit was previously filed on Post-Effective Amendment No. 28 to
Form N-1A dated April 24, 1997 (File No. 33-507) and is incorporated
herein by reference.
10/ This exhibit was previously filed on Post-Effective Amendment No. 7 to
Form N-4 dated December 23, 1996 (File No. 33-49556) and is
incorporated herein by reference.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name Principal Business Address Position and Offices with Depositor
- ---- -------------------------- -----------------------------------
<S> <C> <C>
John R. Kenney (1) Chairman of the Board and
Chief Executive Officer
Jerome C. Vahl (1) Director and President
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Lyman H. Treadway 30195 Chagrin Boulevard Director
Suite 210N
Cleveland, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
Alan M. Yaeger (1) Executive Vice President, Actuary and
Chief Financial Officer
William H. Geiger (1) Senior Vice President, Secretary,
Corporate Counsel and Group Vice
President - Compliance
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
</TABLE>
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)
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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%)
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%)
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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 Contract Owners.
As of March 31, 2000, 14,439 nonqualified contracts and 23,447
qualified contracts were in force.
Item 28. Indemnification
Provisions exist under the Ohio General Corporation Law, the
Second Amended Articles of Incorporation of Western Reserve
and the Amended Code of Regulations of Western Reserve whereby
Western Reserve may indemnify certain persons against certain
payments incurred by such persons. The following excerpts
contain the substance of these provisions.
Ohio General Corporation Law
Section 1701.13 Authority of corporation.
(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon
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application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or
in defense of any claim, issue, or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this
section, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in divisions
(E)(1) and (2) of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel other
than an attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation, or any person to
be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such
action, suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this 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,
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trustee, officer, employee, or agent to repay such amount, if it ultimately is
determined that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
Second Amended Articles of Incorporation of Western Reserve
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
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
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corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation (including a subsidiary of this
corporation), domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that the court of common pleas, or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in sections (1) and (2) of this article, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under sections (1) and (2) of this article,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this article,
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination that a written undertaking
need not be submitted to the corporation shall in no way affect the entitlement
of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person 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
C-8
<PAGE>
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this section.
(8) As used in this section, references to "the corporation" include
all constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee or agent of another corporation (including a subsidiary of this
corporation), domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise shall stand in the same position under this
article with respect to the new or surviving corporation as he would if he had
served the new or surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such person
may also be an agent of this corporation. The corporation may indemnify such
named fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
Amended Code of Regulations of Western Reserve
ARTICLE V
Indemnification of Directors and Officers
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Western Reserve of expenses
incurred or paid by a director, officer or controlling person of Western Reserve
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Western Reserve will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriter
(a) 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
C-9
<PAGE>
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, AUSA Series Life Account and Transamerica
Occidental Life Separate Account VUL-3.
(b) Directors and Officers of AFSG
<TABLE>
<CAPTION>
Name Principal Business Address Position and Offices with Underwriter
---- -------------------------- -------------------------------------
<S> <C>
Larry N. Norman (1) Director and President
Harvey E. Willis (1) Vice President and Secretary
Lisa Wachendorf (1) Director and Chief 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) Director and Vice President
Priscilla I. Hechler (2) Assistant Vice President and Assistant
Secretary
Thomas E. Pierpan (2) Assistant Vice President and Assistant
Secretary
Richard C. Hicks (2) Assistant Vice President and 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
C-10
<PAGE>
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.
Registrant promises to file a post-effective amendment to the
Registration Statement as frequently as is necessary to ensure
that the audited financial statements in the Registration
Statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted.
Registrant furthermore agrees to include either as part of any
application to purchase a contract offered by the prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or a post card or similar written
communication affixed to or included in the Prospectus that
the applicant can remove to send for a Statement of Additional
Information.
Registrant agrees to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form N-4 promptly upon written or oral
request.
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, as amended, and is complying
with, or shall comply with, paragraphs (a) - (d) of that Rule.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 4 to its 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 20th day of April, 2000.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: ________________________
John R. Kenney, Chairman of Board and
Chief Executive Officer of Western Reserve Life Assurance
Co. of Ohio
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(Depositor)
By: ___________________________
John R. Kenney, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to this 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 and April 20, 2000
- ------------------- Chief Executive Officer
John R. Kenney (Principal Executive Officer)
/s/ Allan J. Hamilton Vice President, Treasurer April 20, 2000
- ---------------------- and Controller
Allan J. Hamilton
/s/ Alan M. Yaeger Executive Vice President, April 20, 2000
- --------------------- Alan M. Yaeger Actuary and
Chief Financial Officer
/s/ Jerome C. Vahl Director and President April 20, 2000
- ----------------------
Jerome C. Vahl
/s/ Lyman H. Treadway Director April 20, 2000
- -----------------------
Lyman H. Treadway */
/s/ Jack E. Zimmerman Director April 20, 2000
- ----------------------
Jack E. Zimmerman */
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James R. Walker Director April 20, 2000
- -------------------------
James R. Walker */
*/s/ Thomas E. Pierpan
- -------------------------
Signed by Thomas E. Pierpan
As Attorney-in-Fact
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 4 to its 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 20th day of April, 2000.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: _________________________________________
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: ___________________________________________
John R. Kenney, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to this 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>
Chairman of the Board and April 20, 2000
- ---------------------- Chief Executive Officer
John R. Kenney (Principal Executive Officer)
Vice President, Treasurer April 20, 2000
- ---------------------- and Controller
Allan J. Hamilton
Executive Vice President, April 20, 2000
- ---------------------- Actuary and Chief Financial
Alan M. Yaeger Officer
Director and President April 20, 2000
- ----------------------
Jerome C. Vahl
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Director April 20, 2000
- ----------------------
Lyman H. Treadway */
Director April 20, 2000
- ----------------------
Jack E. Zimmerman */
Director April 20, 2000
- ----------------------
James R. Walker */
*/________________________________
Signed by Thomas E. Pierpan
As Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10(a) Written Consent of Sutherland Asbill & Brennan LLP
10(b) Written Consent of Ernst & Young LLP
10(c) Written Consent of PricewaterhouseCoopers LLP
Exhibit 10(a)
Written Consent of Sutherland Asbill & Brennan LLP
<PAGE>
[S.A.B. Letterhead]
April 20, 2000
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
570 Carillon Parkway
St. Petersburg, FL 33716
RE: WRL Series Annuity Account
WRL Freedom Wealth Creator
File No. 333-24959/811-5672
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information incorporated by reference in
Post-Effective Amendment No. 4 to the Registration Statement on Form N-4 (File
No. 333-24959) of the WRL Series Annuity Account filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
-------------------------
Stephen E. Roth
Exhibit 10(b)
Written Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Accountants" in the Statement of Additional Information and to the use of our
report dated February 18, 2000, with respect to the statutory-basis financial
statements and schedules of Western Reserve Life Assurance Co. of Ohio included
in Post-Effective Amendment No. 4 to the Registration Statement (Form N-4 No.
333-24959) and related Prospectus of WRL Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 24, 2000
Exhibit 10(c)
Written Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-4 of our
report dated February 16, 2000, relating to the financial statements and
financial highlights of the sub-accounts constituting the WRL Series Annuity
Account, which appears in such Registration Statement. We also consent to the
reference to us under the heading "Independent Accountants" in such Registration
Statement.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 24, 2000
