As filed with the Securities and Exchange Commission on February 28, 2000
Registration No. 333-______/811-5672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. __ ( )
POST-EFFECTIVE AMENDMENT NO. __( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 74 (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
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
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Title of securities being registered: Units of interest in the separate account
under flexible payment variable accumulation deferred annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM JUMBO ANNUITY
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
FEBRUARY __, 2000
This prospectus gives you important information about the WRL Freedom Jumbo
Annuity, a flexible payment variable accumulation deferred annuity contract.
Please read this prospectus and the fund prospectus before you invest and keep
them for future reference. This Contract is available to individuals as well as
to certain groups and individual retirement plans.
You can put your money into 24 investment choices: a fixed account and 23
subaccounts of the WRL Series Annuity Account. Money you put in a subaccount is
invested exclusively in a single mutual fund portfolio. Your investments in the
portfolios are not guaranteed. You could lose your money. Money you direct into
the fixed account earns interest at a rate guaranteed by Western Reserve.
The 23 portfolios we currently offer through the subaccounts under this Contract
are:
WRL SERIES FUND, INC.
WRL Janus Growth WRL Dean Asset Allocation
WRL Janus Global WRL C.A.S.E. Growth
WRL Alger Aggressive Growth WRL GE/Scottish Equitable
International Equity
WRL VKAM Emerging Growth WRL GE U.S. Equity
WRL AEGON Balanced WRL Goldman Sachs Growth
WRL AEGON Bond WRL Goldman Sachs Small Cap
WRL LKCM Strategic Total Return WRL T. Rowe Price Dividend Growth
WRL Federated Growth & Income WRL T. Rowe Price Small Cap
WRL J.P. Morgan Money Market WRL Salomon All Cap
WRL J.P. Morgan Real Estate Securities WRL Pilgrim Baxter Mid Cap Growth
WRL Third Avenue Value WRL Dreyfus Mid Cap
WRL NWQ Value Equity
If you would like more information about the WRL Freedom Jumbo Annuity, you can
obtain a free copy of the Statement of Additional Information (SAI) dated
February ___, 2000. Please call us at 1-800-851-9777 or write us at: Western
Reserve, P.O. Box 9051, Clearwater, Florida 33758-9051. A registration
statement, including the SAI, has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference. The SEC maintains a
web site (http://www.sec.gov) that contains the prospectus, the SAI, material
incorporated by reference and other information. The table of contents of the
SAI is included at the end of this prospectus.
PLEASE NOTE THAT THE CONTRACT AND THE MUTUAL FUNDS:
o ARE NOT BANK DEPOSITS
o ARE NOT FEDERALLY INSURED
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
o INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PREMIUM
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS OF SPECIAL TERMS................................................. 1
SUMMARY...................................................................... 3
ANNUITY CONTRACT FEE TABLE................................................... 7
EXAMPLE...................................................................... 8
1. THE ANNUITY CONTRACT.................................................. 9
The Contract.......................................................... 9
Other Contracts....................................................... 10
2. ANNUITY PAYMENTS (THE INCOME PHASE)................................... 10
Annuity Payment Options Under the Contract............................ 10
Fixed Annuity Options................................................. 11
Variable Annuity Options.............................................. 11
3. PURCHASE.............................................................. 12
Contract Issue Requirements........................................... 12
Premium Payments...................................................... 12
Initial Premium Requirements.......................................... 12
Additional Premium Payments........................................... 12
Maximum Annual Premium Payments....................................... 13
Allocation of Premium Payments........................................ 13
Right to Cancel Period................................................ 13
Annuity Value......................................................... 13
Accumulation Units.................................................... 13
4. INVESTMENT CHOICES.................................................... 14
The Separate Account.................................................. 14
The Fixed Account..................................................... 14
Transfers............................................................. 15
Dollar Cost Averaging Program......................................... 15
Asset Rebalancing Program............................................. 16
Telephone or Fax Transactions......................................... 16
Third Party Investment Services....................................... 16
5. EXPENSES.............................................................. 17
Partial and Complete Surrenders....................................... 17
Mortality and Expense Risk Charge..................................... 17
Transfer Charge....................................................... 17
Premium Taxes......................................................... 17
Federal, State and Local Taxes........................................ 18
Portfolio Management Fees............................................. 18
6. TAXES................................................................. 18
Annuity Contracts in General.......................................... 18
Qualified and Nonqualified Contracts.................................. 18
Partial and Complete Surrenders - Nonqualified Contracts.............. 18
Multiple Contracts.................................................... 19
Diversification and Distribution Requirements......................... 19
Partial Surrenders - Qualified Contracts.............................. 19
Partial and Complete Surrenders....................................... 19
Taxation of Death Benefit Proceeds.................................... 20
Annuity Payments...................................................... 20
Transfers, Assignments or Exchanges of Contracts...................... 20
Possible Tax Law Changes.............................................. 20
<PAGE>
7. ACCESS TO YOUR MONEY.................................................. 21
Partial and Complete Surrenders....................................... 21
Delay of Payment and Transfers........................................ 21
Systematic Partial Surrenders......................................... 22
8. PERFORMANCE........................................................... 22
9. DEATH BENEFIT......................................................... 22
When We Pay a Death Benefit........................................... 22
When We Do Not Pay a Death Benefit.................................... 23
Amount of Death Benefit During the Accumulation Period................ 23
Alternate Payment Elections........................................... 23
10. OTHER INFORMATION..................................................... 24
Ownership............................................................. 24
Annuitant............................................................. 24
Beneficiary........................................................... 24
Assignment............................................................ 24
Western Reserve Life Assurance Co. of Ohio............................ 24
The Separate Account.................................................. 24
Voting Rights......................................................... 25
Distribution of the Contracts......................................... 25
Non-Participating Contract............................................ 25
Variations in Contract Provisions..................................... 25
IMSA.................................................................. 25
Legal Proceedings..................................................... 25
Financial Statements.................................................. 26
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................. 26
APPENDIX A
Condensed Financial Information.............................................. 27
APPENDIX B
Historical Performance Data.................................................. 28
<PAGE>
DEFINITIONS OF SPECIAL TERMS
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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 used to calculate
subaccount values during the accumulation
period.
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age The issue age is the annuitant's age on his/her
birthday immediately preceding the Contract
date. Attained age is the issue age plus the
number of completed Contract years. When we use
the term "age" in this prospectus, it has the
same meaning as "attained age" in the Contract.
- ------------------------------- ------------------------------------------------
annuitant The person named in the application, or as
subsequently changed, to receive annuity
payments. The annuitant may be changed as
provided in the Contract's death benefit
provisions and annuity provision.
- ------------------------------- ------------------------------------------------
annuity unit value An accounting unit of measure used to calculate
annuity payments from the subaccounts after the
maturity date.
- ------------------------------- ------------------------------------------------
annuity value The sum of the separate account value and the
fixed account value.
- ------------------------------- ------------------------------------------------
beneficiary(ies) The person(s) entitled to receive the death
benefit proceeds under the Contract.
- ------------------------------- ------------------------------------------------
cash value The annuity value less any applicable premium
taxes.
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Code The Internal Revenue Code of 1986, as amended.
- ------------------------------- ------------------------------------------------
Contract date The later of the date on which the initial
premium payment is received or the date that the
properly completed application is received at
Western Reserve's administrative office. It is
also the date when, depending on your state of
residence, we allocate your premium payment(s)
either to the reallocation account or to the
fixed account and the subaccounts you selected
on your application. We measure Contract years,
Contract months and Contract anniversaries from
the Contract date.
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death report day The valuation date on which we receive proof of
annuitant's death and your beneficiary's
election regarding payment.
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fixed account An allocation option under the Contract, other
than the separate account, that provides for
accumulation of premium payments, and options
for annuity payments on a fixed basis. The fixed
account may not be available in all states.
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fixed account value During the accumulation period, a Contract's
value allocated to the fixed account.
- ------------------------------- ------------------------------------------------
fund WRL Series Fund, Inc., an investment company
which is registered with the U.S. Securities and
Exchange Commission. We reserve the right to
add other registered investment companies to the
Contract in the future.
- ------------------------------- ------------------------------------------------
in force Condition under which the Contract is active and
the owner is entitled to exercise all rights
under the Contract.
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maturity date The date on which the accumulation period ends
and annuity payments begin. The latest maturity
date is the annuitant's 95th birthday.
- ------------------------------- ------------------------------------------------
NYSE New York Stock Exchange.
- ------------------------------- ------------------------------------------------
nonqualified Contracts Contracts issued other than in connection with
retirement plans.
- ------------------------------- ------------------------------------------------
owner (you, your) The person(s) entitled to exercise all rights
under the Contract. The annuitant is the owner
unless the application states otherwise, or
unless a change of ownership is made at a later
time. Joint owners may be named provided the
joint owners are husband and wife.
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portfolio A separate investment portfolio of the fund.
- ------------------------------- ------------------------------------------------
premium payments Amounts paid by an owner or on the owner's
behalf to Western Reserve as consideration for
the benefits provided by the Contract. When we
use the term "premium payment" in this
prospectus, it has the same meaning as "net
premium payment" in the Contract, which means
the premium payment less any applicable premium
taxes.
- ------------------------------- ------------------------------------------------
qualified Contracts Contracts issued in connection with retirement
plans that qualify for special federal income
tax treatment under the Code.
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reallocation account The WRL J.P. Morgan Money Market subaccount.
- ------------------------------- ------------------------------------------------
reallocation date The date shown on the schedule page of your
Contract when we reallocate all annuity value
held in the reallocation account to the fixed
account and subaccounts you selected. We place
your premium in the reallocation account only if
your state requires us to return the full
premium in the event you exercise your right to
cancel. In all other states, the reallocation
date is the Contract date.
- ------------------------------- ------------------------------------------------
separate account WRL Series Annuity Account, a separate account
composed of subaccounts established to receive
and invest premium payments not allocated to the
fixed account.
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1
<PAGE>
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separate account value During the accumulation period, a Contract's
value in the separate account, which equals the
total value in each subaccount.
- ------------------------------- ------------------------------------------------
subaccount A subdivision of the separate account that
invests exclusively in the shares of a specified
portfolio and supports the Contracts.
Subaccounts corresponding to each applicable
portfolio hold assets under the Contract during
the accumulation period. Other subaccounts
corresponding to each applicable portfolio will
hold assets after the maturity date if a
variable annuity option is selected.
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surrender The termination of a Contract at the option of
the owner. Western Reserve is open for business
on each day that the NYSE is open.
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valuation date Each day on which the NYSE is open for trading,
except when a subaccount's corresponding
portfolio does not value its shares. Western
Reserve is open for business on each day that
the NYSE is open.
- ------------------------------- ------------------------------------------------
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.
- ------------------------------- ------------------------------------------------
2
<PAGE>
SUMMARY
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 Jumbo Annuity is a flexible payment variable accumulation
deferred annuity contract (the "Contract") offered by Western Reserve Life
Assurance Co. of Ohio (Western Reserve, we, us). It is a contract between you,
as the owner, and Western Reserve, a life insurance company. The Contract
provides a way for you to invest on a tax-deferred basis in the subaccounts of
the separate account and the fixed account. We intend the Contract to be used to
accumulate money for retirement or other long-term investment purposes.
The Contract allows you to direct your money into any of the 23 subaccounts.
Each subaccount invests exclusively in a single portfolio of the fund. The money
you invest in the subaccounts will fluctuate daily based on the portfolio's
investment results. The value of your investment in the subaccounts is not
guaranteed and may increase or decrease. You bear the investment risk for
amounts you invest in the subaccounts.
You can also direct money to the fixed account. Amounts in the fixed account
earn interest annually at a fixed rate that is guaranteed by us never to be less
than 3%, and may be more. We guarantee the interest, as well as principal, on
money placed in the fixed account.
You can transfer money between any of the investment choices during the
accumulation period, subject to the limit on transfers from the fixed account.
The Contract, like all deferred annuity contracts, has two phases: the
"accumulation period" and the "income phase." During the accumulation period,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the Contract. The income phase starts on the maturity date when
you begin receiving regular payments from your Contract. The money you can
accumulate during the accumulation period, as well as the Contract's annuity
payment option you choose, will determine the amount of any income payments you
receive during the income phase.
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 elect 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, reduced by the separate account annuitization
charge. You cannot annuitize until your Contract's fifth anniversary.
3. PURCHASE
You can buy this Contract with $1,000,000 or more under most circumstances. You
can make additional premium payments of at least $10,000 at any time during the
accumulation period.
4. INVESTMENT CHOICES
You can invest your money in any of the 23 fund portfolios by directing it to
the corresponding subaccount. The portfolios are described in the fund
prospectus. The portfolios now available to you under the Contract are:
3
<PAGE>
- --------------------------------------------------------------------------------
WRL Janus Growth WRL Dean Asset Allocation
- --------------------------------------------------------------------------------
WRL Janus Global WRL C.A.S.E. Growth
- --------------------------------------------------------------------------------
WRL Alger Aggressive Growth WRL GE/Scottish Equitable International
Equity
- --------------------------------------------------------------------------------
WRL VKAM Emerging Growth WRL GE U.S. Equity
- --------------------------------------------------------------------------------
WRL AEGON Balanced WRL Goldman Sachs Growth
- --------------------------------------------------------------------------------
WRL AEGON Bond WRL Goldman Sachs Small Cap
- --------------------------------------------------------------------------------
WRL LKCM Strategic Total Return WRL T. Rowe Price Dividend Growth
- --------------------------------------------------------------------------------
WRL Federated Growth & Income WRL T. Rowe Price Small Cap
- --------------------------------------------------------------------------------
WRL J.P. Morgan Money Market WRL Salomon All Cap
- --------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities WRL Pilgrim Baxter Mid Cap Growth
- --------------------------------------------------------------------------------
WRL Third Avenue Value WRL Dreyfus Mid Cap
- --------------------------------------------------------------------------------
WRL NWQ Value Equity
- --------------------------------------------------------------------------------
Depending upon market conditions, you can make or lose money in any of these
subaccounts. We reserve the right to offer other investment choices in the
future.
You can also allocate your premium payments to the fixed account. Unless
otherwise required by state law, we will limit your allocations or transfers to
the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000. The fixed account may not be available in all
states. Residents of Washington, Oregon, New Jersey and Massachusetts may not
direct or transfer any money to the fixed account.
5. EXPENSES
We do not take any deductions from premium payments at the time you buy the
Contract. You invest the full amount of each premium payment in one or more of
the investment choices.
During the accumulation period, we deduct a daily mortality and expense risk
charge of 0.65% each year from the money you have invested in the subaccounts.
During the income phase, if you elect a variable annuity option, we will deduct
a daily separate account annuitization charge from your subaccount assets equal
to an annual rate between 0.65% and 1.15% in place of the mortality and expense
risk charge. We will set the separate account annuitization charge for your
Contract at least 30 days in advance of the maturity date and send you notice of
the level of the charge at that time. Once set, the separate account
annuitization charge will not change.
We impose a $10 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 pay your premium(s), or if you surrender the Contract or partially surrender
its value, or if we pay out death benefit proceeds, or if you begin to receive
regular annuity payments. We only charge you premium taxes in those states that
require us to pay premium taxes.
The portfolios deduct investment fees and expenses from amounts you have
invested in the portfolios. During 1999, these charges ranged from ____% to
____% annually, depending on the portfolio. See the Annuity Contract Fee Table
on page ___ in this prospectus and How the Fund Is Managed and Organized in the
fund prospectus.
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 also be charged a 10% federal
penalty tax on the earnings. The annuity payments you receive during the income
phase are considered partly a return of your original investment so that part of
each payment is not taxable as income until the "investment in the contract" has
been fully recovered. Different tax consequences may apply for a Contract used
in connection with a qualified plan.
7. ACCESS TO YOUR MONEY
You can take some or all of your money out anytime during the accumulation
period. However, you may not take a partial surrender if it reduces the cash
value below $1,000,000. No partial surrenders may be made from the fixed account
without prior consent from us. You may also have to pay federal income tax and a
penalty tax on any money you take out. No surrender charges apply.
4
<PAGE>
8. PERFORMANCE
The value of your Contract will vary up or down depending upon the investment
performance of the subaccounts you choose and will be reduced by Contract fees
and charges. We provide performance information in Appendix B and in the SAI.
Past performance does not guarantee future results.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, your beneficiary will receive a death benefit. If you name different
persons as owner and annuitant, you can affect whether the death benefit is
payable and who would receive it. Use care when naming owners, annuitants and
beneficiaries, and consult your agent if you have questions.
The amount of death benefit will be the annuity value of your Contract on the
death report day.
10. OTHER INFORMATION
RIGHT TO CANCEL PERIOD. You may return your Contract for a refund within 10 days
after you receive it. In most states, the amount of the refund will be the total
premium payments we have received, plus (or minus) any gains (or losses) in the
amounts you invested in the subaccounts. If state law requires, we will refund
your original premium payment(s). In those states, we will place your premium
payment(s) in the reallocation account until the reallocation date as shown on
your Contract schedule page. We determine the value of the refund as of the date
we receive the returned Contract. We will pay the refund within 7 days after we
receive your written notice of cancellation and the returned Contract. The
Contract will then be deemed void. In some states you may have more than 10 days
or receive a different refund amount.
WHO SHOULD PURCHASE THE CONTRACT? We have designed this Contract for people
seeking long-term tax-deferred accumulation of assets, generally for retirement.
This includes persons who have maximized their use of other retirement savings
methods, such as 401(k) plans and individual retirement accounts. The
tax-deferred feature is most attractive to people in high federal and state tax
brackets. You should not buy this Contract if you are looking for a short-term
investment or if you cannot take the risk of getting back less money than you
put in. If you are purchasing the Contract through a tax favored arrangement,
including IRAs and Roth IRAs, you should 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:
o SYSTEMATIC PARTIAL SURRENDERS: You can arrange to have money
automatically sent to you monthly, quarterly, semi-annually, or annually
while your Contract is in the accumulation period. Amounts you receive
may be included in your gross income and, in certain circumstances, may
be subject to penalty taxes.
o DOLLAR COST AVERAGING: You can arrange to have a certain amount of money
automatically transferred monthly from one or any combination of the
fixed account, the WRL J.P. Morgan Money Market or WRL AEGON Bond
subaccounts to your choice of subaccounts. Dollar cost averaging does
not guarantee a profit and does not protect against a loss if market
prices decline.
o ASSET REBALANCING: We will, upon your request, automatically transfer
amounts periodically among the subaccounts on a regular basis to
maintain a desired allocation of the annuity value among the various
subaccounts.
o TELEPHONE OR FAX TRANSACTIONS: You may make transfers, partial
surrenders, or change the allocation of additional premium payments by
telephone or fax.
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 and on other features of the Contract. Consult your agent and the
Contract form for details.
5
<PAGE>
11. INQUIRIES
If you need additional information, please contact us at:
Western Reserve Life
Annuity Department
P.O. Box 9051
Clearwater, FL 33758-9051
1-800-851-9777
http://www.westernreserve.com
6
<PAGE>
================================================================================
ANNUITY CONTRACT FEE TABLE
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
OWNER TRANSACTION EXPENSES (AS A PERCENTAGE OF AVERAGE SEPARATE ACCOUNT VALUE
DURING THE ACCUMULATION PERIOD)
<S> <C> <C> <C>
Sales Load On Premium Payments..........None Mortality and Expense Risk Charge (1).........0.65%
Maximum Surrender Charge................None TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.........0.65%
Transfer Charge........$10 After 12 Per Year
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO ANNUAL EXPENSES (2)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
PORTFOLIOS MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
WRL SERIES FUND, INC.(3)(4)
WRL Janus Growth (5) 0.78%
WRL Janus Global (6) 0.80%
WRL Alger Aggressive Growth 0.80%
WRL VKAM Emerging Growth 0.80%
WRL AEGON Balanced 0.80%
WRL AEGON Bond 0.45%
WRL LKCM Strategic Total Return 0.80%
WRL Federated Growth & Income 0.75%
WRL J.P. Morgan Money Market 0.40%
WRL J.P. Morgan Real Estate Securities 0.80%
WRL Third Avenue Value 0.80%
WRL NWQ Value Equity 0.80%
WRL Dean Asset Allocation 0.80%
WRL C.A.S.E. Growth 0.80%
WRL GE/Scottish Equitable International
Equity 1.00%
WRL GE U.S. Equity 0.80%
WRL Goldman Sachs Growth(7) 0.90%
WRL Goldman Sachs Small Cap(7) 0.90%
WRL T. Rowe Price Dividend Growth(7) 0.90%
WRL T. Rowe Price Small Cap(7) 0.75%
WRL Salomon All Cap(7) 0.90%
WRL Pilgrim Baxter Mid Cap Growth(7) 0.90%
WRL Dreyfus Mid Cap(7) 0.85%
================================================================================
</TABLE>
7
<PAGE>
(1) This charge applies to each subaccount. It does not apply to the fixed
account. The mortality and expense risk charge of 0.65% applies during the
accumulation period. After the maturity date, if you elect a variable payout
option, we will deduct a daily separate account annuitization charge from
your subaccount assets equal to an annual rate between 0.65% and 1.15%% in
place of the mortality and expense risk charge.
(2) The fee table information relating to the portfolios is for 1999 and was
provided to Western Reserve by the fund. Western Reserve has not
independently verified such information.
(3) Effective January 1, 1997, the fund's Board authorized the fund to charge
each portfolio of the fund an annual Rule 12b-1 fee of up to 0.15% of each
portfolio's average daily net assets. However, the fund will not deduct the
fee from any portfolio before April 30, [2000]. You will receive advance
written notice if a Rule 12b-1 fee is to be deducted. See the fund
prospectus for more details.
(4) WRL Investment Management, Inc. ("WRL Management"), the investment adviser
of the fund, has undertaken, until at least April 30, [2000], to pay
expenses on behalf of the portfolios of the fund to the extent normal total
operating expenses of a portfolio exceed the following percentage of a
portfolio's average daily net assets: 0.70% for WRL AEGON Bond and WRL J.P.
Morgan Money Market; 1.00% for WRL Alger Aggressive Growth, WRL Janus
Growth, WRL Janus Global, WRL VKAM Emerging Growth, WRL LKCM Strategic Total
Return, WRL Federated Growth & Income, WRL J.P. Morgan Real Estate
Securities, WRL Third Avenue Value, WRL NWQ Value Equity, WRL Dean Asset
Allocation, WRL C.A.S.E. Growth, WRL Goldman Sachs Growth, WRL Goldman
Sachs Small Cap, WRL T. Rowe Price Small Cap, WRL T. Rowe Price Dividend
Growth, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL Dreyfus
Mid Cap, and WRL AEGON Balanced; 1.50% for WRL GE/Scottish Equitable
International Equity; and 1.30% for WRL GE U.S. Equity. In 1999, WRL
Management reimbursed WRL J.P. Morgan Real Estate Securities in the amount
of $______, WRL Third Avenue Value in the amount of $______, WRL GE/Scottish
Equitable International Equity in the amount of $_______, WRL Goldman Sachs
Growth in the amount of $_______, WRL Goldman Sachs Small Cap in the amount
of $________, WRL T. Rowe Price Dividend Growth in the amount of $_______,
WRL T. Rowe Price Small Cap in the amount of $______, WRL Salomon All Cap in
the amount of $_______, WRL Pilgrim Baxter Mid Cap Growth in the amount of
$_______ and WRL Dreyfus Mid Cap in the amount of $_______. Without such
reimbursements, the total annual expenses during 1999 for WRL J.P. Morgan
Real Estate Securities, WRL Third Avenue Value, WRL GE/Scottish Equitable
International Equity, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap,
WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon
All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap would
have been ____%, ____%, ____%, ____%, ____%, ____%, ____%, ____%, _____% and
____%, respectively. See the fund prospectus for a description of the
expense limitations that apply to each portfolio of the fund.
(5) [WRL Janus Growth's advisory fee reflects 0.80% of the average daily net
assets for the period prior to May 1, 1998, and 0.775% of the first
$3 billion of average daily net assets and 0.75% of the average daily net
assets in excess of $3 billion for the period May 1, 1998 to December 31,
1998.] WRL Management currently waives 0.025% of its advisory fee for the
first $3 billion of the portfolio's average daily net assets (net fee --
0.775%); and 0.05% for the portfolio's average daily net assets above
$3 billion (net fee -- 0.75%). This waiver is voluntary and may be
terminated at any time upon 90 days' written notice to the fund.
(6) For WRL Janus Global, WRL Management will waive 0.025% of its advisory fee
once portfolio average daily net assets reach $2 billion (net fee --
0.775%.). This waiver is voluntary and may be terminated at any time upon
90 days' written notice to the fund.
(7) Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap commenced
operations on May 3, 1999, the percentages set forth as "Other Expenses" and
"Total Portfolio Annual Expenses" are annualized.
EXAMPLE
You would pay the following expenses on a $1,000,000 investment, assuming a
hypothetical 5% annual return on assets and assuming the entire $1,000,000 is
invested in the subaccount listed.
The expenses reflect the mortality and expense risk charge of 0.65% of account
value.
8
<PAGE>
<TABLE>
<CAPTION>
============================================== ===========================================================
IF YOU SURRENDER, ANNUITIZE OR
SUBACCOUNTS REMAIN INVESTED IN THE CONTRACT AT THE
END OF THE APPLICABLE TIME PERIOD*
============================================== ===========================================================
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
WRL Janus Growth $ $ $ $
WRL Janus Global
WRL Alger Aggressive Growth
WRL VKAM Emerging Growth
WRL AEGON Balanced
WRL AEGON Bond
WRL LKCM Strategic Total Return
WRL Federated Growth & Income
WRL J.P. Morgan Money Market
WRL J.P. Morgan Real Estate Securities
WRL Third Avenue Value
WRL NWQ Value Equity
WRL Dean Asset Allocation
WRL C.A.S.E. Growth
WRL GE/Scottish Equitable International
Equity
WRL GE U.S. Equity
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Salomon All Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Dreyfus Mid Cap
=========================================================================================================
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
The table above will help you understand the costs of investing in the
subaccounts. The table reflects the 1999 expenses of the portfolios and the
subaccount fees and charges. The table does not reflect premium taxes which may
range up to 3.50%, depending on the jurisdiction.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND DOES NOT REPRESENT PAST OR FUTURE ANNUAL
RETURNS. ACTUAL RETURNS MAY BE GREATER OR LESS THAN THE ASSUMED RATE.
The example above assumes that no transfer charges have been assessed.
FINANCIAL INFORMATION. There is no financial history of the subaccounts in this
prospectus because the subaccounts have not commenced operations as of the date
of this prospectus.
1. THE ANNUITY CONTRACT
THE CONTRACT
This prospectus describes the WRL Freedom Jumbo Annuity 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 ___.) 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.
9
<PAGE>
It is a "flexible payment" Contract because after you purchase it, you can
generally make additional investments of $10,000 or more at any time, until the
maturity date. But you are not required to make any additional investments.
The Contract is a "variable" annuity because the value of your Contract can go
up or down based on the performance of your investment choices. If you select
the variable investment portion of the Contract, the amount of money you are
able to accumulate in your Contract during the accumulation period depends upon
the performance of your investment choices. If you elect to receive variable
annuity payments during the income phase of your Contract, the amount of your
annuity payments will also depend upon the investment performance of your
investment choices for the income phase.
The Contract also contains a fixed account. Unless otherwise required by state
law, we will limit your allocations or transfers to the fixed account if the
fixed account value following the allocation or transfer would exceed $500,000.
The fixed account offers an interest rate that is guaranteed by Western Reserve
to equal at least 3% per year. There may be different interest rates for each
payment or transfer you direct to the fixed account which are greater than the
guaranteed rate. The interest rates we set will be credited for periods of at
least one year measured from each payment or transfer date.
The fixed account may not be available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not direct or transfer any money to the
fixed account.
OTHER CONTRACTS
We offer other variable annuity contracts which also invest in the same
portfolios of the fund. These contracts may have different charges that could
affect subaccount performance, and may offer different benefits more suitable to
your needs. To obtain more information about these contracts, contact your
agent, or call us at 1-800-851-9777.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments under the Contract start. This is the
maturity date. You can change this date by giving us 30 days written notice. The
maturity date cannot be earlier than the end of the fifth Contract year. The
maturity date cannot be later than the Contract month following the month in
which the annuitant reaches age 95. The maturity date may be earlier for
qualified Contracts.
ELECTION OF ANNUITY PAYMENT OPTION. Before the maturity date, if the annuitant
is alive, you may choose an annuity payment option or change your option. If you
do not choose an annuity option by the maturity date, we will make payments
under Option D (see page ___) 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 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 $20, then we will pay you
the annuity proceeds in one lump sum.
10
<PAGE>
FIXED ANNUITY INCOME PAYMENTS. If you choose annuity payment Option A, B or C,
the dollar amount of each annuity payment will be fixed on the maturity date and
guaranteed by us. The payment amount will depend on three things:
o The amount of the annuity proceeds on the maturity date;
o The interest rate we credit on those amounts (we guarantee a minimum
annual interest rate of 3%); and o The specific payment option you
choose.
VARIABLE ANNUITY INCOME PAYMENTS. If you choose variable annuity payment Option
D or E, the dollar amount of the first variable payment will be determined in
accordance with the annuity payment rates set forth in the applicable table
contained in the Contract. The dollar amount of each additional variable payment
will vary based on the investment performance of the subaccount(s) you invest in
and the Contract's assumed investment return of 5%. The dollar amount of each
variable payment after the first may increase, decrease or remain constant. If,
after all charges are deducted, the actual investment performance exactly
matched the Contract's assumed investment return of 5% at all times, then the
amount of the next variable annuity payment would remain the same. If actual
investment performance, after all charges are deducted, exceeds the assumed
investment return, then the amount of the variable annuity payments would
increase. But, if actual investment performance, less charges, is lower than the
5% assumed investment return, then the amount of the variable annuity payments
would decrease. The portfolio in which you are invested must grow at a rate at
least equal to the 5% assumed investment return (plus the daily separate account
annuitization charge equal to an annual rate between 0.65% and 1.15% of
subaccount assets in place of the mortality and expense risk charge) in order to
avoid a decrease in the dollar amount of variable annuity payments. For more
information on how variable annuity income payments are determined, see the SAI.
The annuity payment options are explained below. Options A, B, and C are fixed
only. Options D and E are variable only.
FIXED ANNUITY OPTIONS
PAYMENT OPTION A -- FIXED INSTALLMENTS. We will pay the annuity in equal
payments over a fixed period of 5, 10, 15 or 20 years or any other fixed period
acceptable to Western Reserve.
PAYMENT OPTION B -- LIFE INCOME: FIXED PAYMENTS.
o NO PERIOD CERTAIN -- We will make level payments only during the annuitant's
lifetime; or
o 10 OR 20 YEARS CERTAIN -- We will make level payments for the longer of the
annuitant's lifetime or 10 or 20 years; or
o GUARANTEED RETURN OF ANNUITY PROCEEDS -- We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the annuity proceeds.
PAYMENT OPTION C -- JOINT AND SURVIVOR LIFE INCOME: FIXED PAYMENTS. We will make
level payments during the joint lifetime of the annuitant and a co-annuitant of
your choice. Payments will be made as long as either person is living.
VARIABLE ANNUITY OPTIONS
PAYMENT OPTION D -- VARIABLE LIFE INCOME. The annuity proceeds are used to
purchase annuity units of the subaccounts you select. You may choose between:
o NO PERIOD CERTAIN -- We will make variable payments only during the
annuitant's lifetime; or
o 10 YEARS CERTAIN -- We will make variable payments for the longer of the
annuitant's lifetime or ten years.
PAYMENT OPTION E -- VARIABLE JOINT AND SURVIVOR LIFE INCOME. We will make
variable payments during the joint lifetime of the annuitant and a co-annuitant
of your choice. Payments will be made as long as either person is living.
Other annuity payment options may be arranged by agreement with us.
NOTE CAREFULLY: The death benefit payable after the maturity date will be
affected by the annuity option you choose.
If:
o you choose Life Income with No Period Certain or a Joint and Survivor Life
Income (fixed or variable); and
o the annuitant(s) dies, for example, before the due date of the second annuity
payment;
11
<PAGE>
Then:
o we may make only one annuity payment and there will be no death benefit
payable.
If:
o you choose Fixed Installments, Life Income with 10 or 20 Years Certain, Life
Income with Guaranteed Return of Annuity Proceeds, or Variable Life Income
with 10 Years Certain; and
o the person receiving payments dies prior to the end of the guaranteed period;
Then:
o the remaining guaranteed payments will be continued to that person's
beneficiary, or their value (determined at the date of death) may be paid in
a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The payee is responsible to keep Western Reserve
informed of the payee's current address of record.
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
Western Reserve will issue a Contract IF:
o we receive the information we need to issue the Contract;
o we receive a minimum initial premium payment; and
o the annuitant is age 85 or younger.
PREMIUM PAYMENTS
You should make checks or drafts for premium payments payable only to "Western
Reserve Life" and send them to the administrative office. Your check or draft
must be honored in order for us to pay any associated payments and benefits due
under the Contract.
INITIAL PREMIUM REQUIREMENTS
The initial premium payment for most Contracts must be at least $1,000,000. We
will credit your initial premium payment to your Contract within two business
days after the day we receive it and your complete Contract information. If we
are unable to credit your initial premium payment, we will contact you within
five business days and explain why. We will also return your initial premium
payment at that time unless you tell us to keep it. We will credit it as soon as
we receive all necessary application information.
The date on which we credit your initial premium payment to your Contract is the
Contract date. The Contract date is used to determine Contract years, Contract
months and Contract anniversaries.
If you wish to make premium 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 premium payments for any reason permitted by
law.
ADDITIONAL PREMIUM PAYMENTS
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and prior to the maturity date. We will accept premium payments by
bank wire or by
12
<PAGE>
check. Additional premium payments must be at least $10,000. We will credit
additional premium payments to your Contract as of the business day on which we
receive your premium payment and required information.
MAXIMUM ANNUAL PREMIUM PAYMENTS
We allow premium payments up to a total of $1,000,000 per Contract year without
prior approval.
ALLOCATION OF PREMIUM PAYMENTS
When you purchase a Contract, we will allocate your premium payment to the
investment choices you selected on your application, or we will place your
premium payment(s) in the reallocation account until the reallocation date. Your
allocation must be in whole percentages which must total 100%. We will allocate
additional premium payments as you selected on your application, unless you
request a different allocation.
Unless otherwise required by state law, we will limit allocations and transfers
to the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000.
You may change allocations for future additional premium payments by sending
written instructions or by telephone, subject to the limitations described under
Telephone or Fax Transactions on page ___. The allocation change will apply to
premium payments received after the date we receive the change request.
You should review periodically how your payments are divided among the
subaccounts because market conditions and your overall financial objective may
change.
RIGHT TO CANCEL PERIOD
You may return your Contract for a refund within 10 days after you receive it.
In most states, the amount of the refund will be the total premium payments we
have received, plus (or minus) any gains (or losses) in the amounts you invested
in the subaccounts. We determine the value of the refund as of the date we
receive the returned Contract. We will pay the refund within 7 days after we
receive your written notice of cancellation and the returned Contract. The
Contract will then be deemed void. In some states you may have more than 10 days
and/or receive a different refund amount.
If your state requires us to return your initial premium in the event you
exercise your right to cancel, we will allocate the initial premium on the
Contract date to the reallocation account until the reallocation date as shown
on your Contract schedule page. While held in the reallocation account, your
premium will be credited with gains and losses of the WRL J.P. Morgan Money
Market subaccount. The premium will remain in the reallocation account for the
number of days in your state's right to cancel period plus five days. Please
contact your agent for details concerning the right to cancel period for your
state.
On the first valuation date on or after the reallocation date, we will
reallocate all annuity value from the reallocation account to the fixed account
and/or subaccounts you selected on your application.
For states which do not require a full refund of the initial premium, the
reallocation date is the same as the Contract date; and we will allocate your
initial premium on the Contract date to the fixed account and/or subaccounts in
accordance with the instructions you gave us on your application.
ANNUITY VALUE
You should expect your annuity value to change from valuation period to
valuation period to reflect the investment performance of the portfolios, the
interest credited to your value in the fixed account, and the fees and charges
we deduct. A valuation period begins at the close of business on each valuation
date and ends at the close of business on the next succeeding valuation date. A
valuation date is any day the NYSE is open. Our business day closes at the close
of normal trading of the NYSE, usually 4:00 p.m. Eastern time. We observe the
same holidays as the NYSE.
ACCUMULATION UNITS
We measure the value of your Contract during the accumulation period by using a
unit called an accumulation unit. During the income phase, we use a measurement
called an annuity unit. When you direct money into a subaccount, we credit your
Contract with accumulation units for that subaccount. We determine how many
accumulation units to credit by dividing the dollar amount you direct to the
subaccount by the subaccount's accumulation unit value as of the end of that
valuation date. If you partially surrender or
13
<PAGE>
transfer out of a subaccount, or if we assess a transfer 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. 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 23 subaccounts.
THE FUND. Each subaccount invests exclusively in one portfolio of the fund. The
portfolios and their sub-adviser(s) are listed below.
<TABLE>
<CAPTION>
SUB-ADVISER PORTFOLIO
- ----------- ----------
<S> <C>
JANUS CAPITAL CORPORATION WRL Janus Growth
WRL Janus Global
FRED ALGER MANAGEMENT, INC. WRL Alger Aggressive Growth
VAN KAMPEN ASSET MANAGEMENT INC. WRL VKAM Emerging Growth
AEGON USA INVESTMENT MANAGEMENT, INC. WRL AEGON Balanced
WRL AEGON Bond
LUTHER KING CAPITAL MANAGEMENT CORPORATION WRL LKCM Strategic Total Return
FEDERATED INVESTMENT COUNSELING WRL Federated Growth & Income
J.P. MORGAN INVESTMENT MANAGEMENT INC. WRL J.P. Morgan Money Market
WRL J.P. Morgan Real Estate Securities
EQSF ADVISERS, INC. WRL Third Avenue Value
NWQ INVESTMENT MANAGEMENT COMPANY, INC. WRL NWQ Value Equity
DEAN INVESTMENT ASSOCIATES WRL Dean Asset Allocation
C.A.S.E. MANAGEMENT, INC. WRL C.A.S.E. Growth
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED and WRL GE/Scottish Equitable International Equity
GE INVESTMENT MANAGEMENT INCORPORATED
GE INVESTMENT MANAGEMENT INCORPORATED WRL GE U.S. Equity
GOLDMAN SACHS ASSET MANAGEMENT, INC. WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
T. ROWE PRICE ASSOCIATES, INC. WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
SALOMON BROTHERS ASSET MANAGEMENT INC WRL Salomon All Cap
PILGRIM BAXTER & ASSOCIATES, LTD. WRL Pilgrim Baxter Mid Cap Growth
THE DREYFUS CORPORATION WRL Dreyfus Mid Cap
</TABLE>
The general public may not purchase these portfolios. Their investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual fund 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'S CURRENT PROSPECTUS. YOU SHOULD
READ THE FUND PROSPECTUS CAREFULLY BEFORE YOU INVEST.
THE FIXED ACCOUNT
Premium payments allocated and amounts transferred to the fixed account become
part of the general account of Western Reserve. Interests in the general account
have not been registered under the Securities Act of 1933 (the "1933 Act"), nor
is the general account registered as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Accordingly, neither the
general account nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts. Western Reserve has been advised that the
staff of the SEC has not reviewed the disclosure in this prospectus which
relates to the fixed account.
14
<PAGE>
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. We have no formula for determining fixed account current
interest rates. We establish the interest rate, at our sole discretion, for each
premium payment or transfer into the fixed account. Rates are guaranteed for at
least one year.
If you select the fixed account, your money will be placed with the other
general assets of Western Reserve. All assets in our general account are subject
to the general liabilities of our business operations. The amount of money you
are able to accumulate in the fixed account during the accumulation period
depends upon the total interest credited. The amount of annuity payments you
receive during the income phase under a fixed annuity option will remain level
for the entire income phase. You may not transfer money between the fixed
account and the subaccounts during the income phase.
When you request a transfer or partial surrender from the fixed account, we will
account for it on a first-in, first-out ("FIFO") basis, for the purpose of
crediting your interest. This means that we will take the deduction from the
oldest money you have put in the fixed account. You may not make partial
surrenders from the fixed account unless we consent.
Unless otherwise required by state law, we will limit allocations and transfers
to the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000.
The fixed account may not be available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not direct or transfer any money to the
fixed account.
TRANSFERS
During the accumulation period, you or your agent/registered representative of
record may make transfers from any subaccount. However, if you elect the 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 only once each Contract year. We
must receive written notice within 30 days after a Contract anniversary. The
amount that may be transferred is the greater of: (1) 25% of the dollar amount
in the fixed account, or (2) the amount you transferred out of the fixed account
in the previous Contract year.
During the income phase of your Contract, you may transfer values from one
subaccount to another. No transfers may be made to or from the fixed account.
The minimum amount that can be transferred during this phase is the lesser of
$10 of monthly income, or the entire monthly income of the variable annuity
units in the subaccount from which the transfer is being made. We may limit
subaccount transfers to one per Contract year.
The fixed account may not be available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not transfer any of their Contract
value to the fixed account.
Transfers may be made by telephone or fax, subject to limitations described
under Telephone or Fax Transactions on page ___.
If you make more than 12 transfers from the subaccounts in any Contract year, we
will charge you $10 for each additional transfer you make during that year.
Currently, there is no charge for transfers from the fixed account.
The Contract's transfer privilege is not intended to afford owners a way to
speculate on short-term movements in the market. Excessive use of the transfer
privilege can potentially disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from WRL J.P.
Morgan Money Market, during any 12-month period. We interpret "substantive" to
mean either a dollar amount large enough to have a negative impact on a
portfolio's operations, or a series of movements between portfolios. We will not
limit non-substantive transfers.
We may, at any time, discontinue transfer privileges, modify our procedures, or
limit the number of transfers we permit. We will effect transfers from
subaccounts at accumulation unit values next determined after we receive the
transfer request.
DOLLAR COST AVERAGING PROGRAM
Dollar cost averaging allows you to transfer systematically a specific amount
each month from the fixed account, the WRL J.P. Morgan Money Market subaccount,
the WRL AEGON Bond subaccount, or any combination of these accounts to a
different subaccount. You may specify the dollar amount to be transferred
monthly; however, you must transfer at least $100 monthly. To
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<PAGE>
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 toward
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.
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.
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 or if you request any other transfer. Asset rebalancing
ignores amounts in the fixed account. You can choose to rebalance monthly,
quarterly, semi-annually, or annually.
To qualify for asset rebalancing, a minimum annuity value of $1,000,000 for an
existing Contract, or a minimum initial premium payment of $1,000,000 for a new
Contract, is required. Asset rebalancing does not guarantee gains, nor does it
assure that any subaccount will not have losses.
Each reallocation which occurs under asset rebalancing will be counted towards
the 12 free transfers allowed during each Contract year.
We reserve the right to discontinue, modify or suspend the asset rebalancing
program at any time.
TELEPHONE OR FAX TRANSACTIONS
You may make transfers, request partial surrenders and change the allocation of
additional premium payments by telephone. Telephone partial surrenders are not
allowed in the following situations:
o for qualified retirement accounts (except IRAs);
o if the amount you want to partially surrender is greater than $50,000; or
o if the address of record has been changed within the past 10 days.
Upon instructions from you, the registered representative/agent of record for
your Contract may also make telephone transfers or partial surrenders for you.
If you do not want the ability to make transfers or partial surrenders by
telephone, you should notify us in writing.
You may make telephone transfers or request partial surrenders by calling our
toll-free number: 1-800-851-9777. You will be required to provide certain
information for identification purposes when you request a transaction by
telephone. We may also require written confirmation of your request. We will not
be liable for following telephone requests that we believe are genuine.
You may also fax your interfunds transfer request to us at 727-299-1648 or your
partial surrender 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.
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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.
PARTIAL AND COMPLETE SURRENDERS
During the accumulation period, you can surrender part or all of the cash value.
We will not deduct any surrender charges. Cash value is the annuity value less
any premium taxes.
MORTALITY AND EXPENSE RISK CHARGE
We charge a fee as compensation for bearing certain mortality and expense risks
under the Contract. Examples of our risks include a guarantee of annuity rates,
certain Contract expenses, and assuming the risk that the current charges will
be insufficient in the future to cover costs of administering the Contract. The
mortality and expense risk charge is equal, on an annual basis, to 0.65% of the
average daily net assets that you have invested in each subaccount. This charge
is deducted from the subaccounts during the accumulation period. During the
income phase, if you elect a variable annuity option, we deduct a daily separate
account annuitization charge from your subaccount assets equal to an annual rate
between 0.65% and 1.15% in place of the mortality and expense risk charge. We
will set the separate account annuitization charge for your Contract at least 30
days in advance of the maturity date and send you notice of the level of the
charge at that time. Once set, the separate account annuitization charge will
not change.
If this charge does not cover our actual 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.
TRANSFER CHARGE
You are allowed to make 12 free transfers per Contract year. If you make more
than 12 transfers per Contract year, we charge $10 for each additional transfer.
We deduct the charge from the amount transferred. Dollar cost averaging and
asset rebalancing transfers are considered transfers. All transfer requests made
on the same day are treated as a single request. We deduct the charge to
compensate us for the cost of processing the transfer.
PREMIUM TAXES
A premium tax is a regulatory tax that some states assess on the premium
payments made into a contract. If we should have to pay any premium tax, we will
deduct the tax from each premium payment or from the accumulation unit value as
we incur the tax. As of the date of this prospectus, the following states assess
a premium tax on all initial and subsequent premium payments:
- --------------------------------------------------------------------------------
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
- --------------------------------------------------------------------------------
South Dakota 0.00% 1.25%
- --------------------------------------------------------------------------------
Wyoming 0.00% 1.00%
- --------------------------------------------------------------------------------
Currently, we do not deduct these taxes at the time you make a premium payment.
However, we will deduct the total amount of premium taxes, if any, from the
annuity value when:
o you elect to begin receiving annuity payments;
o you surrender the Contract;
o you request a partial surrender; or
o a death benefit is paid.
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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:
- --------------------------------------------------------------------------------
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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.
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount is reduced by the fees and expenses
paid by the portfolios. A description of these expenses is found in the fund
prospectus and in the Annuity Contract Fee Table on page ____ of this
prospectus.
6. TAXES
NOTE: Western Reserve has prepared the following information on federal income
taxes as a general discussion of the subject. It is not intended as tax advice
to any individual. You should consult your own tax advisor about your own
circumstances. We believe that the Contract qualifies as an annuity contract for
federal income tax purposes and the following discussion assumes it so
qualifies. We have included an additional discussion regarding taxes in the SAI.
ANNUITY CONTRACTS IN GENERAL
Deferred annuity contracts are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Code for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings,
if any, on the money held in your annuity Contract until you take the money out.
This is referred to as tax deferral. There are different rules as to how you
will be taxed depending on how you take the money out and the type of Contract
- -- qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your Contract until a
distribution occurs -- either as a partial or complete surrender or as annuity
payments.
When a non-natural person (e.g., 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, 457 plan,
or pension or profit sharing plan, your Contract is referred to as a qualified
Contract.
If you purchase the Contract as an individual and not under a qualified
Contract, your Contract is referred to as a nonqualified Contract.
Because variable annuity contracts provide tax deferral whether purchased as a
qualified Contract or nonqualified Contract, you should consider whether the
features and benefits unique to variable annuities are appropriate for your
needs when purchasing a qualified Contract.
A qualified Contract may be used in connection with the following plans:
o INDIVIDUAL RETIREMENT ANNUITY (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the Contract. A Roth
IRA 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.
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o CORPORATE PENSION, PROFIT-SHARING AND H.R. 10 PLANS: Employers and
self-employed individuals can establish pension or profit-sharing plans
for their employees or themselves and make contributions to the Contract
on a pre-tax basis.
o DEFERRED COMPENSATION PLAN (457 PLAN): Certain governmental and
tax-exempt organizations can establish a plan to defer compensation on
behalf of their employees through contributions to the Contract.
There are limits on the amount of annual contributions you can make to these
plans. Other restrictions may apply. If your Contract is used in connection with
a traditional IRA or a Roth IRA, only rollover or transfer contributions are
permitted. No regular contributions may be made. The terms of the plan may limit
your rights under a qualified Contract. You should consult your legal counsel or
tax advisor if you are considering purchasing a Contract for use with any
retirement plan. We have provided more detailed information on these plans and
the tax consequences associated with them in the SAI.
PARTIAL AND COMPLETE SURRENDERS - NONQUALIFIED CONTRACTS
If you make a partial surrender from your Contract, the Code treats that
surrender as first coming from earnings and then from your premium payments.
When you make a partial surrender you are taxed on the amount of the surrender
that is earnings. When you make a complete surrender you are generally taxed on
the amount that your surrender proceeds exceeds your premiums paid. Pledges and
assignments are taxed in the same manner as surrenders. Different rules apply
for annuity payments.
The Code also provides that surrendered earnings may be subject to a penalty.
The amount of the penalty is equal to 10% of the amount that is includable in
income. Some surrenders will be exempt from the penalty. They include any
amounts:
o paid on or after the taxpayer reaches age 59-1/2;
o paid after the taxpayer dies;
o paid if the taxpayer becomes totally disabled (as that term is defined in
the Code);
o paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
o paid under an immediate annuity; or which come from premium payments made
prior to August 14, 1982.
MULTIPLE CONTRACTS
All nonqualified, deferred annuity contracts entered into after October 21, 1988
that we issue (or our affiliates issue) to the same owner during any calendar
year are to be 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. We may modify the
Contract to attempt to maintain favorable tax treatment.
PARTIAL SURRENDERS -- QUALIFIED CONTRACTS
The above information describing the taxation of nonqualified Contracts does not
apply to qualified Contracts. There are special rules that govern qualified
Contracts, including rules restricting when amounts can be paid from the
Contracts and providing that a penalty tax may be assessed on amounts partially
surrendered from the Contract prior to the date you reach age 59-1/2, unless you
meet one of the exceptions to this rule. We have provided more information in
the SAI.
PARTIAL AND COMPLETE SURRENDERS
In the case of a partial surrender, systematic partial surrender, or complete
surrender distributed to a participant or beneficiary under a qualified Contract
(other than a Roth IRA or a qualified Contract under Section 457 of the Code as
to which there are special rules), a ratable portion of the amount received is
taxable, generally based on the ratio of the investment in the Contract to the
total annuity value. The "investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on behalf of an individual
under a Contract which is not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero.
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Generally, in the case of a partial surrender, systematic partial surrender, or
complete surrender under a nonqualified Contract before the maturity date,
amounts received are first treated as taxable income to the extent that the
annuity value immediately before the partial surrender, systematic partial
surrender, or complete surrender exceeds the "investment in the contract" at
that time. Any additional amount partially surrendered, applied to a systematic
partial surrender or complete surrender is not taxable. In the event of a
partial surrender or systematic partial surrender from, or complete surrender
of, a nonqualified Contract, we will withhold for tax purposes the minimum
amount required by law, unless the owner affirmatively elects, before payments
begin, to have either nothing withheld or a different amount withheld.
Pledges and assignments of nonqualified Contracts are taxed in the same manner
as partial surrenders from such Contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
We may distribute amounts from the Contract because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
o if distributed in a lump sum, these amounts are taxed in the same manner
as a complete surrender; or
o if distributed under an annuity payment option, these amounts are taxed
in the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received which were not
includable in gross income.
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified Contracts, only a
portion of the annuity payments you receive will be includable in your gross
income.
The excludable portion of each annuity payment you receive generally will be
determined as follows:
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.
Variable payments -- by dividing the "investment in the contract" on the
maturity date by the total number of expected periodic payments. This is the
amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If we permit you to select more than one annuity payment option, special rules
govern the allocation of the Contract's entire "investment in the contract" to
each such option, for purposes of determining the excludable amount of each
payment received under that option. We advise you to consult a competent tax
advisor as to the potential tax effects of allocating amounts to any particular
annuity payment option.
If, after the maturity date, annuity payments stop because of an annuitant's
death, the excess (if any) of the "investment in the contract" as of the
maturity date over the aggregate amount of annuity payments received that was
excluded from gross income is generally allowable as a deduction for your last
tax return.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS
If you transfer your ownership or assign a Contract, designate an annuitant or
other beneficiary who is not also the owner, select certain maturity dates, or
change annuitants, you may trigger certain income or gift tax consequences that
are beyond the scope of this discussion. If you contemplate any such transfer,
assignment, selection, or change, you should contact a competent tax advisor
with respect to the potential tax effects of such a transaction.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative 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 legislative
developments and their effect on the Contract.
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7. ACCESS TO YOUR MONEY
PARTIAL AND COMPLETE SURRENDERS
You can have access to the money in your Contract in several ways:
o by making either a partial or complete surrender; or
o by taking annuity payments.
If you want to surrender your Contract completely, you will receive the cash
value, which equals the annuity value of your Contract, minus any premium taxes.
No partial surrender is permitted if it would reduce the cash value below
$1,000,000. You may not make partial surrenders from the fixed account unless we
consent. Unless you tell us otherwise, we will take the partial surrender from
each of the investment choices in proportion to the cash value. Unless we
otherwise consent, the minimum amount available each time you request a partial
surrender is $500. Remember that any partial surrender you take will reduce the
annuity value and will reduce the amount of the death benefit.
Income taxes, federal tax penalties and certain restrictions may apply to any
partial or complete surrender you make.
We must receive a properly completed surrender request which must contain your
original signature. If you reside in a community property state, your spouse
must also sign the surrender request. We will accept fax or telephone requests
for partial surrenders as long as the surrender proceeds are being sent to the
address of record. The maximum surrender amount you may request by fax or
telephone is $50,000.
When we incur extraordinary expenses, such as overnight mail expenses, for
expediting delivery of your partial or complete surrender payment, we will
deduct that charge from the payment. We charge $20 for an overnight delivery
($30 for Saturday delivery).
For your protection, we will require a signature guarantee for:
o all requests for partial or complete surrenders over $500,000; or
o where the partial or complete surrender proceeds will be sent to an
address other than the address of record.
All signature guarantees must be made by:
o a national or state bank;
o a member firm of a national stock exchange; or
o any institution that is an eligible guarantor under SEC rules and
regulations.
Notarization is not an acceptable form of signature guarantee.
If the Contract's owner is not an individual, additional information may be
required. Other restrictions will apply to Texas Optional Retirement Program
Contracts. If you own a qualified Contract, the Code may require your spouse to
consent to any surrender. For more information, call us at 1-800-851-9777.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the separate account for a partial or complete
surrender, a death benefit, or the death of the owner of a nonqualified Contract
will generally occur within seven business days from the date all required
information is received by us. We may be permitted to defer such payment from
the separate account if:
o the NYSE is closed for other than usual weekends or holidays or trading
on the Exchange is otherwise restricted; or
o an emergency exists as defined by the SEC or the SEC requires that
trading be restricted; or
o the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of transfers and partial or complete surrenders from the fixed
account for up to six months.
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SYSTEMATIC PARTIAL SURRENDERS
You can elect to receive regular payments from your Contract by using systematic
partial surrenders. Payments are made monthly, quarterly, semi-annually or
annually, in equal payments of at least $200. Your initial premium payment, if a
new Contract, or your annuity value, if an existing Contract, must equal at
least $1,000,000. We will not process a systematic partial surrender if the cash
value for the entire Contract would be reduced below $1,000,000. No systematic
partial surrenders are permitted from the fixed account without our prior
consent.
You may stop systematic partial surrenders at any time, but we must receive
written notice at least 30 days prior to the date systematic partial surrenders
are to be discontinued. We reserve the right to discontinue offering systematic
partial surrenders 30 days after we send you written notice. You may take
systematic partial surrenders if you have elected the dollar cost averaging or
asset rebalancing program.
Income taxes, federal tax penalties and other restrictions may apply to any
systematic partial surrender you receive.
8. PERFORMANCE
We periodically advertise performance of the subaccounts and investment
portfolios. We may disclose at least four different kinds of performance.
First, we may disclose standardized total return figures for the subaccounts
that reflect the deduction of all charges assessed during the accumulation
period under the Contract, including the mortality and expense risk charge.
THESE FIGURES ARE BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE SEPARATE
ACCOUNT SINCE ITS inception.
Second, we may disclose total return figures on a non-standardized basis. This
means that the data may be presented for different time periods and different
dollar amounts. We will only disclose non-standardized performance data if it is
accompanied by standardized total return data.
Third, we may present historic performance data for the portfolios since their
inception reduced by some or all fees and charges under the Contract. Such
adjusted historic performance includes data that precedes the inception date of
the separate account, but is designed to show the performance that would have
resulted if the Contract had been available during that time.
Fourth, we may include in our advertising and sales materials, tax-deferred
compounding charts and other hypothetical illustrations, which may include
comparisons of currently taxable and tax-deferred investment programs, based on
selected tax brackets.
The fund prospectus presents the total return of certain existing SEC-registered
funds that are managed by sub-advisers to the portfolios. These funds have
investment objectives, policies and strategies that are substantially similar to
those of certain portfolios. We call the funds the "Similar Sub-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:
o you are both the annuitant and the owner of the Contract; and
o you die before the maturity date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the Contract as the new annuitant and owner, instead of receiving the
death benefit.
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Federally prescribed mandatory distribution requirements apply to the annuity
value upon the death of any owner or annuitant. These restrictions are detailed
in the SAI.
AFTER THE MATURITY DATE. The death benefit payable, if any, on or after the
maturity date depends on the annuity payment option selected. See Fixed Annuity
Options and Variable Annuity Options on pages ___ and ___ for a description of
the annuity payment options. Please note that not all payment options provide
for a death benefit.
If:
o you are not the annuitant; and
o you die on or after the maturity date; and
o the entire interest in the Contract has not been paid to you;
Then:
o any remaining value in the Contract will be distributed at least as
rapidly as under the method of distribution being used as of the date
of the owner's death.
WHEN WE DO NOT PAY A DEATH BENEFIT
No death benefit is paid in the following cases:
If:
o you are not the annuitant; and
o the annuitant dies prior to the maturity date;
Then:
o you will become the new annuitant and the Contract will continue.
If:
o you are not the annuitant; and
o you die prior to the maturity date;
Then:
o if there is a surviving joint owner, then that person becomes the new
owner and the Contract will continue.
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 or regulations. If
the annuitant dies during the accumulation period, the death benefit will be the
annuity value of your Contract on the death report day.
ALTERNATE PAYMENT ELECTIONS
The beneficiary may elect to receive the death benefit in a lump sum payment, or
(if not your surviving spouse) to receive payment:
1. within 5 years of the date of the annuitant's death;
2. over a specific number of years, not to exceed the beneficiary's life
expectancy, with payments starting within one year of the annuitant's
death; or
3. under a life annuity payout option, with payments starting within one year
of the annuitant's death.
If the beneficiary chooses 1 or 2 above, this Contract remains in effect and
remains in the accumulation period until it terminates at the end of the elected
period. The death benefit 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.
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10. OTHER INFORMATION
OWNERSHIP
You, as owner of the Contract, exercise all rights under the Contract including
the right to transfer ownership. You can change the owner at any time by
notifying Western Reserve in writing. An ownership change may be a taxable
event. Joint owners may be named provided they are husband and wife.
ANNUITANT
The annuitant is the person named in the application to receive annuity
payments. If no person is named, the owner will be the annuitant. As of the
maturity date, and upon our agreement, the owner may change the annuitant or, if
either annuity Option C or Option E has been selected, add a co-annuitant. On
the maturity date, the annuitant(s) will become the payee(s) and receive the
annuity payments.
BENEFICIARY
The beneficiary is the person who receives the death benefit proceeds upon the
death of the annuitant when the owner is a natural person other than the
annuitant. The beneficiary will become the new owner when the owner is not the
same person as the annuitant and the owner dies before the annuitant. You may
change the beneficiary during the lifetime of the annuitant, subject to the
rights of any irrevocable beneficiary. Any change must be made in writing and
received by us at our administrative office and, if accepted, will be effective
as of the date on which the request was signed by the owner. Prior to the
maturity date, if no beneficiary survives the annuitant, the owner, if living,
or the owner's estate will be the beneficiary. In the case of certain qualified
Contracts, the Treasury Regulations prescribe certain limitations on the
designation of a beneficiary. See the SAI for more details on the beneficiary.
ASSIGNMENT
You can also assign the Contract any time during your lifetime. Western Reserve
will not be bound by the assignment until we receive written notice of the
assignment. Western Reserve will not be liable for any payment or other action
we take in accordance with the Contract before we receive notice of the
assignment. An assignment may be a taxable event. There may be limitations on
your ability to assign a qualified Contract, and such assignments may be subject
to tax penalties and taxed as distributions under the Code.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was incorporated under the laws of Ohio on October 1, 1957. It
is engaged in the business of writing life insurance policies and annuity
contracts. Western Reserve is wholly-owned by First AUSA Life Insurance Company,
a stock life insurance company which is wholly-owned by AEGON USA, Inc. ("AEGON
USA"), which conducts most of its operations through subsidiary companies
engaged in the insurance business or in providing non-insurance financial
services. All of the stock of AEGON USA is indirectly owned by AEGON N.V. of the
Netherlands, the securities of which are publicly traded. AEGON N.V., a holding
company, conducts its business through subsidiary companies engaged primarily in
the insurance business. Western Reserve is licensed in the District of Columbia,
Guam, Puerto Rico and in all states except New York.
THE SEPARATE ACCOUNT
Western Reserve established a separate account, called the WRL Series Annuity
Account, under the laws of the State of Ohio on April 12, 1988. The separate
account is divided into subaccounts, each of which invests exclusively in shares
of a mutual fund portfolio. Currently, there are 23 subaccounts offered through
this Contract. Western Reserve may add, delete or substitute subaccounts or
investments held by the subaccounts, and we reserve 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.
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Information about the separate account can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. You may obtain information about the
operation of the public reference room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a web site (HTTP://WWW.SEC.GOV) that contains other
information regarding the separate account.
VOTING RIGHTS
Western Reserve will vote all shares of the portfolios in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares in 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 Securities Corporation ("AFSG") is the principal underwriter of the
Contracts. Like Western Reserve, it is an indirect wholly-owned subsidiary of
AEGON USA. It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA
52499-0001. AFSG is registered as a broker/dealer under the Securities Exchange
Act of 1934. It is a member of the National Association of Securities Dealers,
Inc. The Contracts are offered to the public through broker/dealers licensed
under the federal securities laws and state insurance laws and who have entered
into written sales agreements with AFSG. First year commissions of up to 0.50%
of premium payments will be paid to broker/dealers who sell the Contracts under
agreements with AFSG. In addition, broker/dealers may receive trail commissions
of 0.50% 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 $1,000,000 or more in the
subaccounts. These commissions are not deducted from premium 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 continous and Western Reserve does
not anticipate discontinuing the offering of the Contracts. However, Western
Reserve reserves the right to do so.
NON-PARTICIPATING CONTRACT
The Contract does not participate or share in the profits or surplus earnings of
Western Reserve. No dividends are payable on the Contract.
VARIATIONS IN CONTRACT PROVISIONS
Certain provisions of the Contracts may vary from the descriptions in this
prospectus in order to comply with different state laws. See your Contract for
variations since any such state variations will be included in your Contract or
in riders or endorsements attached to your Contract.
The fixed account may not be available in all states. Residents of Washington,
Oregon, New Jersey and Massachusetts may not direct or transfer any money to the
fixed account.
IMSA
We are a member of the Insurance Marketplace Standards Association ("IMSA").
IMSA is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales 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 action lawsuits naming us as a defendant or
involving the separate account. In some lawsuits involving other insurers,
substantial damages have been sought and/or material settlement payments have
been made. Although the outcome of any litigation cannot be predicted with
certainty, Western Reserve believes that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the separate account, AFSG or Western Reserve.
25
<PAGE>
FINANCIAL STATEMENTS
The financial statements of Western Reserve and the separate account are
included in the SAI. The financial statements of the separate account are not
fully representative of the subaccounts listed in this prospectus, as the
subaccounts have not yet commenced operations.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Definitions of Special Terms
The Contract -- General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
Administration
Records and Reports
Distribution of the Contracts
Other Products
Custody of Assets
Legal Matters
Independent Accountants
Other Information
Financial Statements
Inquiries and requests for an SAI should be directed to:
Western Reserve Life
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
http://www.westernreserve.com
26
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The subaccounts available under this Contract have not yet commenced operations.
Therefore, there is no history of accumulation unit values for these
subaccounts.
27
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
We may advertise historical yields and total returns for the subaccounts of the
separate account. These figures are based on historical earnings and will be
calculated according to guidelines from the SEC. They do not indicate future
performance.
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT. The yield of the WRL J.P. Morgan Money
Market subaccount is the annualized income generated by an investment in the
subaccount over a specified seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period, not including
capital changes or income other than investment income, is generated each
seven-day period over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but we assume that the
income earned is reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
OTHER SUBACCOUNTS. The YIELD of a subaccount of the separate account, other than
the WRL J.P. Morgan Money Market subaccount, refers to the annualized income
generated by an investment in the subaccount over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that 30-day period is generated each 30-day period over a 12-month period
and is shown as a percentage of the investment.
The TOTAL RETURN of a subaccount assumes that an investment has been held in the
separate account for various periods of time including a period measured from
the date a subaccount investing in the underlying portfolios began operations.
When a subaccount has been in operation for 1, 5 and 10 years, the total return
for these periods will be provided, adjusted to reflect current subaccount
charges. The total return quotations will represent the average annual
compounded rates of return of investment of $1,000,000 in the subaccount as of
the last day of each period.
The yield and total return calculations are not reduced by any premium taxes.
For additional information regarding yields and total returns, please refer to
the SAI.
Based on the method of calculation described in the SAI, the standardized
average annual total returns of the subaccounts for periods from inception of
the subaccounts investing in the underlying portfolios to December 31, 1999 and
for the one and five year periods ended December 31, 1999 are shown in Table 1
below. Although the Contract did not exist during the periods shown in Table 1,
the returns of the subaccounts shown have been adjusted to reflect current
subaccount charges imposed under the Contract. Total returns shown in Table 1
reflect the deduction of 0.65% for the mortality and expense risk charge and are
based on an annuity value of $1,000,000.
28
<PAGE>
- --------------------------------------------------------------------------------
TABLE 1
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 0.65%)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99 12/31/99** DATE**
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth 12/03/92
WRL Janus Global 12/03/92
WRL Alger Aggressive Growth 03/01/94
WRL VKAM Emerging Growth 03/01/93
WRL AEGON Balanced 03/01/94
WRL AEGON Bond 12/03/92
WRL LKCM Strategic Total Return 03/01/93
WRL Federated Growth & Income 03/01/94
WRL J.P Morgan Money Market* 12/03/92
WRL J.P. Morgan Real Estate Securities N/A 05/01/98
WRL Third Avenue Value N/A 01/02/98
WRL NWQ Value Equity N/A 05/01/96
WRL Dean Asset Allocation N/A 01/03/95
WRL C.A.S.E. Growth N/A 05/01/96
WRL GE/Scottish Equitable International Equity N/A 01/02/97
WRL GE U.S. Equity N/A 01/02/97
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
WRL Salomon All Cap N/A N/A N/A 05/03/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
** Refers to the inception date of the subacount with separate account annual
expenses of 1.25%.
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 surrenders 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.
ADJUSTED HISTORICAL PERFORMANCE DATA. We may disclose historic performance data
for the portfolios since their inception reduced by some or all of the fees and
charges under the Contract. Such adjusted historic performance includes data
that precedes the inception dates of the subaccounts investing in the underlying
portfolios. This data is designed to show the performance that would have
resulted if the Contract had been in existence during that time, based on the
portfolio's performance. This data assumes that the subaccounts available under
the Contract were in existence for the same period as the portfolio with a level
of charges equal to those currently assessed under the Contract. This data is
not intended to indicate future performance.
Based on the method of calculation described in the SAI, the adjusted historic
average annual total returns for the portfolios for periods from inception of
the portfolios to December 31, 1999, and for the one, five and ten year periods
ended December 31, 1999 are shown in Table 2 below. The total returns of the
portfolios have been reduced by all charges currently assessed under the
29
<PAGE>
Contract, as if the Contract had been in existence since the inception of the
portfolio. In Table 2, adjusted total returns for the portfolios reflect
deduction of the 0.65% mortality and expense risk charge.
The adjusted historical average annual total returns of the portfolios for
periods ended 12/31/99 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE 2
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 0.65%)
- ------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS CORRESPONDING
ENDED ENDED 10 YEARS OR PORTFOLIO
PORTFOLIO 12/31/99 12/31/99 INCEPTION INCEPTION DATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth* + 10/02/86
WRL Janus Global 12/03/92
WRL Alger Aggressive Growth 03/01/94
WRL VKAM Emerging Growth 03/01/93
WRL AEGON Balanced 03/01/94
WRL AEGON Bond* + 10/02/86
WRL LKCM Strategic Total Return 03/01/93
WRL Federated Growth & Income 03/01/94
WRL J.P Morgan Money Market* + 10/02/86
WRL J.P. Morgan Real Estate Securities N/A 05/01/98
WRL Third Avenue Value N/A 01/02/98
WRL NWQ Value Equity N/A 05/01/96
WRL Dean Asset Allocation N/A 01/02/95
WRL C.A.S.E. Growth* N/A 05/01/95
WRL GE/Scottish Equitable International Equity N/A 01/02/97
WRL GE U.S. Equity N/A 01/02/97
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
WRL Salomon All Cap N/A N/A N/A 05/03/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yield more closely reflects current earnings of the WRL J.P. Morgan Money
Market subaccount than its total return.
+ This percentage represents ten year performance data, rather than data since
portfolio inception.
30
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM JUMBO ANNUITY
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 Jumbo Variable Annuity offered by Western
Reserve Life Assurance Co. of Ohio. You may obtain a copy of the prospectus
dated February ___, 2000 by calling 1-800-851-9777, or by writing to the
administrative office, Western Reserve Life, P.O. Box 9051, Clearwater, Florida
33758-9051. The prospectus sets forth information that a prospective investor
should know before investing in a Contract. Terms used in the current prospectus
for the Contract are incorporated in this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND SHOULD
BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT AND THE WRL
SERIES ANNUITY ACCOUNT.
DATED: FEBRUARY ___, 2000
WRL00362
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS............................................... 1
THE CONTRACT--GENERAL PROVISIONS........................................... 2
Owner................................................................. 2
Entire Contract....................................................... 2
Misstatement of Age or Gender......................................... 2
Addition, Deletion or Substitution of Investments..................... 2
Annuity Payment Options............................................... 3
Death Benefit......................................................... 3
Assignment............................................................ 4
Proof of Age, Gender and Survival..................................... 5
Non-Participating..................................................... 5
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 5
Tax Status of the Contract............................................ 5
Taxation of Western Reserve........................................... 7
INVESTMENT EXPERIENCE...................................................... 7
Accumulation Units.................................................... 7
Accumulation Unit Value............................................... 8
Annuity Unit Value and Annuity Payment Rates.......................... 8
HISTORICAL PERFORMANCE DATA ............................................... 9
Money Market Yields................................................... 9
Other Subaccount Yields............................................... 10
Total Returns......................................................... 11
Other Performance Data................................................ 11
Advertising and Sales Literature...................................... 11
PUBLISHED RATINGS.......................................................... 12
ADMINISTRATION............................................................. 12
RECORDS AND REPORTS........................................................ 12
DISTRIBUTION OF THE CONTRACTS.............................................. 12
OTHER PRODUCTS............................................................. 12
CUSTODY OF ASSETS.......................................................... 13
LEGAL MATTERS.............................................................. 13
INDEPENDENT ACCOUNTANTS.................................................... 13
OTHER INFORMATION.......................................................... 13
FINANCIAL STATEMENTS....................................................... 13
<PAGE>
DEFINITIONS OF SPECIAL TERMS
- ------------------------------- ------------------------------------------------
accumulation period The period between the Contract date and the
maturity date while the Contract is in force.
- ------------------------------- ------------------------------------------------
accumulation unit value An accounting unit of measure used to calculate
subaccount values during the accumulation
period.
- ------------------------------- ------------------------------------------------
annuitant The person named in the application, or as
subsequently changed, to receive annuity
payments. The annuitant may be changed as
provided in the Contract's death benefit
provisions and annuity provision.
- ------------------------------- ------------------------------------------------
annuity value The sum of the separate account value and the
fixed account value.
- ------------------------------- ------------------------------------------------
annuity unit value An accounting unit of measure used to calculate
annuity payments from the subaccounts after the
maturity date.
- ------------------------------- ------------------------------------------------
age The issue age is the annuitant's age on his/her
birthday immediately preceding the Contract
date. Attained age is the issue age plus the
number of completed Contract years. When we use
the term "age" in this SAI, it has the same
meaning as "attained age" in the Contract.
- ------------------------------- ------------------------------------------------
beneficiary(ies) The person(s) entitled to receive the death
benefit proceeds under the Contract.
- ------------------------------- ------------------------------------------------
cash value The annuity value less any applicable premium
taxes.
- ------------------------------- ------------------------------------------------
Code The Internal Revenue Code of 1986, as amended.
- ------------------------------- ------------------------------------------------
Contract date The later of the date on which the initial
premium payment is received or the date that the
properly completed application is received at
Western Reserve's administrative office. It is
also the date when, depending on your state of
residence, we allocate your premium payment(s)
either to the reallocation account or to the
fixed account and the subaccounts you selected
on your application. We measure Contract years,
Contract months and Contract anniversaries from
the Contract date.
- ------------------------------- ------------------------------------------------
death report day The valuation date on which we receive proof of
annuitant's death and your beneficiary's
election regarding payment.
- ------------------------------- ------------------------------------------------
fixed account An allocation option under the Contract, other
than the separate account, that provides for
accumulation of premium payments, and options
for annuity payments on a fixed basis. The fixed
account may not be available in all states.
- ------------------------------- ------------------------------------------------
fixed account value During the accumulation period, a Contract's
value allocated to the fixed account.
- ------------------------------- ------------------------------------------------
fund WRL Series Fund, Inc., an investment company
which is registered with the U.S. Securities and
Exchange Commission. We reserve the right to
add other registered investment companies to the
Contract in the future.
- ------------------------------- ------------------------------------------------
in force Condition under which the Contract is active and
the owner is entitled to exercise all rights
under the Contract.
- ------------------------------- ------------------------------------------------
maturity date The date on which the accumulation period ends
and annuity payments begin. The latest maturity
date is the annuitant's 95th birthday.
- ------------------------------- ------------------------------------------------
NYSE New York Stock Exchange.
- ------------------------------- ------------------------------------------------
nonqualified Contracts Contracts issued other than in connection with
retirement plans.
- ------------------------------- ------------------------------------------------
owner (you, your) The person(s) entitled to exercise all rights
under the Contract. The annuitant is the owner
unless the application states otherwise, or
unless a change of ownership is made at a later
time. Joint owners may be named, provided the
joint owners are husband and wife.
- ------------------------------- ------------------------------------------------
portfolio A separate investment portfolio of the fund.
- ------------------------------- ------------------------------------------------
premium payments Amounts paid by an owner or on the owner's
behalf to Western Reserve as consideration for
the benefits provided by the Contract. When we
use the term "premium payment" in this SAI, it
has the same meaning as "net premium payment" in
the Contract, which means the premium payment
less any applicable premium taxes.
- ------------------------------- ------------------------------------------------
qualified Contracts Contracts issued in connection with retirement
plans that qualify for special federal income
tax treatment under the Code.
- ------------------------------- ------------------------------------------------
reallocation account The WRL J.P. Morgan Money Market subaccount.
- ------------------------------- ------------------------------------------------
reallocation date The date shown on the schedule page of your
Contract when we reallocate all annuity value
held in the reallocation account to the fixed
account and subaccounts you selected. We place
your premium in the reallocation account only if
your state requires us to return the full
premium in the event you exercise your right to
cancel. In all other states, the reallocation
date is the Contract date.
- ------------------------------- ------------------------------------------------
separate account WRL Series Annuity Account, a separate account
composed of subaccounts established to receive
and invest premium payments not allocated to the
fixed account.
- ------------------------------- ------------------------------------------------
separate account value During the accumulation period, a Contract's
value in the separate account, which equals the
total value in each subaccount.
- ------------------------------- ------------------------------------------------
subaccount A subdivision of the separate account that
invests exclusively in the shares of a specified
portfolio and supports the Contracts.
Subaccounts corresponding to each applicable
portfolio hold assets under the Contract during
the accumulation period. Other subaccounts
corresponding to each applicable portfolio will
hold assets after the maturity date if a
variable annuity option is selected.
- ------------------------------- ------------------------------------------------
surrender The termination of a Contract at the option of
the owner.
- ------------------------------- ------------------------------------------------
valuation date Each day on which the NYSE is open for trading,
except when a subaccount's corresponding
portfolio does not value its shares. Western
Reserve is open for business on each day that
the NYSE is open.
- ------------------------------- ------------------------------------------------
valuation period The period of time over which we determine the
change in the value of the subaccounts in order
to price accumulation units and annuity units.
Each valuation period begins at the close of
normal trading on the NYSE (currently 4:00 p.m.
Eastern time on each valuation date) and ends at
the close of normal trading of the NYSE on the
next valuation date.
- ------------------------------- ------------------------------------------------
1
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about Western Reserve and the Contract, which may be of
interest to a prospective purchaser.
THE CONTRACT--GENERAL PROVISIONS
OWNER
The Contract shall belong to the owner upon issuance of the Contract after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the Contract; (2) surrender
the Contract; (3) amend or modify the Contract with Western Reserve's consent;
(4) receive annuity payments or name a payee to receive the payments; and (5)
exercise, receive and enjoy every other right and benefit contained in the
Contract. The exercise of these rights may be subject to the consent of any
assignee or irrevocable beneficiary; and of the owner's spouse in a community or
marital property state.
A joint owner may only be a spouse and may be named in the Contract application
or in a written notice. The surviving joint owner will become the new owner upon
the other joint owner's death, if one joint owner dies before the annuitant. If
the surviving joint owner dies before the annuitant, the surviving joint owner's
estate will become the owner 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 premium payments would have
purchased for the correct age or gender. The dollar amount of any underpayment
Western Reserve makes shall be paid in full with the next payment due such
person or the beneficiary. The dollar amount of any overpayment made by Western
Reserve due to any misstatement shall be deducted from payments subsequently
accruing to such person or beneficiary. Any underpayment or overpayment will
include interest at 5% per year, from the date of the wrong payment to the date
of the adjustment. The age of the annuitant may be established at any time by
the submission of proof Western Reserve finds satisfactory.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held by
the separate account or that the separate account may purchase. We reserve the
right to eliminate the shares of any portfolios of the fund and to substitute
shares of another portfolio of the fund (or of another open-end registered
investment company) if the shares of a portfolio are no longer available for
investment or, if in our judgment further investment in any portfolio should
become inappropriate in view of the purposes of the separate account. We will
not, however, substitute shares attributable to an owner's interest in a
subaccount without notice to, and prior approval of, the Securities and Exchange
Commission (the "SEC") to the extent required by the Investment Company Act of
1940, as amended (the "1940 Act"), or other applicable law.
We also reserve the right to establish additional subaccounts, each of which
would invest in a new portfolio of the fund, or in shares of another investment
company, with a specified investment objective. New subaccounts may be
established when, in the sole discretion of Western Reserve, marketing, tax,
investment or other conditions warrant, and any new subaccounts will be made
available to existing owners on a basis to be determined by Western Reserve. We
may also eliminate one or more subaccounts if, in our sole discretion,
marketing, tax, investment or other conditions warrant.
In the event of any such substitution or change, we may make such changes in the
Contracts and other annuity contracts as may be necessary or appropriate to
reflect such substitution or change. If deemed by us to be in the best interests
of persons having voting
2
<PAGE>
rights under the Contracts, the separate account may be operated as a management
company under the 1940 Act, or subject to any required approval, it may be
deregistered under the 1940 Act in the event such registration is no longer
required.
We reserve the right to change the investment objective of any subaccount.
Additionally, if required by law or regulation, we will not materially change an
investment objective of the separate account or of a portfolio designated for a
subaccount unless a statement of change is filed with and approved by the
appropriate insurance official of the state of Western Reserve's domicile, or
deemed approved in accordance with such law or regulation.
ANNUITY PAYMENT OPTIONS
During the lifetime of the annuitant and prior to the maturity date, the owner
may choose an annuity payment option or change the election. If no election is
made prior to the maturity date, annuity payments will be made under Payment
Option D as Variable Life Income with 10 years of guaranteed payments.
Thirty days prior to the maturity date, we will mail to the owner a notice and a
form upon which the owner can select allocation options for the annuity proceeds
as of the maturity date, which cannot be changed thereafter and will remain in
effect until the Contract terminates. If a separate account annuity option is
chosen, the owner must include in the written notice the subaccount allocation
of the annuity proceeds as of the maturity date. If we do not receive that form
or other written notice acceptable to us prior to the maturity date, the
Contract's existing allocation options will remain in effect until the Contract
terminates. The owner may also, prior to the maturity date, select or change the
frequency of annuity payments, which may be monthly, quarterly, semi-annually or
annually, provided that the annuity option and payment frequency provides for
payments of at least $20 per period. If none of these is possible, a lump sum
payment will be made.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first variable
payment is determined by multiplying the annuity proceeds times the appropriate
rate for the variable option selected. The rates are based on the Society of
Actuaries 1983 Individual Mortality Table A with projection Scale G and a 5%
effective annual assumed investment return and assuming a maturity date in the
year 2000. Gender based mortality tables will be used unless prohibited by law.
The amount of the first variable payment depends upon the gender (if
consideration of gender is allowed under state law) and adjusted age of the
annuitant. The adjusted age is the annuitant's actual age on the 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 ___ for a detailed description of these rules. Other rules may apply to
qualified Contracts.
If the owner (or a surviving joint owner) is not the annuitant and dies before
the annuitant:
o if no beneficiary is named and alive, the owner's estate will become the
new owner. The cash value must be distributed within five years of the
former owner's death;
o if the beneficiary is alive and is the owner's spouse, the Contract will
continue with the spouse as the new owner; or
3
<PAGE>
o if the beneficiary is alive and is not the owner's spouse, the beneficiary
will become the new owner. The cash value must be distributed either:
o within five years of the former owner's death; or
o over the lifetime of the new owner, if a natural person, with payments
beginning within one year of the former owner's death; or
o over a period that does not exceed the life expectancy (as defined by
the Code and regulations adopted under the Code) of the new owner, if a
natural person, with payments beginning within one year of the former
owner's death.
DEATH OF ANNUITANT. Due proof of death of the annuitant is proof that the
annuitant who is an owner died prior to the commencement of annuity payments.
Upon receipt of this proof and an election of a method of settlement and return
of the Contract, the death benefit generally will be paid within seven days, or
as soon thereafter as we have sufficient information about the beneficiary to
make the payment. The beneficiary may receive the amount payable in a lump sum
cash benefit, or, subject to any limitation under any state or federal law,
rule, or regulation, under one of the annuity payment options unless a
settlement agreement is effective at the owner's death preventing such election.
If the annuitant dies during the accumulation period and the owner is a natural
person other than the annuitant, the owner will automatically become the
annuitant and this Contract will continue. In the event of joint owners, the
younger joint owner will automatically become the new annuitant and this
Contract will continue. If the annuitant dies during the accumulation period and
the owner is either (1) the same individual as the annuitant; or (2) other than
a natural person, then the death benefit proceeds are payable to the
beneficiary. 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 ___.)
If the beneficiary elects to receive the death benefit proceeds under option
(1), then: (a) we will allow the beneficiary to make only ONE partial surrender
during the five-year period. That surrender must be made at the time option (1)
is elected; (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 not permit
annuitization at the end of the five-year period; and (d) 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.
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.
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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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY DOES NOT CONSTITUTE TAX ADVICE. IT IS A GENERAL DISCUSSION
OF CERTAIN OF THE EXPECTED FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN AND
DISTRIBUTIONS WITH RESPECT TO A CONTRACT BASED ON THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, PROPOSED AND FINAL TREASURY REGULATIONS THEREUNDER, JUDICIAL
AUTHORITY, AND CURRENT ADMINISTRATIVE RULINGS AND PRACTICE. THIS SUMMARY
DISCUSSES ONLY CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO "UNITED STATES
PERSONS," AND DOES NOT DISCUSS STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES. UNITED
STATES PERSONS MEANS CITIZENS OR RESIDENTS OF THE UNITED STATES, DOMESTIC
CORPORATIONS, DOMESTIC PARTNERSHIPS AND TRUSTS OR ESTATES THAT ARE SUBJECT TO
UNITED STATES FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF THEIR INCOME.
TAX STATUS OF THE CONTRACT
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under section 817(h) (Treas. Reg. (ss.) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the fund and its portfolios, intends to
comply with the diversification requirements of the Treasury.
Section 817(h) applies to variable annuity contracts other than pension plan
contracts. The regulations reiterate that the diversification requirements do
not apply to pension plan contracts. All of the qualified retirement plans
(described below) are defined as pension plan contracts for these purposes.
Notwithstanding the exception of qualified contracts from application of the
diversification rules, the investment vehicle for Western Reserve's qualified
Contracts (i.e., the fund) will be structured to comply with the diversification
standards because it serves as the investment vehicle for nonqualified contracts
as well as qualified contracts.
OWNER CONTROL. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses incidents
of ownership in those assets, such as the ability to exercise investment control
over the assets. More recently, the Treasury Department announced, in connection
with the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which contract owners
may direct their investments to particular subaccounts without being treated as
owners of underlying assets."
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners were not owners of separate account assets. For example,
the owner of a Contract has the choice of one or more subaccounts in which to
allocate premiums and annuity values and may be able to transfer among these
accounts more frequently than in such rulings. These differences could result in
owners being treated as the owners of the assets of the separate account. In
addition, we do not know what standards will be set forth, if any, in the
regulations or rulings which the
Treasury Department has stated it expects to issue. We, therefore, reserve the
right to modify the Contracts as necessary to attempt to prevent the owners from
being considered the owners of a pro rata share of the assets of the separate
account.
DISTRIBUTION REQUIREMENTS. The Code also requires that nonqualified contracts
contain specific provisions for distribution of contract proceeds upon the death
of an owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such contracts provide that if any owner
dies on or after the maturity date and before the entire interest in the
contract has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on such owner's death. If any
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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 are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan, except
certain distributions such as distributions required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
QUALIFIED CONTRACTS. The qualified Contract is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary according
to the type of plan and the terms and conditions of the plan. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits: distributions prior to age 59 1/2 (subject to certain
exceptions), distributions that do not conform to specified commencement and
minimum distribution rules, and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into our Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contract comply with
applicable law.
For qualified plans under sections 401(a), 403(a), and 457, the Code requires
that distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which the owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the Contract
that satisfy applicable tax rules.
We make no attempt to provide more than general information about use of the
Contract with the various types of retirement plans. Purchasers of Contracts for
use with any retirement plan should consult their legal counsel and tax advisor
regarding the suitability of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as a traditional individual
retirement annuity ("IRA") under section 408(b) of the Code, a Contract must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
Contract generally is not transferable by the owner, e.g., the owner may not
designate a new owner, designate a contingent owner or assign the Contract as
collateral security; (iii) the total premium payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a rollover
amount or contribution under sections 402(c), 403(a)(4), or 408(d)(3) of the
Code; (iv) annuity payments or partial surrenders must begin no later than April
1 of the calendar year following the calendar year in which the annuitant
attains age 70 1/2; (v) an annuity payment option with a period certain that
will guarantee annuity payments beyond the life expectancy of the annuitant and
the beneficiary may not be selected; (vi) certain payments of death benefits
must be made in the event the annuitant dies prior to the distribution of the
annuity value; and (vii) the entire interest of the owner is non-forfeitable.
Contracts intended to qualify as traditional IRAs under section 408(b) of the
Code contain such provisions. 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.
Section 408 of the Code also indicates that no part of the funds for an IRA may
be invested in a life insurance contract, but the regulations thereunder allow
such funds to be invested in an annuity contract that provides a death benefit
that equals the greater of the premiums paid or the cash value for the Contract.
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
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cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject to tax and other
special rules may apply. You should consult a tax advisor before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. The Roth IRA is available to
individuals with earned income and whose adjusted gross income is under $110,000
for single filers, $160,000 for married filing jointly, and $10,000 for married
filing separately. The amount per individual that may be contributed to all IRAs
(Roth and traditional) is $2,000. 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 and made after attaining age 59
1/2, or to pay for qualified first time homebuyer expenses (lifetime maximum of
$10,000), or due to death or disability. All other distributions are subject to
income tax when made from earnings and may be subject to a premature withdrawal
penalty tax unless an exception applies. Unlike the traditional IRA, there are
no minimum required distributions during the owner's lifetime; however, required
distributions at death are the same.
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.
DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is used in the Code), provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The Contracts can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her participation
will be made. For non-governmental section 457 plans, all such investments,
however, are owned by the sponsoring employer, and are subject to the claims of
the general creditors of the sponsoring employer. Depending on the terms of the
particular plan, a non-governmental employer may be entitled to draw on deferred
amounts for purposes unrelated to its section 457 plan obligations. In general,
all amounts received under a section 457 plan are taxable and are subject to
federal income tax withholding as wages.
TAXATION OF WESTERN RESERVE
Western Reserve at present is taxed as a life insurance company under Part I of
Subchapter L of the Code. The separate account is treated as part of us and,
accordingly, will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. We do not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the Contract. Based on this expectation, it is anticipated that no charges will
be made against the separate account for federal income taxes. If, in future
years, any federal income taxes are incurred by us with respect to the separate
account, we may make a charge to the separate account.
INVESTMENT EXPERIENCE
ACCUMULATION UNITS
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the premium
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the fund less any applicable charges or fees.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. At the end of
any valuation period, a subaccount's value is equal to the number of units that
your Contract has in the subaccount, multiplied by the accumulation unit value
of the subaccount.
The number of units that your Contract has in each subaccount is equal to:
1. The initial units purchased on the Contract date; plus
2. Units purchased at the time additional premium payments are allocated to the
subaccount; plus
3. Units purchased through transfers from another subaccount or the fixed
account; minus
4. Any units that are redeemed to pay for partial surrenders; 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 any premium taxes and any transfer
charge.
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The value of an accumulation unit was arbitrarily established at $10.00 at the
inception of each subaccount. Thereafter, the value of an accumulation unit is
determined as of the close of the regular session of business on the NYSE, on
each day the NYSE is open.
ACCUMULATION UNIT VALUE
The accumulation unit value will vary from one valuation period to the next
depending on the investment returns experienced by each subaccount. The
accumulation unit value for each subaccount at the end of a valuation period is
the result of:
1. The total value of the assets held in the subaccount. This value is
determined by multiplying the number of shares of the designated fund
portfolio owned by the subaccount times the portfolio's net asset value per
share; minus
2. The accrued daily percentage for the mortality and expense risk charge
multiplied by the net assets of the subaccount; minus
3. The accrued amount of reserve for any taxes that are determined by us to
have resulted from the investment operations of the subaccount; divided by
4. The number of outstanding units in the subaccount.
During the accumulation period, the mortality and expense risk charge is
deducted at an annual rate of 0.65% 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 including
the separate account annuitization charge that will equal an annual rate between
0.65% and 1.15%) exceeds the assumed interest rate of 5% annually. Conversely,
annuity unit values fall if the net investment performance of the subaccount is
less than the assumed rate. The value of a variable annuity unit in each
subaccount was established at $10.00 on the date operations began for that
subaccount. The value of a variable annuity unit on any subsequent business day
is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment return adjustment factor for the valuation period.
The investment return adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
The net investment factor for the Contract used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a portfolio share held in that
subaccount determined at the end of the current valuation
period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the portfolio for shares held in that
subaccount if the ex-dividend date occurs during the valuation
period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which
we determine to have resulted from the investment operations
of the subaccount.
(ii) is the net asset value of a portfolio share held in that subaccount
determined as of the end of the immediately preceding valuation
period.
(iii) is a factor representing the separate account annuitization charge.
This factor is equal, on an annual basis, to a factor between 0.65%
and 1.15% of the daily net asset value of a 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.
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ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = ABC
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume........................................................ = $ X
B = Net investment experience factor for the valuation period for
which the annuity unit value is being calculated.
Assume......................................................... = Y
C = A factor to neutralize the assumed interest rate of 5% built into the
annuity tables used.
Assume......................................................... = Z
Then, the annuity unit value is:....$XYZ = $Q
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First monthly variable annuity payment = 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
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
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figure carried to at least the nearest hundredth of one percent.
EFFECTIVE YIELD - The effective yield quotation for the WRL J.P. Morgan Money
Market subaccount set forth in the prospectus is for the seven days ended on the
date of the most recent balance sheet of the separate account included in the
registration statement. The effective yield is computed by determining the net
change, exclusive of capital changes and income other than investment income, in
the value of a hypothetical pre-existing subaccount having a balance of one unit
in the WRL J.P. Morgan Money Market subaccount at the beginning of the period. A
hypothetical charge, reflecting deductions from owner accounts, is subtracted
from the balance. The difference is divided by the value of the subaccount at
the beginning of the base period to obtain the base period return, which is then
compounded by adding 1. Next, the sum is raised to a power equal to 365 divided
by 7, and 1 is subtracted from the result. The following formula describes the
computation:
EFFECTIVE YIELD = ({BASE PERIOD RETURN + 1} 365/7) - 1
The effective yield is shown at least to the nearest hundredth of one percent.
HYPOTHETICAL CHARGE - For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all owner accounts in proportion to the length of the base period.
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. No fees or sales charges are assessed upon annuitization under the
Contracts, except premium taxes. Realized gains and losses from the sale of
securities, and unrealized appreciation and depreciation of assets held by the
WRL J.P. Morgan Money Market subaccount and the fund are excluded from the
calculation of yield.
The yield on amounts held in the WRL J.P. Morgan Money Market subaccount
normally will fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The WRL J.P. Morgan Money Market subaccount actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the WRL J.P. Morgan Money Market, the types and quality of
portfolio securities held by the WRL J.P. Morgan Money Market and its operating
expenses.
OTHER SUBACCOUNT YIELDS
The yield quotations for all of the subaccounts, except the WRL J.P. Morgan
Money Market subaccount, representing the accumulation period set forth in the
prospectus is based on the 30-day period ended on the date of the most recent
balance sheet of the
separate account and are computed by dividing the net investment income per unit
earned during the period by the maximum offering price per unit on the last date
of the period, according to the following formula:
YIELD = 2[ (A-B + 1)6 -1]
----
CD
Where: A = net investment income earned during the period by the corresponding
portfolio of the fund attributable to shares owned by the subaccount.
B = expenses accrued for the period (net of reimbursement).
C = the average daily number of units outstanding during the period.
D = the maximum offering price per unit on the last day of the period.
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. The
calculations do not take into account any premium taxes or any transfer charges.
Premium taxes currently range from 0% to 3.50% of premium payments depending
upon the jurisdiction in which the Contract is delivered.
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.
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TOTAL RETURNS
The total return quotations set forth in the prospectus for subaccounts
investing in the underlying portfolios are average annual total return
quotations for the one, five and ten-year periods since the separate account
began investing in the portfolio (or, while such subaccount has been in
existence for a period of less than one, five and ten years, for such lesser
period) ended on the date of the most recent balance sheet of the separate
account. The quotations are computed by determining the average annual
compounded rates of return over the relevant periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000,000 payment made
at the beginning of each period at the end of each period.
For purposes of the total return quotations for the subaccounts, the
calculations take into account all fees that are charged under the Contract to
all owner accounts during the accumulation period. The calculations do not
reflect any deduction for premium taxes or any transfer charge that may be
applicable to a particular Contract.
OTHER PERFORMANCE DATA
We may present the total return data stated in the prospectus on a non-standard
basis. This means that the data will not be reduced by all the fees and charges
under the Contract and that the data may be presented for different time periods
and for different premium payment amounts. NON-STANDARD PERFORMANCE DATA WILL
ONLY BE DISCLOSED IF STANDARD PERFORMANCE DATA FOR THE REQUIRED PERIODS IS ALSO
DISCLOSED.
We may also disclose cumulative total returns and average annual compound rates
of return (T) for the subaccounts based on the inception date of the subaccounts
investing in the underlying portfolios. 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 0.65%.
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
11
<PAGE>
periodic rebalancing of diversified portfolios, the use of dollar cost averaging
techniques, a comparison of the tax impact of premium payments made on a "before
tax" basis through a tax-qualified plan with those made on an "after tax" basis
outside of a tax-qualified plan, and a comparison of tax-deferred versus non
tax-deferred accumulation of premium payments.
As described in the prospectus, in general, an owner is not taxed on increases
in value under a Contract until a distribution is made under the Contract. As a
result, the Contract will benefit from tax deferral during the accumulation
period, as the annuity value may grow more rapidly than under a comparable
investment where certain increases in value are taxed on a current basis. From
time to time, we may use narrative, numerical or graphic examples to show
hypothetical benefits of tax deferral in advertising and sales literature.
PUBLISHED RATINGS
We may from time to time publish in advertisements, sales literature and reports
to owners, the ratings and other information assigned to it by one or more
independent rating organizations such as A.M. Best Company, Standard & Poor's
Insurance Rating Services, Moody's Investors Service and Duff & Phelps Credit
Rating Co. A.M. Best's and Moody's ratings reflect their current opinion of the
relative financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. Standard & Poor's
and Duff & Phelps provide ratings which measure the claims-paying ability of
insurance companies. These ratings are opinions of an operating insurance
company's financial capacity to meet the obligations of its insurance contracts
in accordance with their terms. Claims-paying ability ratings do not refer to an
insurer's ability to meet non-contract obligations such as debt or commercial
paper obligations. These ratings do not apply to the separate account, its
subaccounts, the fund or its portfolios, or to their performance.
ADMINISTRATION
Western Reserve performs administrative services for the Contracts. These
services include issuance of the Contracts, maintenance of records concerning
the Contracts, and certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
WRL Investment Services, Inc. As presently required by the 1940 Act and
regulations promulgated thereunder, Western Reserve will mail to all Contract
owners at their last known address of record, at least annually, reports
containing such information as may be required under the 1940 Act or by any
other applicable law or regulation. Contract owners will also receive
confirmation of each financial transaction and any other reports required by law
or regulation.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("AFSG") is the principal underwriter of the
Contracts. AFSG is located at 4333 Edgewood Rd., N.E., Cedar Rapids, Iowa 52499.
AFSG is registered with the SEC under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. AFSG will not
be compensated for its services as principal underwriter of the Contracts.
The Contracts are offered to the public through broker/dealers licensed under
the federal securities laws and state insurance laws and who have entered into
written sales agreements with AFSG. First year commissions of up to 0.50% of
premium payments will be paid to broker/dealers who sell the Contracts under
agreements with AFSG. In addition, broker/dealers may receive trail commissions
of 0.50% 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 $1,000,000 or more in the
subaccounts. These commissions are not deducted from premium 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.
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CUSTODY OF ASSETS
The assets of the separate account are held by Western Reserve. The assets of
the separate account are kept physically segregated and held apart from our
general account and any other separate account. WRL Investment Services, Inc.
maintains records of all purchases and redemptions of shares of the fund.
Additional protection for the assets of the separate account is provided by a
blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the
amount of $10 million, covering all of the employees of AEGON U.S. and its
affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to
AEGON U.S.A. Securities, Inc. provides additional fidelity coverage to a limit
of $10 million.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP has provided advice on certain legal matters
concerning federal securities laws applicable to the issue and sale of the
Contracts. All matters of Ohio law pertaining to the Contracts, including the
validity of the Contracts and Western Reserve's right to issue the Contracts
under Ohio insurance law, have been passed upon by Thomas E. Pierpan, Esq.,
Senior Vice President, General Counsel and Assistant Secretary of Western
Reserve.
INDEPENDENT ACCOUNTANTS
The accounting firm of PricewaterhouseCoopers LLP, independent accountants,
provided audit services to the separate account for the year ended December 31,
1999. The principal business address of PricewaterhouseCoopers LLP is 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
The values of an owner's interest in the separate account will be affected
solely by the investment returns of the selected subaccount(s). Western
Reserve's financial statements, which are included in this SAI, should be
considered only as bearing on our ability to meet our obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the separate account. The financial statements
of the separate account are not fully representative of the subaccounts listed
in the prospectus, as the subaccounts have not yet commenced operations.
Financial statements for Western Reserve as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 have been
prepared on the basis of statutory accounting principles, rather than generally
accepted accounting principles.
WRL00362
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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 for Western Reserve Life Assurance Co. of Ohio ("Western
Reserve") will be included in a future amendment.
(b) Exhibits
(1) Copy of resolution of the Board of Directors of Western
Reserve establishing the Series Account 1/
(2) Not Applicable
(3) Distribution of Contracts
(a) 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
(b) Endorsements (EA134, EA135)3/
(5) Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract 3/
(6) (a) Copy of Second Amended Articles of Incorporation of
Western Reserve 1/
(b) Copy of Amended Code of Regulations of Western
Reserve 1/
(7) Not Applicable
(8) Not Applicable
(9) Opinion and Consent of Thomas E. Pierpan, Esq. as to
Legality of Securities Being Registered 3/
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP 3/
(b) Written Consent of Ernst & Young LLP 3/
(c) Written Consent of PricewaterhouseCoopers LLP 3/
(11) Not Applicable
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(12) Not Applicable
(13) Schedules for Computation of Performance Quotations 4/
(14) Not Applicable
(15) (a) Powers of Attorney 1/
(b) Power of Attorney - James R. Walker 5/
- -------------------------------------
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 filed on Post-Effective Amendment No. 4 to the Form S-6
Registration Statement dated April 21, 1999 (File No. 333-23359) and is
incorporated herein by reference.
3/ To be filed by amendment.
4/ This exhibit was previously filed on Post-Effective Amendment No. 28 to
Form N-1A Registration Statement dated April 24, 1997 (File No. 33-507) and
is incorporated herein by reference.
5/ This exhibit was filed on Post-Effective Amendment No. 7 to Form N-4
Registration Statement dated December 23, 1996 (File No. 33-49556) and is
incorporated herein by reference.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<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
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
Thomas E. Pierpan (1) Senior Vice President, General Counsel
and Assistant Secretary
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>
- -------------------------
(1) 570 Carillon Parkway, St. Petersburg, Florida 33716.
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Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON - Netherlands Membership Association
AEGON N.V. - Netherlands corporation (51.16%)
Transamerica Corporation and subsidiaries (100%) (DE)
AEGON Nederland N.V. - Netherlands corporation (100%)
AEGON NEVAK HOLDING B.V. - Netherlands corporation (100%)
GRONINGER FINANCIERINGEN B.V. - Netherlands corporation (100%)
AEGON INTERNATIONAL N.V. - Netherlands corporation (100%)
Voting Trust - (Trustees - K.J. Storm, Donald J. Shepard, H.B. Van Wijk,
Dennis Hersch)(DE)
AEGON U.S. Holding Corporation (DE) (100%)
Short Hills Management Company (NJ) (100%)
CORPA Reinsurance Company (NY) (100%)
AEGON Management Company (IN) (100%)
RCC North America Inc. (DE) (100%)
AEGON USA, Inc. - holding co. (IA) (100%)
AEGON Funding Corp. (DE) (100%)
First AUSA Life Insurance Company - insurance holding co. (MD) (100%)
AUSA Life Insurance Company, Inc. - insurance (NY) (82.33%)
Life Investors Insurance Company of America - insurance (IA) (100%)
Bankers United Life Assurance Company - insurance (IA) (100%)
Great American Insurance Agency, Inc. (IA) (100%)
Life Investors Alliance, LLC (DE) (100%)
PFL Life Insurance Company - insurance (IA) (100%)
AEGON Financial Services Group, Inc. (MN) (100%)
AEGON Assignment Corporation of Kentucky (KY) (100%)
AEGON Assignment Corporation (IL) (100%)
Southwest Equity Life Insurance Company - insurance (AZ) (100% Voting
Common)
Iowa Fidelity Life Insurance Company - insurance (AZ) (100% Voting
Common)
Western Reserve Life Assurance Co. of Ohio - insurance (OH) (100%)
WRL Investment Management, Inc. - investment adviser (FL) (100%)
WRL Investment Services, Inc. - transfer agent (FL)(100%)
WRL Series Fund, Inc. - mutual fund (MD)
ISI Insurance Agency, Inc. and subsidiaries (CA) (100%)
AEGON Equity Group, Inc. (FL) (100%)
Monumental General Casualty Company - insurance (MD) (100%)
United Financial Services, Inc. - general agency (MD) (100%)
Bankers Financial Life Insurance Company - insurance (AZ)
The Whitestone Corporation - insurance agency (MD) (100%)
Cadet Holding Corp. - holding company (IA) (100%)
Monumental General Life Insurance Company of Puerto Rico (PR) (51%)
AUSA Holding Company - holding company (MD) (100%)
Monumental General Insurance Group, Inc. - holding company (MD)
(100%)
Monumental General Administrators, Inc. (MD) (100%)
Executive Management and Consultant Services, Inc. - consulting
services (MD) (100%)
Trip Mate Insurance Agency, Inc. (KS) (100%)
Monumental General Mass Marketing, Inc. - marketing (MD) (100%)
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AUSA Financial Markets, Inc. - marketing (IA) (100%)
Endeavor Group (CA) (100%)
Endeavor Management Company (CA) (100%)
Universal Benefits Corporation - third party administrator (IA)
(100%)
Investors Warranty of America, Inc. - provider of automobile
extended maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - trust company (IA) (100%)
Money Services, Inc. - financial counseling for employees and agents
of affiliated companies (DE) (100%)
ORBA Insurance Services, Inc. (CA) (10.56%)
Zahorik Company, Inc. - broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
Long, Miller & Associates, L.L.C. (CA) (33-1/3%)
AEGON Asset Management Services, Inc. (DE) (100%)
InterSecurities, Inc. - broker-dealer (DE) (100%)
Associated Mariner Financial Group, Inc. - holding company (MI)
(100%)
Mariner Financial Services, Inc. - broker/dealer (MI) (100%)
Associated Mariner Agency of Hawaii, Inc. - insurance agency
(MI) (100%)
Associated Mariner Agency of New Mexico, Inc. (MI) (100%)
Idex Investor Services, Inc. - shareholder services (FL) (100%)
Idex Management, Inc. - investment adviser (DE) (100%)
IDEX Mutual Funds - mutual fund (MA)
Diversified Investment Advisors, Inc. - investment adviser (DE)
(100%)
Diversified Investors Securities Corporation - broker-dealer (DE)
(100%)
AEGON USA Securities, Inc. - broker-dealer (IA) (100%)
AEGON USA Managed Portfolios, Inc. - mutual fund (MD)
Creditor Resources, Inc. - credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. - insurance
agency (Canada) (100%)
Weiner Agency, Inc. (MD) (100%)
AEGON USA Investment Management, Inc. - investment adviser (IA)
(100%)
AEGON USA Realty Advisors, Inc. - real estate investment services
(IA) (100%)
QSC Holding, Inc. (DE) (100%)
Landauer Realty Advisors, Inc. - real estate counseling (IA)
(100%)
Landauer Associates, Inc. - real estate counseling (DE) (100%)
Landauer Realty Associates, Inc. (TX) (100%)
Realty Information Systems, Inc. - information systems for real
estate investment management (IA) (100%)
USP Real Estate Investment Trust - real estate investment trust
(IA)
RCC Properties Limited Partnership (IA)
Item 27. NUMBER OF CONTRACTOWNERS
Because the offering has not yet commenced, there are no Contract
owners.
Item 28. INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the
Second Amended Articles of Incorporation of Western Reserve
and the Amended Code of Regulations of Western Reserve whereby
Western Reserve may indemnify certain persons against certain
payments incurred by such persons. The following excerpts
contain the substance of these provisions.
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OHIO GENERAL CORPORATION LAW
Section 1701.13 Authority of corporation.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless, and only to the extent that the court of common
pleas, or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
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(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act involved
an act or omission undertaken with deliberate intent to cause injury to the
corporation or undertaken with reckless disregard for the best interests of the
corporation;
(ii) Reasonably cooperate with the corporation concerning the action,
suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or
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foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best 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
C-7
<PAGE>
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court of common pleas
or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in sections (1) and (2) of this article, or in defense
of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under sections (1) and (2) of this article,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this article,
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination that a written undertaking
need not be submitted to the corporation shall in no way affect the entitlement
of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, or agent of another corporation (including
a subsidiary of this corporation), domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him 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
C-8
<PAGE>
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.
C-9
<PAGE>
Item 29. PRINCIPAL UNDERWRITER
(a) AFSG Securities Corporation ("AFSG") is the principal underwriter
for the Contracts. AFSG currently serves as principal underwriter
for the PFL Endeavor VA Separate Account, the PFL Retirement
Builder Variable Annuity Account, the PFL Life Variable Annuity
Account A, the PFL Wright Variable Annuity Account, the AUSA
Endeavor Variable Annuity Account, Separate Account C of First
Providian Life and Health Insurance Company, the Separate Account
I, Separate Account II, and Separate Account V of Providian Life
and Health Insurance Company, WRL Series Life Account, WRL Series
Annuity Account B and AUSA Series Life Account.
(b) Directors and Officers of AFSG
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH UNDERWRITER
- ---- -------------------------- -------------------------------------
<S> <C> <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) Vice President and Director
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
Nancy C. Hassett (2) Assistant Secretary
Gina A. Babka (2) Assistant Secretary
</TABLE>
- --------------------------------------
(1) 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, Florida 33716-1202
C-10
<PAGE>
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by the Registrant through Western Reserve, 570 Carillon
Parkway, St. Petersburg, Florida 33716.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
(a) 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.
(b) 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.
(c) 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
Not Applicable
TEXAS ORP REPRESENTATION
The Registrant intends to offer Contracts to participants in the
Texas Optional Retirement Program. In connection with that
offering, the Registrant is relying on Rule 6c-7 under the
Investment Company Act of 1940 and is complying with, or shall
comply with, paragraphs (a) - (d) of that Rule.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Initial Registration Statement to be signed on its behalf by the undersigned,
thereunder duly authorized, in the City of St. Petersburg, State of Florida, on
this 25th day of February, 2000.
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ JOHN R. KENNEY
--------------------------------------
John R. Kenney, Chairman of the Board
and Chief Executive Officer of
Western Reserve Life Assurance Co. of
Ohio
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Depositor)
By: /s/ JOHN R. KENNEY
-------------------------------------
John R. Kenney, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Initial Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JOHN R. KENNEY Chairman of the Board and February 25, 2000
- ------------------------ Chief Executive Officer
John R. Kenney (Principal ExecutiveOfficer)
/s/ JEROME C. VAHL Director and President February 25, 2000
- -------------------
Jerome C. Vahl
/s/ LYMAN H. TREADWAY Director February 25, 2000
- ------------------------
Lyman H. Treadway */
/s/JACK E. ZIMMERMAN Director February 25, 2000
- ------------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director February 25, 2000
- -------------------------
James R. Walker */
/s/ ALAN M. YAEGER Executive Vice President, February 25, 2000
- ---------------------- Actuary and Chief Financial
Alan M. Yaeger Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ ALLAN J. HAMILTON Vice President, Treasurer February 25, 2000
- ------------------------ and Controller
Allan J. Hamilton
</TABLE>
*/ /s/ THOMAS E. PIERPAN
- - ------------------------
Signed by Thomas E. Pierpan
As Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- ------------
4(a) Specimen Flexible Payment Variable Accumulation Deferred Annuity
Contract
Exhibit 4(a)
Specimen Flexible Payment Variable Accumulation Deferred Annuity Contract
<PAGE>
================================================================================
WESTERN RESERVE LIFE Administrative Office:
ASSURANCE CO. OF OHIO P.O. Box 5068
(A STOCK COMPANY) Clearwater, Florida 33758-5068
Home Office: Columbus, Ohio (727) 299-1800
================================================================================
IN THIS CONTRACT Western Reserve Life Assurance Co. of Ohio will be referred to
as WE, OUR or US. OFFICE refers to Our Administrative Office located in
Clearwater, Florida.
WE agree to pay the benefits of this Contract in accordance with its provisions.
CONTRACT VALUES DURING THE ACCUMULATION PERIOD WILL INCREASE OR DECREASE IN
ACCORDANCE WITH THE CONTRACT VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF
THE APPLICABLE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CONTRACT VALUES, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SUBACCOUNT OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
THE CONSIDERATION for this Contract is the application and the payment of the
Initial Premium.
THE ANNUITANT, OWNER, AND BENEFICIARY are as shown in the application unless
changed in accordance with the provisions of this Contract.
THE PROVISIONS on the following pages are part of this Contract.
READ YOUR CONTRACT CAREFULLY.
IN WITNESS WHEREOF, We have signed this Contract at Our Office in Clearwater,
Florida as of the Contract Date.
/s/ JOHN R. KENNEY /s/ WILLIAM H. GEIGER
- ---------------------------- ----------------------------
Secretary President
================================================================================
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this Contract at any time within ten days after receipt by
returning it to Us at P.O. Box 5068, Clearwater, Florida 33758. If the Contract
is returned within this period, We will pay to the Owner the sum of:
1. The total premiums received; plus (or minus)
2. The accumulated gains (or losses), if any, in the Separate Account for this
Contract as of the date We receive the returned Contract.
================================================================================
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity
Monthly Annuity Commencing on Maturity Date
Non-Participating - No Dividends
<PAGE>
<TABLE>
<CAPTION>
================================================================================
CONTRACT GUIDE
============================================================================================================================
<S> <C> <C> <C>
CONTRACT SCHEDULE...................................... 3 SEPARATE ACCOUNT PROVISIONS (continued)
DEFINITIONS............................................ 5 Addition, Deletion or Substitution of
Accounts............................................ 5 Investments................................... 10
Accumulation Period................................. 5 Change of Investment Objective................... 11
Accumulation Unit Value............................. 5 Accumulation Unit Value.......................... 11
Age................................................. 5 PREMIUM PROVISIONS................................. 12
Annuitant........................................... 5 Premiums......................................... 12
Annuity Proceeds.................................... 5 CONTRACT VALUE PROVISIONS.......................... 12
Annuity Unit Value.................................. 5 Net Premium...................................... 12
Annuity Value....................................... 5 Allocation of Net Premiums....................... 12
Cash Value.......................................... 5 Subaccount Value................................. 12
Contingent Beneficiary.............................. 5 Fixed Account.................................... 13
Contract Date....................................... 5 Annual Contract Charge........................... 13
Death Benefit Proceeds.............................. 6 Annuity Value.................................... 14
Death Report Day.................................... 6 Partial Surrender................................ 14
Fixed Account....................................... 6 Cash Value....................................... 14
Maturity Date....................................... 6 Basis of Computation............................. 14
Premium Tax......................................... 6 DEATH BENEFIT PROVISIONS........................... 15
Reallocation Date................................... 6 Death of Annuitant During the
SEC................................................. 6 Accumulation Period........................... 15
Separate Account.................................... 6 Death Benefit Proceeds........................... 15
Series Fund......................................... 6 Alternative Election............................. 15
Subaccount.......................................... 6 ANNUITY PROVISIONS................................. 16
Surrender........................................... 6 Commencement of Annuity Payments................. 16
Valuation Date...................................... 6 Maturity Date.................................... 16
Valuation Period.................................... 7 Annuity Option................................... 17
Written Notice...................................... 7 Change of Annuitant.............................. 17
GENERAL PROVISIONS..................................... 7 Payee............................................ 17
The Contract........................................ 7 Availability..................................... 17
Ownership........................................... 7 Age.............................................. 17
Change of Ownership Upon Request.................... 7 Proof of Age and Sex............................. 17
Change of Ownership Upon Death of Owner............. 8 Proof of Survival................................ 17
Beneficiary......................................... 8 Death Benefit After Maturity Date................ 17
Change of Beneficiary............................... 8 Restrictions..................................... 18
Assignment.......................................... 8 FIXED ACCOUNT ANNUITY PAYMENTS..................... 18
Incontestability.................................... 9 Interest and Mortality........................... 18
Age and Sex......................................... 9 Amount of Monthly Fixed Account Annuity
Contract Years...................................... 9 Payment........................................ 18
Reports............................................. 9 Fixed Account Annuity Options.................... 18
Contract Payment.................................... 9 VARIABLE ACCOUNT ANNUITY PAYMENTS.................. 20
Protection of Proceeds.............................. 9 Annuity Unit Value............................... 20
SEPARATE ACCOUNT PROVISIONS............................ 9 Determination of the First Variable
Subaccounts.......................................... 10 Payment....................................... 21
Transfers Among Subaccounts During the Determination of Subsequent Variable
Accumulation Period.............................. 10 Payments...................................... 21
Transfers Among Subaccounts After the Variable Account Annuity Options................. 21
Maturity Date..................................... 10
</TABLE>
2
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
CONTRACT SCHEDULE
- --------------------------------------------------------------------------------
OWNER: John Doe
ANNUITANT: John Doe
ISSUE AGE 35 CONTRACT NUMBER: 01-12345678
SEX: Male CONTRACT DATE: September 03, 1998
ANNUITY OPTION: D-10 Year Certain MATURITY DATE: August 01, 2058
INITIAL PREMIUM: [ $10,000,000 ] REALLOCATION DATE: September 18, 1998
REALLOCATION ACCOUNT: [Money Market]
ANTICIPATED PREMIUM PATTERN*
No planned Premium
Issued with the Initial Premium as a Single Premium Plan
* The anticipated premium pattern is based upon selection made in the
application. The amount may be changed in accordance with the Premium
Provisions on Page 11.
SEPARATE ACCOUNT PROVISIONS
Separate Account: WRL Series Annuity Account
Separate Account Charge: [ 0.15% - 1.65% ]
PREMIUM PROVISIONS
Maximum Additional Annual Premium: $1,000,000 (Without Prior Approval)
Minimum Additional Premium: [ $50 - $10,000 ]
CONTRACT VALUE PROVISIONS
Annual Contract Charge: [ $0 - $30 ]
Minimum Balance: [ $5,000 - $1,000,000 ]
Maximum Fixed Account Balance: [ $500,000 ]
3
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK
4
<PAGE>
DEFINITIONS
===============================================================================
ACCOUNTS Allocation options including the Fixed Account
and the Subaccounts of the Separate Account.
ACCUMULATION PERIOD The period between the Contract Date and the
Maturity Date while the Contract is in force.
ACCUMULATION An accounting unit of measure used to calculate
UNIT VALUE Subaccount values for the Contract during the
Accumulation Period.
AGE Issue Age refers to the Age of the Annuitant on
his/her birthday immediately preceding the
Contract Date. Attained Age refers to the Issue
Age plus the number of completed contract
years.
ANNUITANT The person named on the application, or as
subsequently changed, to receive annuity
payments. The Annuitant may be changed as
provided in the Death Benefit Provisions and
Annuity Provisions.
ANNUITY PROCEEDS The amount applied to purchase periodic annuity
payments. Such amount is the Annuity Value on the
Maturity Date, less any applicable Premium Tax.
ANNUITY UNIT VALUE An accounting unit of measure used to calculate
annuity payments from a Subaccount after the
Maturity Date.
ANNUITY VALUE The value as described in the Annuity Value
section of the Contract Value Provisions.
CASH VALUE The value as described in the Cash Value section
of the Contract Value Provisions.
CONTINGENT The new Beneficiary upon the current
BENEFICIARY Beneficiary's death.
CONTRACT DATE The later of the date on which payments are first
received and the date the properly completed
application is received by Us at Our Office.
5
<PAGE>
DEATH BENEFIT The value as described in the Death Benefit
PROCEEDS Proceeds section of the Death Benefit Provisions.
DEATH REPORT DAY The Valuation Date coincident with or next
following the day on which We have received both:
1) due proof of death; and 2) a Written Notice
for an election of a) a single sum payment or
b) an alternative election as described under the
Death Benefit Provisions.
FIXED ACCOUNT An allocation option other than the Separate
Account.
MATURITY DATE The date of the Annuitant's 95th birthday, on
which the Accumulation Period ends and annuity
payments are to commence. The date may be changed
as provided in the Annuity Provisions.
PREMIUM TAX Premium Tax levied by a state or other government
entity. The Premium Tax will be paid when due and
charged either against the premium or the
contract value.
REALLOCATION DATE The date on which any premiums are reallocated
from the Reallocation Account to the Accounts
elected by the Owner. The Reallocation Date is
shown on the Contract Schedule page.
SEC The United States Securities and Exchange
Commission.
SEPARATE ACCOUNT A separate investment account composed of several
Subaccounts established to receive and invest net
payments under the Contract and under other
variable annuity contracts issued by the Company.
SERIES FUND A designated mutual fund from which a Subaccount
of the Separate Account will buy shares.
SUBACCOUNT A Separate Account allocation option that is made
available under this Contract.
SURRENDER The termination of the Contract at the option of
the Owner.
VALUATION DATE Each day on which the New York Stock Exchange is
open for business.
6
<PAGE>
VALUATION PERIOD The period commencing at the end of one Valuation
Date and continuing to the end of the next
succeeding Valuation Date.
WRITTEN NOTICE Written Notice means a notice by the Owner to Us
requesting or exercising a right of the Owner as
provided in the Contract provisions. In order for
a notice to be considered a Written Notice, it
must: be in writing, signed by the Owner; be in a
form acceptable to Us; and contain the
information and documentation, as determined in
Our sole discretion, necessary for Us to take the
action requested or for the Owner to exercise the
right specified. A Written Notice will not be
considered complete until all necessary
supporting documentation required or requested by
Us has been received by Us at Our Administrative
Office.
GENERAL PROVISIONS
===============================================================================
THE CONTRACT This Contract, the attached application, if any,
and any contract Riders constitute the entire
Contract. No Contract provision can be waived or
changed except by endorsement. Such endorsement
must be signed by Our President or Secretary. We
reserve the right to amend the Contract to meet
the requirements of any applicable Federal or
state laws or regulations.
OWNERSHIP This Contract belongs to the Owner. The Owner
as shown on the Contract Schedule page, or as
subsequently changed, may exercise all rights
under this Contract including the right to
transfer ownership. These rights may be subject
to the consent of any assignee or irrevocable
beneficiary. Joint Owners may be named,
provided the Joint Owners are husband and wife.
CHANGE OF We will not be bound by any requested change in
OWNERSHIP UPON the ownership designation unless it is made by
REQUEST Written Notice. The change will be effective on
the date the Written Notice is accepted by Us.
If We request, this Contract must be returned to
Our Office for endorsement.
Changing the Owner cancels any prior ownership
designation, but it does not change the
Beneficiary or the Annuitant.
7
<PAGE>
CHANGE OF Should the Owner die during the Accumulation
OWNERSHIP UPON Period, We will be bound by the following:
DEATH OF OWNER
1. In the event of death of one Joint Owner,
this Contract will continue with the
surviving Joint Owner as sole Owner.
2. If the Owner is the Annuitant, then the
Death Benefit Proceeds are payable as
provided in the Death Benefit Provisions.
3. If the Owner is not the Annuitant and dies
before the Annuitant:
(a) If no Beneficiary is named and alive,
the Owner's estate will become the
new Owner. The Cash Value must be
distributed within five years of the
former Owner's death;
(b) If the Beneficiary is alive and is the
Owner's spouse, this Contract will
continue with the spouse as the new
Owner; or
(c) If the Beneficiary is alive and is not
the Owner's spouse, the Beneficiary
will become the new Owner. The Cash
Value must be distributed either:
(1) within five years of the former
Owner's death; or
(2) over the lifetime of the new
Owner, if a natural person, with
payments beginning within one
year of the former Owner's death;
or
(3) over a period that does not
exceed the life expectancy (as
defined by the Internal Revenue
Code and Regulations adopted
under the Code) of the new
Owner, if a natural person, with
payments beginning within one
year of the former Owner's death.
BENEFICIARY The Beneficiary, as named in the application or
subsequently changed, is entitled to receive
the Death Benefit Proceeds, if any, as provided
in the Death Benefit Provisions of this Contract,
or the Cash Value, if any, as provided in 3.c
above. If no Beneficiary is alive, the benefits
payable to the Beneficiary will be paid to the
Owner, if surviving, otherwise to the Owner's
estate.
CHANGE OF We will not be bound by any change in the
BENEFICIARY Beneficiary designation unless it is made by
Written Notice. The change will be effective on
the date the Written Notice was signed; however,
no change will apply to any payment We made
before the Written Notice is received. If We
request, this Contract must be returned to Our
Office for endorsement.
ASSIGNMENT This Contract may be assigned prior to the
Maturity Date. We will not be bound by any
assignment unless made by Written Notice. The
Assignment will be effective on the date the
Written Notice is received at Our Office and
accepted by Us. We assume no responsibility for
the validity of any assignment.
8
<PAGE>
INCONTESTABILITY This Contract is incontestable from the Contract
Date.
AGE AND SEX If a date of birth or sex has been misstated, any
amount payable will be adjusted to conform to the
correct date of birth and sex.
CONTRACT YEARS Contract years, quarters and anniversaries are
measured from the Contract Date.
REPORTS During the Accumulation Period, We will send a
report to the Owner at least once each year. It
will show the activity that occurred during the
year and the value of the Contract as of the
date of the report.
CONTRACT PAYMENT All payments from the Fixed Account will be paid
in one sum unless otherwise elected under the
Annuity Provisions of this Contract. We have the
right to postpone payments and transfers from the
Fixed Account for up to six months. All payments
and transfers from the Subaccounts will be
processed as provided in this Contract unless
one of the following situations exist:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted
or declares an emergency; or
3. The SEC allows Us to defer payments to
protect Our contractowners.
PROTECTION OF Unless the Owner directs by filing Written
PROCEEDS Notice, no Beneficiary may assign any payments
under this Contract before the same are due. To
the extent permitted by law, no payments
under this Contract will be subject to the claims
of creditors of any Beneficiary.
SEPARATE ACCOUNT PROVISIONS
================================================================================
The variable benefits under this Contract are provided through the Separate
Account referenced on the Contract Schedule page. The assets of the Separate
Account are Our property. Assets equal to the liabilities of the Separate
Account will not be charged with liabilities arising out of any other business
We may conduct. If the assets of the Separate Account exceed the liabilities
arising under the contracts supported by the Separate Account, then the excess
may be used to cover the liabilities of Our general account. The assets of the
Separate Account shall be valued as often as any contract benefits vary, but at
least monthly.
9
<PAGE>
SUBACCOUNTS The Separate Account has various Subaccounts.
Each Subaccount invests exclusively in shares of
one of the portfolios of an underlying Series
Fund. Assets invested after the Maturity Date
may be invested in different Subaccounts than
assets invested during the Accumulation Period.
We reserve the right to add or remove any
Subaccount of the Separate Account. Income and
realized and unrealized gains and losses from
assets in each Subaccount are credited to, or
charged against, that Subaccount without regard
to income, gains, or losses in other Subaccounts.
Any amount charged against the contract value for
federal or state income taxes will be deducted
from that Subaccount.
TRANSFERS AMONG During the Accumulation Period, the Owner may
SUBACCOUNTS DURING transfer all or a portion of this Contract's
THE ACCUMULATION value in its Subaccounts to other Subaccounts or
PERIOD the Fixed Account. We reserve the right to limit
the number of transfers and to charge a [$10] fee
for each transfer after the first twelve
transfers during any one contract year. This
charge will be deducted from the funds
transferred. We must be notified in a manner
satisfactory to Us. The transfer ordinarily will
take effect on the first Valuation Date on or
following the date notice is received at Our
Office.
TRANSFERS AMONG After the Maturity Date, the Owner may transfer
SUBACCOUNTS AFTER the value of the variable annuity units from one
THE MATURITY DATE Subaccount to another. The minimum amount which
may be transferred is the lesser of $10 monthly
income or the entire monthly income of the
variable annuity units in the Subaccount from
which the transfer is being made. If the monthly
income of the remaining units in a Subaccount is
less than $10, We reserve the right to include
the value of those variable annuity units as part
of the transfer.
After the Maturity Date, no transfers may be
made to or from the Fixed Account. We reserve
the right to limit transfers to once per contract
year.
ADDITION, DELETION OR We reserve the right to transfer assets of the
SUBSTITUTION Separate Account, which We determine to be
OF INVESTMENTS associated with the class of contracts to which
this Contract belongs, to another Separate
Account. If this type of transfer is made, the
term "Separate Account", as used in this
Contract, shall then mean the Separate Account
to which the assets were transferred. We also
reserve the right to add, delete, or substitute
investments held by any Subaccount.
We reserve the right, when permitted by law, to:
1. deregister the Separate Account under
the Investment Company Act of 1940;
2. manage the Separate Account under the
direction of a committee at any time;
10
<PAGE>
3. restrict or eliminate any voting privileges
of contractowners or other persons who have
voting privileges as to the Separate Account;
4. combine the Separate Account or any
Subaccount(s) with one or more other Separate
Accounts or Subaccounts;
CHANGE OF We reserve the right to change the investment
INVESTMENT OBJECTIVE objective of a Subaccount. If required by law or
regulation, an investment objective of the
Separate Account, or of a Series Fund portfolio
designated for a Subaccount, will not be
materially changed unless a statement of the
change is filed with and approved by the
appropriate insurance official of the state of
Our domicile or deemed approved in accordance
with such law or regulation. If required,
approval of or change of any investment objective
will be filed with the Insurance Department of
the state where this Contract is delivered.
ACCUMULATION Some of the contract values fluctuate with the
UNIT VALUE investment results of the Subaccounts. In order
to determine how investment results affect the
contract values, an Accumulation Unit Value is
determined for each Subaccount. The Accumulation
Unit Value may increase or decrease from one
Valuation Period to the next. Accumulation Unit
Values also will vary between Subaccounts.
The Accumulation Unit Value of any Subaccount at
the end of the Valuation Period is the result of:
1. the total value of the assets held in the
Subaccount. This value is determined by
multiplying the number of shares of the
designated Series Fund portfolio owned by the
Subaccount times the net asset value per
share; minus
2. the accrued charge for administration and
mortality and expense. The daily amount of
this charge is equal to the daily net assets
of the Subaccounts multiplied by the daily
Separate Account Charge for the selected
Death Benefit Option. The maximum annual
factor for the Separate Account Charge is
shown on the Contract Schedule page; minus
3. the accrued amount of reserve for any taxes
that are determined by Us to have resulted
from the investment operations of the
Subaccount; and the result divided by
4. the number of outstanding units in the
Subaccount.
The use of the Accumulation Unit Value in
determining contract values is described in the
Contract Value Provisions.
11
<PAGE>
PREMIUM PROVISIONS
================================================================================
PREMIUMS Premiums after the first are payable at Our
Office. The amount of premium which may be paid
during any contract year may not exceed the
Maximum Additional Annual Premium shown on the
Contract Schedule page without Our consent.
Premiums will not be accepted in an amount less
than the Minimum Additional Premium shown on the
Contract Schedule page without Our consent. Our
acceptance of any premium shall not constitute a
waiver of these limits with respect to subsequent
premiums.
CONTRACT VALUE PROVISIONS
================================================================================
NET PREMIUM The net premium will be the premium received less
Premium Tax, if any.
ALLOCATION OF NET Net Premiums will be allocated to the Accounts on
PREMIUMS the first Valuation Date on or following the date
the premium is received at Our Office. With
respect to the Initial Premium, the allocation
will take place on the Contract Date. Any premium
received prior to the Reallocation Date will be
allocated to the Reallocation Account. On the
first Valuation Date on or following the
Reallocation Date, the values in the Reallocation
Account will be transferred in accordance with
the Owner's current premium allocation
instructions.
All allocation percentages must be in whole
numbers. The allocation of future net premiums
may be changed by the Owner. We reserve the right
to limit such change to once each year. The
request for change of allocations must be in a
manner satisfactory to Us. The allocation change
will be effective the date the request for change
is recorded by Us.
SUBACCOUNT VALUE At the end of any Valuation Period, the
Subaccount value is equal to the number of units
that the Contract has in the Subaccount,
multiplied by the Accumulation Unit Value of
that Subaccount.
The number of units that the Contract has in each
Subaccount is equal to:
1. the initial units purchased on the Contract
Date; plus
2. units purchased at the time additional net
premiums are allocated to the Subaccount;
plus
3. units purchased through transfers from
another Account; minus
12
<PAGE>
4. any units that are redeemed to pay for
partial Surrenders; minus
5. any units that are redeemed as part of a
transfer to another Account; minus
6. any units that are redeemed to pay the Annual
Contract Charge, Premium Tax and transfer
fees, if any.
FIXED ACCOUNT At the end of any Valuation Period, the Fixed
Account value is equal to:
1. the sum of all net premiums allocated to the
Fixed Account; plus
2. any amounts transferred from a Subaccount to
the Fixed Account; plus
3. total interest credited to the Fixed Account;
minus
4. any amounts withdrawn from the Fixed Account
to pay for partial Surrenders; minus
5. any amounts transferred to a Subaccount from
the Fixed Account; minus
6. any amounts charged to pay the Annual
Contract Charge, Premium Tax and transfer
fees, if any.
Interest on the Fixed Account will be compounded
daily at a minimum guaranteed effective annual
interest rate of 3% per year. We may declare from
time to time higher current interest rates. The
interest rates We set will be credited for
increments of at least one year measured from
each purchase payment or transfer date.
On transfers from the Fixed Account to a
Subaccount, unless We otherwise consent:
1. Written Notice must be within 30 days after a
contract anniversary.
2. The transfer will ordinarily take place on
the first Valuation Date on or following the
date We receive such Written Notice.
3. The amount that may be transferred is the
greater of (a) 25% of the amount in the Fixed
Account; or (b) the amount transferred in the
prior contract year from the Fixed Account.
Unless We otherwise consent, transfers to the
Fixed Account or allocation of Net Premiums to
the Fixed Account may be restricted if the Fixed
Account value following the transfer or
allocation would exceed the Maximum Fixed Account
Balance shown on the Contract Schedule page.
We reserve the right to defer payment of any
amounts from the Fixed Account for no longer than
six months after We receive such Written Notice.
ANNUAL CONTRACT During the Accumulation Period, the Annual
CHARGE Contract Charge shown on the Contract Schedule
page will be made once a year from the Annuity
Value on each contract anniversary. This charge
will be deducted from each Subaccount and the
Fixed Account in proportion to the value each
bears to the Annuity Value. If the Contract is
Surrendered on other than a contract anniversary,
the charge will also be made on the date of
Surrender.
13
<PAGE>
The Annual Contract Charge prior to Surrender
will be waived if either (1) the Annuity Value
or (2) the sum of all net premiums received,
minus all partial Surrenders, equals or exceeds
[$25,000] as of the contract anniversary for
which the charge is payable.
ANNUITY VALUE At the end of any Valuation Period, the Annuity
Value is equal to the sum of the Account values.
PARTIAL SURRENDER Prior to the Maturity Date, a partial Surrender
may be made by the Owner without full Surrender
of this Contract. Unless We otherwise consent:
1. The request must be made by Written Notice.
2. The partial Surrender may not reduce the Cash
Value to less than the Minimum Balance shown
on the Contract Schedule page.
3. No amount from the Fixed Account may be
partially surrendered.
The amount payable will be the amount of the
partial Surrender less any Premium Tax. The
Subaccount(s) for the Surrender may be specified.
If not specified, partial Surrenders will be
deducted from each Subaccount and, if We consent,
the Fixed Account in proportion to the value each
bears to the Annuity Value.
During any contract year, including the first,
and upon Written Notice from the Owner, a
systematic partial Surrender option is available
on a monthly, quarterly, semi-annual or annual
basis. We reserve the right to limit the amount
of any systematic partial Surrender to no less
than $200.
CASH VALUE This Contract may be surrendered by the Owner for
its Cash Value upon Written Notice at any time
prior to the then current Maturity Date. The Cash
Value at any time equals the Annuity Value on the
Valuation Date coincident with or next following
the date We receive Written Notice of Surrender
less any applicable Premium Tax less the Annual
Contract Charge. Payment will usually be made
within seven days of Written Notice subject to
the Contract Payment section of the General
Provisions and the Fixed Account section of these
provisions.
BASIS OF COMPUTATION A detailed statement of the method of computation
of values has been filed with the insurance
supervisory official of the jurisdiction in which
this Contract is delivered. All values for this
Contract are equal to or greater than the values
required by statutes in such jurisdiction.
14
<PAGE>
DEATH BENEFIT PROVISIONS
================================================================================
DEATH OF ANNUITANT If the Annuitant dies during the Accumulation
DURING THE Period and the Owner is a natural person other
ACCUMULATION PERIOD than the Annuitant, the Owner will automatically
become the Annuitant and this Contract will
continue. In the event of Joint Owners, the
younger Joint Owner will automatically become the
new Annuitant and this Contract will continue.
If the Annuitant dies during the Accumulation
Period and the Owner is either (1) the same
individual as the Annuitant; or (2) other than
a natural person, then the Death Benefit Proceeds
as calculated below are payable to the
Beneficiary. However, in the event of Joint
Owners, if the Annuitant dies during the
Accumulation Period and is the same individual
as one of the Joint Owners, the surviving Joint
Owner will automatically become the Annuitant
and this Contract will continue.
DEATH BENEFIT The Death Benefit Proceeds during the
PROCEEDS Accumulation Period will be equal to the Annuity
Value as of the Death Report Day.
ALTERNATIVE ELECTION If the Beneficiary is entitled to receive the
Death Benefit Proceeds, the Beneficiary may
elect, in lieu of a lump sum payment, one of the
following options that provides for complete
distribution and termination of this Contract at
the end of the distribution period:
1. within five years of the date of death of the
Annuitant; or
2. over the lifetime of the Beneficiary; or
3. over a period that does not exceed the life
expectancy (as defined by the Internal
Revenue Code and Regulations adopted under
the Code) of such Beneficiary.
Multiple beneficiaries may choose individually
among any of the three options.
For subparagraphs (1) and (3), the Annuity Value
as of the Death Report Day will be adjusted to
equal the Death Benefit Proceeds and this
Contract will remain in force as a deferred
annuity until the end of the elected distribution
period. For subparagraph (2), the Maturity Date
will be changed to the Death Report Day and the
Death Benefit Proceeds will be used to purchase
annuity payments under the Annuity Provisions of
this Contract.
For elections made under subparagraph (1), We
will:
15
<PAGE>
a. at the time of election, allow one partial
Surrender and one transfer of all or a
portion of the Contract's value among
Subaccounts or the Fixed Account without a
transfer charge. Additional partial Surrender
and transfers are not permitted;
b. not deduct the Annual Contract Charge upon
complete distribution;
c. not permit payment of the Death Benefit
Proceeds under the Annuity Provisions of this
Contract upon complete distribution.
The Beneficiary may not name a Beneficiary for
payment of the Death Benefit Proceeds. In the
event the Beneficiary dies prior to
distribution of all Death Benefit Proceeds, We
will pay the remaining value of the Death
Benefit Proceeds to the Contingent Beneficiary,
if named by the Owner. If no Contingent
Beneficiary is named, such payment will be made
to the Beneficiary's estate.
Subparagraphs (2) and (3) may be elected only if
the Beneficiary is a natural person and payments
start within one year of the date of death of the
Annuitant.
Except in the event of Joint Owners, as provided
in the Death of Annuitant During the Accumulation
Period provision, if the Beneficiary is entitled
to receive the Death Benefit Proceeds and is the
spouse of the deceased Annuitant, then the
Beneficiary may elect to become the new Annuitant
and Owner and keep the Contract in force in lieu
of receiving the Death Benefit Proceeds. However,
if the spouse is also a Joint Owner of this
Contract, the terms of the Death of Annuitant
During the Accumulation Period provision shall
apply.
ANNUITY PROVISIONS
================================================================================
COMMENCEMENT OF Monthly annuity payments will begin as of the
ANNUITY PAYMENTS Maturity Date shown on the Contract Schedule
page, unless another Maturity Date has been
elected as provided in these provisions.
MATURITY DATE The Maturity Date shown on the Contract Schedule
page may be changed to a different Maturity Date,
subject to all of the following:
1. Written Notice prior to the Maturity Date.
2. The new Maturity Date is at least 5 years
after the Contract Date.
3. The new Maturity Date is not beyond the
Annuitant's 95th birthday.
16
<PAGE>
ANNUITY OPTION The Annuity Option shown on the Contract
Schedule page may be changed to any other option
available upon Written Notice prior to the
Maturity Date. If a variable account annuity
payment option is chosen, the Owner must include
in the Written Notice the Subaccount allocation
of the Annuity Proceeds as of the Maturity Date.
CHANGE OF As of the Maturity Date and upon agreement with
ANNUITANT Us, the Owner may elect a different Annuitant or
add a joint annuitant who will be a joint payee
under either Option C or Option E.
PAYEE The Annuitant(s) on the Maturity Date will become
the payee(s) and receive the annuity payments.
AVAILABILITY If the payee is not a natural person, an Annuity
Option is only available with Our permission. No
Annuity Option is available if:
1. the payee is an assignee; or
2. the periodic payment is less than $20.
AGE Age, when required, means age nearest birthday on
the effective date of the option. We will furnish
rates for ages or combination of ages not shown
upon request.
PROOF OF AGE Prior to making the first monthly annuity payment
AND SEX under this Contract, We reserve the right to
require satisfactory evidence of the birthdate
and the sex of any payee. If required by law to
ignore differences in sex of any payee, annuity
payments will be determined using unisex rates.
PROOF OF SURVIVAL Prior to making any payment under this Contract,
We reserve the right to require satisfactory
evidence that the payee is:
1. alive on the due date of such payment; and
2. legally qualified to receive such payment.
DEATH BENEFIT AFTER The death benefit after the Maturity Date and
THE MATURITY DATE after the commencement of annuity payments
depends upon the annuity option selected. If a
payee dies on or after the commencement of
annuity payments, the remaining portion of any
interest in the Contract will be distributed at
least as rapidly as under the method of
distribution being used as of the date of the
payee's death.
17
<PAGE>
RESTRICTIONS After the Maturity Date, no additional premiums,
partial Surrenders, full Surrenders, change of
Annuitants or Annuity Options may be made under
this Contract.
FIXED ACCOUNT ANNUITY PAYMENTS
================================================================================
INTEREST AND All Fixed Account annuity option payments are
MORTALITY based on a guaranteed interest rate of 3%.
Mortality is based on the "1983 Table a"
mortality table with projection. Gender based
mortality tables will be used unless prohibited
by law.
AMOUNT OF MONTHLY The amount of each monthly annuity payment will
FIXED ACCOUNT be determined by multiplying:
ANNUITY PAYMENT
1. the appropriate rate based on the guaranteed
interest rate and, for Options B and C, the
mortality table for Fixed Account annuity
payments; times
2. the Annuity Proceeds as of the Maturity Date.
FIXED ACCOUNT The following options are available for payment
ANNUITY OPTIONS of Fixed Account monthly annuity payments. The
rates shown are the guaranteed rates for each
$1,000 of Annuity Proceeds at selected ages.
Any guaranteed rates not shown for the options
below will be available upon request. Higher
current rates may be available at the Maturity
Date.
Option A - The Annuity Proceeds will be paid in equal
Fixed Period installments. The installments will be paid over
a fixed period determined from the following
table:
FIXED PERIOD
(IN MONTHS) RATE
---------------------- ------------------
60 17.91
120 9.61
180 6.87
240 5.51
Option B - The Annuity Proceeds will be paid in equal
installments determined from the following Life
Income table. Such installments are payable:
1. during the payee's lifetime only (Life
Annuity); or
2. during a 10 or 20 year fixed period certain
and for the payee's remaining lifetime
(Certain Period); or
3. until the sum of installments paid equals the
Annuity Proceeds applied and for the payee's
remaining lifetime (Installment Refund).
18
<PAGE>
- --------------------------------------------------------------------------------
OPTION B: LIFE INCOME
MONTHLY INCOME PAYMENTS
================================================================================
Guaranteed for Life Guaranteed for 10 Years
- ------------------------------------ ----------------------------------
Male Age Female Male Age Female
--------- ----- --------- -------- ----- ---------
$ 3.87 50 $ 3.55 $ 3.84 50 $ 3.54
4.23 55 3.83 4.19 55 3.82
4.72 60 4.21 4.63 60 4.18
5.40 65 4.73 5.22 65 4.66
6.34 70 5.45 5.96 70 5.30
================================================================================
Guaranteed Return of Policy Proceeds Guaranteed for 20 Years
------------------------------------ ----------------------------------
Male Age Female Male Age Female
-------- ----- -------- -------- ----- ---------
$ 3.73 50 $ 3.49 $ 3.76 50 $ 3.51
4.03 55 3.73 4.05 55 3.75
4.40 60 4.04 4.37 60 4.06
4.88 65 4.45 4.72 65 4.41
5.51 70 4.99 5.04 70 4.80
- --------------------------------------------------------------------------------
Option C - The Annuity Proceeds will be paid in equal
Joint and Survivor installments during the joint lifetime of two
Life Income payees and continuing upon the death of the first
payee for the remaining lifetime of the survivor.
- --------------------------------------------------------------------------------
OPTION C: JOINT AND SURVIVOR LIFE INCOME
<TABLE>
<CAPTION>
================================================================================
Monthly Payments for Each $1,000 of Amount Retained
- --------------------------------------------------------------------------------
Age of Other Payee (Female)
----------------------------------------------------------------------------
Age of One 15 Years Less 10 Years Less 5 Years Less Same as
Payee (Male) Than Male Payee's Than Male Payee's Than Male Payee's Male Payee's
- -------------- ----------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
50 $ 2.99 $ 3.09 $3.20 $ 3.32
55 3.11 3.24 3.38 3.53
60 3.27 3.43 3.62 3.82
65 3.47 3.69 3.94 4.22
70 3.74 4.04 4.38 4.77
- -------------- ----------------- ------------------ ----------------- -----------------
</TABLE>
19
<PAGE>
VARIABLE ACCOUNT ANNUITY PAYMENTS
================================================================================
ANNUITY UNIT VALUE The Annuity Proceeds will be used to purchase
variable annuity units in the chosen
Subaccount(s). The Annuity Unit Value in any
Subaccount will increase or decrease reflecting
the investment experience of that Subaccount.
The Annuity Unit Value of any Subaccount at the
end of a Valuation Period is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the Annuity Unit Value for that Subaccount
at the end of the immediately preceding
Valuation Period;
(b) is the net investment factor for the
Subaccount for the Valuation Period; and
(c) is the Assumed Investment Return
adjustment factor for the Valuation Period.
The Assumed Investment Return adjustment factor
for the Valuation Period is the product of
discount factors of .99986634 per day to
recognize the 5.0% effective annual Assumed
Investment Return.
The net investment factor used to calculate the
value of the Annuity Unit Value in each
Subaccount for the Valuation Period is determined
by dividing (d) by (e) and subtracting (f) from
the result, where:
(d) is the net result of:
(1) the net asset value of a Series Fund
share held in that Subaccount determined
as of the end of the current Valuation
Period; plus
(2) the per share amount of any dividend or
capital gain distributions made by the
Series Fund for shares held in that
Subaccount if the ex-dividend date
occurs during the Valuation Period; plus
or minus
(3) a per share charge or credit for any
taxes reserved for, which We determine
to have resulted from the investment
operations of the Subaccount.
(e) is the net asset value of a Series Fund share
held in the Subaccount determined as of the
end of the immediately preceding Valuation
Period.
(f) is a factor representing the mortality and
expense risk fee, and administrative charge.
This factor, on an annual basis, will be
equal to an amount not to exceed 0.50% above
the Separate Account Charge, shown on the
Contract Schedule page, of the daily net
asset value of a Series Fund Share held in
the Separate Account for that Subaccount.
20
<PAGE>
DETERMINATION OF The amount of the first variable payment is
THE FIRST VARIABLE determined by multiplying the Annuity Proceeds
PAYMENT times the appropriate rate from the variable
option selected. The tables are based on the
"1983 Table a" mortality table with projection
with a 5% effective annual Assumed Investment
Return and assuming a Maturity Date in the year
2000. Gender based mortality tables will be used
unless prohibited by law.
The amount of the first payment depends upon the
adjusted Age of the Annuitant. The adjusted Age
is the Annuitant's actual Age last birthday at
the Maturity Date, adjusted as follows:
MATURITY DATE ADJUSTED AGE
--------------------------- ------------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After the year 2040 as determined by Us.
DETERMINATION OF The amount of variable annuity payments after the
SUBSEQUENT first will increase or decrease according to the
VARIABLE PAYMENTS Annuity Unit Value which reflects the investment
experience of the selected Subaccount(s). Each
variable annuity payment after the first will be
equal to the number of variable annuity units in
each selected Subaccount multiplied by the
Annuity Unit Value of that Subaccount on the date
the payment is processed. The number of variable
annuity units in any selected Subaccount is
determined by dividing the first variable annuity
payment allocated to that Subaccount by the
variable annuity unit value of that Subaccount on
the date the first annuity payment is processed.
The number of variable annuity units in any
selected Subaccount will be increased or reduced
by the number of units transferred to or from
another Subaccount.
VARIABLE ACCOUNT The following options are available for payment
ANNUITY OPTIONS of Variable Account monthly annuity payments.
The rates shown are the guaranteed rates for each
$1,000 of Annuity Proceeds at selected ages.
These rates are used to determine the first
variable payment under each option. Any
guaranteed rates not shown for the options below
will be available upon request.
21
<PAGE>
Option D - The Annuity Proceeds will be paid in
Variable Life Income installments determined from the following table.
Such installments are payable:
1. during the payee's lifetime only (Variable
Life Annuity); or
2. during a 10 year fixed period certain and for
the payee's remaining lifetime (Variable
Certain Period).
<TABLE>
<CAPTION>
=============================================================================================================================
ADJUSTED VARIABLE LIFE ANNUITY VARIABLE CERTAIN PERIOD
PAYEE'S AGE MALE FEMALE UNISEX MALE FEMALE UNISEX
----------------- ---------------- ----------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
55 5.46 5.06 5.26 5.39 5.03 5.21
60 5.93 5.42 5.68 5.81 5.37 5.59
65 6.60 5.91 6.26 6.37 5.82 6.10
70 7.55 6.63 7.09 7.07 6.43 6.75
75 8.87 7.70 8.29 7.89 7.23 7.56
80 10.75 9.30 10.03 8.74 8.18 8.46
85 13.36 11.68 12.52 9.50 9.11 9.31
90 16.94 15.13 16.04 10.04 9.80 9.92
==================== ================= ================ ================= ================== =============== ================
</TABLE>
Option E - The Annuity Proceeds will be paid in installments
Variable Joint and Survivor during the joint lifetime of two payees and
Life Income continuing upon the death of the first payee for
the remaining lifetime of the survivor.
22
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Home Office: Columbus, Ohio
Administrative Office:
P.O. Box 5068
Clearwater, Florida 33758
<PAGE>
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY
Death Benefit Prior to Maturity
Monthly Annuity Commencing on Maturity Date
Non-Participating
No Dividends