As filed with the Securities and Exchange Commission on April 22, 1996
Registration No. 33-63246
- --------------------------------------------------------------------------------
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. 3 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 4 (X)
(Check appropriate box or boxes)
- --------------------------------------------------------------------------------
WRL SERIES ANNUITY ACCOUNT B
(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 34640
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(813) 587-1800
------------------------------
Thomas E. Pierpan, Esq.
Vice President and Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 34640
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
------------------------------
It is proposed that this filing will become effective (check appropriate space):
______ immediately upon filing pursuant to paragraph (b) of Rule 486
__X___ on MAY 1, 1996 pursuant to paragraph (b) of Rule 486
______ 60 days after filing pursuant to paragraph (a) of Rule 485
______ on DATE, pursuant to paragraph (a) of Rule 486
The Registrant has chosen to register an indefinite number of securities in
accordance with Rule 24f-2. The Rule 24f-2 Notice for Registrant's most recent
fiscal year was filed on February 28, 1996.
<PAGE>
<TABLE>
<CAPTION>
WRL SERIES ANNUITY ACCOUNT B
POST-EFFECTIVE AMENDMENT NO. 3 TO
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON FORM N-4
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
<S> <C> <C>
1. Cover Page.............................Cover Page
2. Definitions............................Definitions of Special Terms
3. Synopsis or Highlights.................Summary
4. Condensed Financial
Information............................Condensed Financial Information
5. General Description of
Registrant, Depositor,
and Portfolio Companies................Western Reserve, the Series Account B, and the Trust; Voting Right
6. Deductions.............................Charges and Deductions; Distribution of the Contracts
7. General Description of
Variable Annuity Contracts.............Western Reserve, the Series Account B, and the Trust; The Contract;
Statement of Additional Information
8. Annuity Period.........................The Contract - Annuity Provisions
9. Death Benefit..........................The Contract - Accumulation Provisions - Death Benefits during the
Accumulation Period; The Contract - Annuity Provisions - Death Benefits
after the Maturity Date
10. Purchases and Contract
Value..................................The Contract - Accumulation Provisions - Purchase Payments, Net
Purchase Payments, Accumulation Unit Value; Distribution of the
Contracts
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
<S> <C> <C>
11. Redemptions............................The Contract - Accumulation Provisions - Partial Withdrawals and
Surrenders; Other Matters Relating to the Contract - Right to Examine
Contract
12. Taxes..................................Federal Tax Matters
13. Legal Proceedings......................Legal Proceedings
14. Table of Contents of the
Statement of Additional
Information............................Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
- ------------- -------------------
<S> <C> <C>
15. Cover Page.............................Cover Page
16. Table of Contents......................Table of Contents
17. General Information and
History................................Not Applicable
18. Services...............................Custodian; Independent Accountants
19. Purchase of Securities Being
Offered................................Addition, Deletion and Substitution of Investments
20. Underwriters...........................Distribution of Contracts
21. Calculation of Performance
Data...................................Calculation of Performance Related Information
22. Annuity Payments.......................Not Applicable
23. Financial Statements...................Financial Statements
</TABLE>
(ii)
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
Janus Retirement Advantage(R)
Flexible Payment Variable Accumulation Deferred Annuity Contract
- --------------------------------------------------------------------------------
Prospectus
May 1, 1996
- --------------------------------------------------------------------------------
Issued By: Distributed By:
Western Reserve Life Assurance Co. of Ohio InterSecurities, Inc.
201 Highland Avenue 201 Highland Avenue
Largo, Florida 34640 Largo, Florida 34640
Please direct all telephone inquiries to 1-800-504-4440.
This Prospectus describes the Janus Retirement Advantage(R) (the
"Contract"), a tax deferred variable annuity contract issued by Western Reserve
Life Assurance Co. of Ohio ("Western Reserve").
The Contract provides for accumulation of Contract values on a variable
basis, a fixed basis, or a combination of both. The Contract also provides for
the payment of periodic annuity payments on a variable basis or a fixed basis.
If the variable basis is chosen, Contract values will be held in the WRL Series
Annuity Account B (the "Series Account") and will vary according to the
investment performance of the underlying investment portfolios of the Janus
Aspen Series (the "Trust"). If the fixed basis is chosen, Contract values will
be allocated to the Fixed Account and earn interest at no less than the minimum
guaranteed rate.
There are currently nine Sub-Accounts of the Series Account (in addition to
the Fixed Account) available during the Accumulation Period and after the
Maturity Date. Each Sub-Account invests in one investment portfolio of the Trust
and Net Purchase Payments will be allocated to one or more of these Sub-Accounts
or the Fixed Account as directed by the Owner. The nine investment portfolios of
the Trust are: the Growth Portfolio, the Aggressive Growth Portfolio, the
Worldwide Growth Portfolio, the International Growth Portfolio, the Balanced
Portfolio, the Flexible Income Portfolio, the Short-Term Bond Portfolio, the
Money Market Portfolio and the High-Yield Portfolio. Janus Capital Corporation
("Janus Capital") serves as Investment Adviser to the Trust.
This Prospectus sets forth information about the Contract that a
prospective investor should know before investing. Additional information about
the Series Account has been filed with the Securities and Exchange Commission in
a Statement of Additional Information, dated May 1, 1996, which is incorporated
herein by reference. The Statement of Additional Information is available upon
request and without charge by writing to Western Reserve, P.O. Box 9052,
Clearwater, FL 34618-9052; or by calling (800) 504-4440. The table of contents
for the Statement of Additional Information appears on page 28 of this
Prospectus.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED
BY, A BANK OR DEPOSITORY INSTITUTION, AND THE CONTRACT IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR
THE JANUS ASPEN SERIES. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
This Prospectus should be retained for future reference.
<PAGE>
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
Definitions of Special Terms .............................................. 3
Summary ................................................................... 4
Calculation of Yields and Total Returns ................................... 8
Other Performance Data .................................................... 9
Published Ratings ......................................................... 10
Western Reserve, the Series Account, and the Trust ........................ 10
Western Reserve Life Assurance Co. of Ohio ........................... 10
WRL Series Annuity Account B ......................................... 10
Janus Aspen Series ................................................... 10
Charges and Deductions .................................................... 12
No Sales Charge ...................................................... 12
Transfer Charge ...................................................... 12
Mortality and Expense Risk Charge .................................... 12
Annual Contract Charge ............................................... 12
Administrative Charge ................................................ 13
Premium Taxes ........................................................ 13
Deductions for Other Taxes ........................................... 13
Expenses of the Trust ................................................ 13
The Contract - Accumulation Provisions .................................... 13
Purchase Payments .................................................... 13
Net Purchase Payments ................................................ 14
Accumulation Unit Value .............................................. 14
Experience Factor .................................................... 15
Computing Sub-Account Value .......................................... 15
Portfolio Share Net Asset Value ...................................... 15
Transfers to and from, and among Allocation Options .................. 15
Systematic Exchanges ................................................. 16
Partial Withdrawals and Surrenders ................................... 16
Death Benefits during the Accumulation Period ........................ 18
The Contract - Annuity Provisions ......................................... 19
Maturity Date and Selection of Annuity Options ....................... 19
Fixed Account Annuity Options ........................................ 20
Series Account Annuity Options ....................................... 20
Death Benefits after the Maturity Date ............................... 20
Improved Annuity Rates ............................................... 20
Proof of Age, Sex, and Survival ...................................... 20
Other Matters Relating to the Contract .................................... 21
Changes in Purchase Payments ......................................... 21
Right to Examine Contract ............................................ 21
Contract Payments .................................................... 21
Ownership ............................................................ 21
Annuitant ............................................................ 22
Beneficiary .......................................................... 22
Modification or Waiver ............................................... 22
Federal Tax Matters ....................................................... 22
Introduction ......................................................... 22
Company Tax Status ................................................... 22
Taxation of Annuities ................................................ 23
Individual Retirement Annuities ...................................... 24
Additional Considerations ............................................ 24
The Fixed Account ......................................................... 26
Minimum Guaranteed and Current Interest Rates ........................ 26
Fixed Account Value .................................................. 26
Allocations, Transfers and Partial Withdrawals ....................... 27
Distribution of the Contracts ............................................. 27
Voting Rights ............................................................. 27
Legal Proceedings ......................................................... 28
Statement of Additional Information ....................................... 28
JANUS ASPEN SERIES
- --------------------------------------------------------------------------------
2
<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
Sub-Account values during the Accumulation Period.
Administrative Office - Western Reserve's administrative office for variable
insurance products, the address of which is P.O. Box 9052, Clearwater,
Florida 34618-9052.
Allocation Options - The Fixed Account and the Sub-Accounts of the Series
Account.
Annuitant - The person named in the application, or as subsequently changed, to
receive annuity payments. The Annuitant may be changed as provided in the
Contract's death benefit provisions and annuity provisions.
Annuity Proceeds - The amount applied to purchase periodic annuity payments.
Such amount is the Annuity Value on the Maturity Date, less any applicable
premium tax.
Annuity Value - The sum of the Series Account Value and the Fixed Account Value.
Annuity Unit Value - An accounting unit of measure used to calculate annuity
payments from certain Sub-Accounts after the Maturity Date.
Anniversary - The same day and month as the Contract Date for each succeeding
year the Contract remains in force.
Attained Age - The Issue Age plus the number of completed Contract Years. Issue
Age refers to the age on the birthday nearest the Contract Date.
Beneficiary - 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.
Contingent Beneficiary - The person named in the application to become the new
Beneficiary upon the current Beneficiary's death.
Contract Date - The later of the date on which the initial Purchase Payment is
received and the date that the properly completed application is received
at Western Reserve's Administrative Office.
Contract Year - A period of twelve consecutive months beginning on the Contract
Date and any Anniversary thereafter.
Fixed Account - An option under the Contract that provides for accumulation and
payment of annuity values on a fixed basis. For Contracts issued in the
State of Washington, the Fixed Account is not available for allocation of
Net Purchase Payments or transfers of Annuity Value from the Sub-Accounts.
Fixed Account Value - During the Accumulation Period, the value in the Fixed
Account allocable to a Contract.
Maturity Date - The date on which the Accumulation Period ends and annuity
payments are to commence.
Net Purchase Payment - The Purchase Payment less any applicable premium taxes.
(See "Premium Taxes" on page 12.)
Non-Qualified Contracts - Contracts issued other than in connection with
retirement plans that qualify for special Federal income tax treatment
under the Code.
Owner - The person(s) entitled to exercise all rights under the Contract. The
Annuitant is the Owner unless the application states otherwise, or unless a
change of ownership is made at a later time.
Portfolio - A separate investment portfolio of the Trust.
Purchase Payments - Amounts paid by an Owner or on the Owner's behalf to Western
Reserve as consideration for the benefits provided by the Contract.
Qualified Contracts - Contracts issued in connection with retirement plans that
qualify for special Federal income tax treatment under Section 408 of the
Code.
Series Account or Separate Account - WRL Series Annuity Account B, a separate
investment account composed of several Sub-Accounts established to receive
and invest Net Purchase Payments not allocated to the Fixed Account.
Series Account Value - During the Accumulation Period, the value in the Series
Account allocable to a Contract, which value is equal to the total of the
values allocable to a Contract in each of the Sub-Accounts during the
Accumulation Period.
Sub-Account - A sub-division of the Series Account that invests exclusively in
the shares of a specified Portfolio and supports the Contracts.
Sub-Accounts corresponding to each applicable Portfolio hold assets under
the Contract during the Accumulation Period. Sub-Accounts corresponding to
each applicable Portfolio will hold assets after the Maturity Date if a
Series Account annuity option is selected.
Surrender - The termination of a Contract at the option of the Owner.
Trust - Janus Aspen Series.
Valuation Date - Each day on which the New York Stock Exchange is open for
business.
Valuation Period - The period commencing at the end of one Valuation Date and
continuing to the end of the next succeeding Valuation Date.
3
<PAGE>
Summary
This summary provides you with an overview of the tax deferred variable
annuity contract offered by Western Reserve and funded by the WRL Series Annuity
Account B and the Fixed Account.
The Contract
The Janus Retirement Advantage(R) (the "Contract") is a tax deferred
variable annuity contract that may be purchased by submitting a completed
application to Western Reserve for its approval. The Contract provides for
accumulation of Annuity Values on a variable basis, a fixed basis, or a
combination of both. The Contract also provides for the payment of periodic
annuity payments on a variable basis or a fixed basis. (See "THE CONTRACT -
Accumulation Provisions" on page 12 and "THE CONTRACT - Annuity Provisions" on
page 19.) (For information about tax status, see "FEDERAL TAX MATTERS" on pages
22-25.)
Right to Examine Contract
If an Owner is not satisfied with the Contract, it may be cancelled by
returning it within ten days after receipt (the "Free-Look Period") together
with a written request for cancellation. In such event, Western Reserve will pay
the Owner an amount equal to the sum of: (i) the Purchase Payments received;
plus (or minus) (ii) the accumulated gains (or losses), if any, in the Series
Account for the Contract as of the date Western Reserve receives the returned
Contract. Certain states require a Free-Look Period longer than ten days, either
for all Contract Owners or for certain classes of Contract Owners. (In certain
states, Western Reserve will refund the Purchase Payment.) (See "OTHER MATTERS
RELATING TO THE CONTRACT - Right to Examine Contract" on page 21.)
The Trust
The underlying variable investments for the Contract are shares of the nine
Portfolios of the Trust: the Growth Portfolio, the Aggressive Growth Portfolio,
the Worldwide Growth Portfolio, the International Growth Portfolio, the Balanced
Portfolio, the Flexible Income Portfolio, the Short-Term Bond Portfolio, the
Money Market Portfolio and the High-Yield Portfolio. Janus Capital serves as
Investment Adviser to the Portfolios. Western Reserve reserves the right to
offer additional investment portfolios or mutual funds with differing investment
objectives. (See "WESTERN RESERVE, THE SERIES ACCOUNT, AND THE TRUST - Janus
Aspen Series" on page 10.)
Purchase Payments
The Owner may make Purchase Payments at such frequency as the Owner elects.
The initial Purchase Payment generally must accompany the application, and must
be at least $2,500 unless Western Reserve consents to a smaller amount.
Subsequent Purchase Payments must be at least $100, unless Western Reserve
consents to a smaller amount. The maximum amount of Purchase Payments that may
be made in any Contract Year is $1,000,000, unless Western Reserve consents to a
larger amount. Western Reserve reserves the right to reject any Purchase Payment
for any reason permitted by law. (See "THE CONTRACT - ACCUMULATION PROVISIONS -
Purchase Payments" on page 13.)
Partial Withdrawal and Surrender Privilege
A Contract may be surrendered or portions of the Cash Value may be
partially withdrawn at any time prior to the Maturity Date. The Cash Value may
not, however, be reduced by any partial withdrawal to less than $2,500. (See
"THE CONTRACT-ACCUMULATION PROVISIONS - Partial Withdrawals and Surrenders" on
page 16.) Moreover, a partial withdrawal or Surrender may have Federal income
tax consequences. (See "FEDERAL TAX MATTERS - Individual Retirement Annuities"
on page 24.)
No Sales Charge
No deductions for sales expenses are made from Purchase Payments or from
withdrawals or Surrenders. However, a penalty tax is currently imposed on
withdrawals or Surrenders if such withdrawals or Surrenders are made prior to
age 591/2 and other exceptions do not apply. (See "FEDERAL TAX MATTERS" on pages
22-25.)
Mortality and Expense Risk Charge
For assuming mortality and expense risks under the Contract, Western
Reserve imposes a 0.50% per annum charge against the Annuity Value held in the
Series Account. (See "CHARGES AND DEDUCTIONS - Mortality and Expense Risk
Charge" on page 12.)
4
<PAGE>
Annual Contract Charge
An Annual Contract Charge of $30 will be deducted annually on the
Anniversary. (See "CHARGES AND DEDUCTIONS - Annual Contract Charge" on page 12.)
Administrative Charge
Western Reserve imposes a daily Administrative Charge equal to an annual
rate of 0.15% against all Annuity Value held in the Series Account. (See
"CHARGES AND DEDUCTIONS - Administrative Charge" on page 13.)
Premium Taxes
No deduction is made for premium taxes unless Western Reserve incurs a
premium tax under state law. Certain states impose premium taxes ranging up to
3.5% of Purchase Payments. (See "CHARGES AND DEDUCTIONS - Premium Taxes" on page
13.)
Charges by the Trust
The Trust is subject to certain fees, charges and expenses. (See "WESTERN
RESERVE, THE SERIES ACCOUNT, AND THE TRUST- Janus Aspen Series" on page 10 and
the Prospectus for the Trust.)
Summary of Charges and Expenses
The following illustrates the charges and deductions under the Contract
during the Accumulation Period, as well as the fees and expenses of the Trust.
Owner Transaction Expenses
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Maximum Contingent Deferred Sales Charge None
Transfer Charge
On first 12 transfers each year None
On each transfer thereafter $10.00
Annual Contract Charge* $30.00
Per Contract
- --------------------------------------------------------------------------------
Separate Account Annual Expenses (as a % of average Series Account Value)
- --------------------------------------------------------------------------------
Mortality and Expense Risk Charge 0.50%
Other Account Fees and Expenses (See "Administrative Charge"
on page 12) 0.15%
Total Separate Account Annual Expenses 0.65%
Trust Annual Expenses**** (as a % of average net assets for
the period ended December 31, 1995)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggressive Worldwide International Flexible Short-Term Money High-
Growth Growth Growth Growth Balanced Income Bond Market Yield
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio** Portfolio***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.65% 0.75% 0.68% 0.84% 0.82% 0.65% 0.00% 0.00% 0.45%
Other Expenses
(after reimbursement) 0.13% 0.11% 0.22% 1.85% 0.55% 0.42% 0.70% 0.50% 0.60%
Total Annual Expenses 0.78% 0.86% 0.90% 2.69% 1.37% 1.07% 0.70% 0.50% 1.05%
</TABLE>
*Deduction of the Annual Contract Charge is currently waived when the
Annuity Value on the Anniversary is equal to or greater than $25,000.
**Because the Money Market Portfolio commenced operations May 1, 1995, the
"Other Expenses" and "Total Fund Annual Expenses" are annualized.
***Because of its limited operating history, the percentages set forth
above are based on an estimate of expenses for the initial fiscal year for the
High-Yield Portfolio.
****The fees and expenses in the table are based on expenses after expense
offset arrangements for the fiscal year ended December 31, 1995. The expense
figures shown for each portfolio, other than the Flexible Income Portfolio, are
net of certain fee waivers or reductions from Janus Capital. Without such
waivers or reductions, Management Fees, Other Expenses and Total Annual Expenses
for the Portfolios for the fiscal year ended December 31, 1995 were: 0.85%,
0.13% and 0.98%, respectively, for Growth Portfolio; 0.82%, 0.11% and 0.93%,
respectively, for Aggressive Growth Portfolio; 0.87%, 0.22% and 1.09%,
respectively, for Worldwide Growth Portfolio; 1.00%, 2.57% and 3.57%,
respectively, for International Growth Portfolio; 1.00%, 0.55% and 1.55%,
respectively, for Balanced Portfolio; 0.65%, 0.72% and 1.37%, respectively, for
Short-Term Bond Portfolio; and 0.25%, 0.82% and 1.07%, respectively, for Money
Market Portfolio. Without such waivers, Management Fees, Other Expenses and
Total Annual Expenses are estimated to be 0.75%, 0.60% and 1.35%, respectively,
for the High-Yield Portfolio. See the Trust Prospectus and Statement of
Additional Information for a description of these waivers.
5
<PAGE>
The purpose of the preceding Table is to assist the Owner in understanding
the various costs and expenses that an Owner will bear directly and indirectly.
The Table reflects charges and expenses of the Separate Account as well as the
Portfolios of the Trust for the fiscal year ended December 31, 1995, except that
the fees and expenses for the Money Market and High-Yield Portfolios are
estimates. Actual expenses of the Trust may be higher or lower in the future.
Certain states and other governmental entities may impose a premium tax; the
Table does not include any premium tax. For more information on the charges
described in this Table see "CHARGES AND DEDUCTIONS" on page 12 and the Trust
Prospectus which accompanies this Prospectus.
EXAMPLES
Regardless of whether you surrender or annuitize your Contract at the end
of the applicable time period or if you hold your Contract until the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Sub-Account $ 16 $ 49 $ 85 $186
Aggressive Growth Sub-Account 17 52 89 194
Worldwide Growth Sub-Account 17 53 91 199
International Growth Sub-Account 35 107 180 375
Balanced Sub-Account 22 67 115 248
Flexible Income Sub-Account 19 58 100 217
Short-Term Bond Sub-Account 15 47 81 177
Money Market Sub-Account 13 41 70 155
High-Yield Sub-Account 19 58 99 215
The above examples assume that no transfer charges have been assessed. In
addition, the examples factor in the $30 annual contract charge based on an
estimated average Series Account value per Contract of $22,874 which translates
that charge into an assumed charge at an annual rate of 0.13% of the Series
Account value.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
Death Benefit
If the Annuitant is also the Owner or if the Owner is not a natural person,
and the Annuitant dies at any time before the Maturity Date, a death benefit
will be provided, unless certain elections have been made that would keep the
Contract in force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "THE CONTRACT -
ACCUMULATION PROVISIONS - Death Benefits during the Accumulation Period" on page
18 and "THE CONTRACT - ANNUITY PROVISIONS - Death Benefits after the Maturity
Date" on page 20.)
Annuity Payment Options
Annuity payment options are available under the Contract for distribution
of the Annuity Proceeds after the Maturity Date. The Maturity Date may not be
earlier than the end of the fifth Contract Year and for Non-Qualified Contracts
cannot be deferred beyond the Annuitant reaching Attained Age 90. Other rules
apply to Qualified Contracts. Subject to these limitations, the default Maturity
Date may be changed by the Owner, at any time prior to that date, by delivering
a written request to Western Reserve. (See "THE CONTRACT-ANNUITY PROVISIONS -
Maturity Date and Selection of Annuity Options" on page 19.)
Transfers
Prior to the Maturity Date, the Owner may transfer any or all of the
Annuity Value from any Sub-Account of the Series Account to the Fixed Account,
from the Fixed Account to any Sub-Account of the Series Account, or among the
Sub-Accounts of the Series Account. (For Contracts issued in the State of
Washington, the
6
<PAGE>
Fixed Account is not available for transfers of Annuity Value from the
Sub-Accounts.) (See "THE CONTRACT - ACCUMULATION PROVISIONS - Transfers to and
from, and among Allocation Options" on page 15.) Western Reserve will impose a
charge of $10 for each transfer following the first twelve transfers made during
any Contract Year. Certain restrictions apply to transfers from the Fixed
Account. Western Reserve may at any time revoke or modify the transfer
privilege. (See "THE CONTRACT - ACCUMULATION PROVISIONS - Transfers to and from,
and among Allocation Options" on page 15 and "THE FIXED ACCOUNT - Allocations,
Transfers and Partial Withdrawals" on page 27.)
Fixed Account
Annuity Values allocated to the Fixed Account will be held in the general
account of Western Reserve and earn interest at no less than the minimum
guaranteed rate. Matters pertaining to the Fixed Account are discussed in the
section entitled "THE FIXED ACCOUNT" beginning on page 26.
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------
Period From 9/14/93* to 12/31/93
- ------------------------------------------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth $ 10.000 $ 10.350 100.000
Aggressive Growth 10.000 11.805 100.000
Worldwide Growth 10.000 11.910 100.000
Balanced 10.000 10.720 100.000
Flexible Income 10.000 10.070 100.000
Short-Term Bond 10.000 10.030 100.000
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
- ------------------------------------------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth $ 10.350 $ 10.547 451,117.958
Aggressive Growth 11.805 13.617 354,557.639
Worldwide Growth 11.910 11.991 561,882.376
Balanced 10.720 10.720 201,716.082
Flexible Income 10.070 9.895 90,218.877
Short-Term Bond 10.030 10.038 242,782.669
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period From 5/2/94* to 12/31/94
- ------------------------------------------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Growth $10.000 $9.665 93,520.075
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth $ 10.547 $ 13.613 743,809.909
Aggressive Growth 13.617 17.213 678,636.237
Worldwide Growth 11.991 15.144 732,914.024
Balanced 10.720 13.264 247,488.141
Flexible Income 9.895 12.152 200,443.851
Short-Term Bond 10.038 10.902 111,209.654
International Growth 9.665 11.801 135,202.435
- ------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations of the Sub-Account.
7
<PAGE>
<TABLE>
<CAPTION>
Period From 5/1/95* to 12/31/95
- ------------------------------------------------------------------------------------------------
Number of
Accumulation Unit Accumulation Unit Accumulation Units
Value at Beginning Value at End Outstanding at End
Sub-Account of Period of Period of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $10.000 $10.303 167,435.066
- ------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations of the Sub-Account.
Because the High-Yield Sub-Account did not commence operations until May 1,
1996, there is no condensed financial information for this Sub-Account for the
year ended December 31, 1995.
Calculation of Yields and Total Returns
From time to time, Western Reserve may disclose in advertisements and sales
literature yields and total returns for the Sub-Accounts representing the
Accumulation Period under a Contract. In addition, Western Reserve may, on the
same basis, advertise the effective yield of the Money Market Sub-Account under
a contract. THESE YIELDS AND TOTAL RETURNS ARE BASED ON THE SUB-ACCOUNTS'
HISTORICAL PERFORMANCE ONLY AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
For more detailed information about the performance data calculations described
below, see the Statement of Additional Information.
Yield
The yield of the Money Market Sub-Account refers to the annualized income
produced by a hypothetical Series Account Value in the Money Market Sub-Account
under a Contract over a specified seven day period. The yield calculation
assumes that the same amount of income produced for that seven day period is
also produced for each seven day period over a fifty-two week period and is
shown as a percentage of the hypothetical Series Account Value. The effective
yield is calculated similarly but, when annualized, the income earned by the
Series Account Value in the Money Market Sub-Account is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment of income. Based on the
method of calculation described in the Statement of Additional Information, for
the seven-day period ended December 31, 1995, the current yield and effective
yield for the Money Market Sub-Account were as follows:
Current Yield = 3.82%
Effective Yield = 3.90%
The yield of a Sub-Account other than the Money Market Sub-Account refers
to the income produced by a hypothetical Series Account Value under a Contract
over a specified thirty day period, expressed as a percentage rate of return for
that period. The yield is calculated by assuming that the income produced by the
investment during that thirty day period is produced each thirty day period over
a twelve month period and is shown as a percentage of the Series Account Value.
Based on the method of calculation described in the Statement of Additional
Information, for the thirty-day period ended December 31, 1995, the yield for
the following Sub-Account was as follows:
Short-Term Bond Sub-Account = 4.34%
Total Return
The total return of a Sub-Account for a Contract refers to return
quotations assuming a hypothetical Series Account Value in the Sub-Account under
a Contract has been held for various periods of time including, but not limited
to, a period measured from the date the Sub-Account commenced operations. When a
Sub-Account has been in operation for one, five, and ten years, respectively,
the total return for these periods will be provided. The total return quotations
for a hypothetical Series Account Value will represent the average annual
compounded rates of return that would equate an initial Series Account Value of
$1,000 under a Contract to the redemption value of that Series Account Value as
of the last day of each of the periods for which total return quotations are
provided. FOR PURPOSES OF THE TOTAL RETURN QUOTATIONS, THE CALCULATIONS WILL
TAKE INTO ACCOUNT ALL FEES AND CHARGES THAT ARE CHARGED TO ALL CONTRACTS DURING
THE ACCUMULATION PERIOD. Such fees and charges include the $30 Annual Contract
Charge, calculated on the basis of an estimated Series Account Value per
Contract of $22,874 which
8
<PAGE>
converts that charge to an annual rate of 0.13% of the Series Account Value.
THE CALCULATIONS WILL ALSO ASSUME A COMPLETE REDEMPTION AS OF THE END OF THE
PARTICULAR PERIOD. THE CALCULATIONS WILL NOT REFLECT THE EFFECT OF ANY PREMIUM
TAXES THAT MAY BE APPLICABLE TO A PARTICULAR CONTRACT.
Based on the method of calculation described above and in more detail in
the Statement of Additional Information, the average annual total returns for
the period beginning with the commencement of each Sub-Account to December 31,
1995, were as follows:
--------------------------------------------------------------------
Period
From Inception One Year Period
Sub-Account to 12/31/95 Ended 12/31/95
--------------------------------------------------------------------
Growth 14.36% 29.07%
Aggressive Growth 26.65% 26.41%
Worldwide Growth 19.79% 26.29%
International Growth 10.44% 22.11%
Balanced 13.08% 23.73%
Flexible Income 8.85% 22.81%
Short-Term Bond 3.83% 8.61%
Money Market 3.03% 3.03%
--------------------------------------------------------------------
The Growth, Aggressive Growth, Worldwide Growth, Balanced, Flexible Income
and Short-Term Bond Sub-Accounts commenced operations on September 14, 1993. The
International Growth Sub-Account commenced operations on May 2, 1994. The Money
Market Sub-Account commenced operations on May 1, 1995. Because the High-Yield
Sub-Account commenced operations on May 1, 1996, there is no performance
information for this Sub-Account.
Other Performance Data
Western Reserve may from time to time disclose average annual total return
in non-standard formats and cumulative total return for the Contracts.
Western Reserve may from time to time also disclose in advertising and
sales literature yields, standard total returns, and non-standard total returns
for the Trust's Portfolios, which do not include Contract and Series Account
fees and charges.
NON-STANDARD PERFORMANCE DATA WILL ONLY BE DISCLOSED IF THE STANDARD
PERFORMANCE DATA FOR THE REQUIRED PERIODS IS ALSO DISCLOSED.
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable annuity
issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, or investment series of mutual funds with
investment objectives similar to each of the Sub-Accounts whose performance is
reported by Lipper Analytical Services, Inc. ("Lipper"), Variable Annuity
Research & Data service ("VARDS") and Morningstar, Inc. ("Morningstar") or
reported by other services, companies, individuals or other industry or
financial publications of general interest, such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Kiplinger's Personal Finance and
Fortune. Lipper, VARDS and Morningstar are independent services which monitor
and rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance
policies as well as variable annuity contracts. VARDS rankings compare only
variable annuity contracts. The performance analysis prepared by Lipper, VARDS
and Morningstar each rank such policies and contracts on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking provides data as to which funds provide the highest total return within
various categories of funds defined by the degree of risk inherent in their
investment objectives.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance or other widely used
indices. Unmanaged indices may assume the reinvestment of dividends, but usually
do not reflect any "deduction" for the expense of operating or managing an
investment portfolio.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to
9
<PAGE>
certain interest rate and inflation indices, such as the Consumer Price Index,
which is published by the U.S. Department of Labor and measures the average
change in prices over time of a fixed "market basket" of certain specified goods
and services. Similar comparisons of Sub-Account performance may also be made
with appropriate indices measuring the performance of a defined group of
securities widely recognized by investors as representing a particular segment
of the securities markets. For example, Sub-Account performance may be compared
with Donoghue Money Market Institutional Averages (money market rates), Lehman
Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
Published Ratings
Western Reserve may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps Credit Rating
Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings reflect their current
opinion of the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Standard & Poor's and Duff & Phelps provide ratings which measure the
claims-paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations (i.e.,
debt/commercial paper).
Western Reserve, The Series Account, and The Trust
Western Reserve Life Assurance Co. of Ohio
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. The Administrative Office of
Western Reserve is located in Largo, Florida; however, the mailing address is
P.O. Box 9052, Clearwater, FL 34618-9052. Western Reserve is wholly-owned by
First AUSA Life Insurance Company ("First AUSA"), a stock life insurance company
which is wholly-owned by AEGON USA, Inc. ("AEGON"). AEGON is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON is a wholly-owned indirect subsidiary
of AEGON nv, a Netherlands corporation, which is a publicly traded international
insurance group.
WRL Series Annuity Account B
The Series Account was established by Western Reserve as a separate account
and a unit investment trust on May 24, 1993. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The Series
Account will receive and invest Net Purchase Payments paid under the Contracts.
In addition, the Series Account may be used for other variable annuity contracts
issued by Western Reserve.
Although the assets of the Series Account belong to Western Reserve, Ohio
insurance law provides that the assets in the Series Account attributable to
variable annuity contracts are not chargeable with liabilities arising out of
any other business of Western Reserve. However, the assets of the Series Account
are available to cover the liabilities of the general asset account of Western
Reserve to the extent that the Series Account's assets exceed the liabilities
arising under variable annuity contracts supported by it.
The Series Account is currently divided into various Sub-Accounts. Each
Sub-Account invests exclusively in shares of a single Portfolio of the Trust.
Income and both realized and unrealized gains or losses from the assets of each
Sub-Account are credited to or charged against that Sub-Account without regard
to income, gains or losses from any other Sub-Account or arising out of any
other business of Western Reserve. Western Reserve may add, delete or substitute
investments held by the Sub-Accounts, and Western Reserve reserves the right to
add or remove Sub-Accounts. Western Reserve further reserves the right to change
the investment objective of any Sub-Account, subject to applicable law as
described in the Statement of Additional Information.
Janus Aspen Series
The Series Account currently invests only in shares of the Trust, a series
mutual fund that is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"),
as an open-end management investment company.
10
<PAGE>
The Trust currently has nine Portfolios: the Growth Portfolio, the
Aggressive Growth Portfolio, the Worldwide Growth Portfolio, the International
Growth Portfolio, the Balanced Portfolio, the Flexible Income Portfolio, the
Short-Term Bond Portfolio, the Money Market Portfolio and the High-Yield
Portfolio. The assets of each Portfolio are held separate from the assets of the
other Portfolios, and each Portfolio has different investment objectives and
policies. Thus, each Portfolio operates as a separate investment vehicle, and
the income or losses of one Portfolio are unrelated to that of any other
Portfolio. Except for the Aggressive Growth Portfolio, each Portfolio is a
diversified fund.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any Portfolio will achieve its stated
objective. More detailed information, including a description of risks, can be
found in the Prospectus for the Trust, which should be read carefully.
Growth Portfolio seeks long-term growth of capital by investing primarily
in a diversified portfolio of common stocks of issuers of any size. Generally,
this Portfolio emphasizes issuers with larger market capitalizations.
Aggressive Growth Portfolio seeks long-term growth of capital. It pursues
its objective by normally investing at least 50% of its equity assets in
securities issued by medium-sized companies. (Medium-sized companies are those
whose market capitalizations fall within the range of companies in the S&P
MidCap 400 Index.) Although the Portfolio expects to emphasize investments in
such securities, it may also invest in smaller or larger companies.
Worldwide Growth Portfolio seeks long-term growth of capital by investing
in a diversified portfolio of common stocks of foreign and domestic issuers of
any size. The Portfolio normally invests in issuers from at least five different
countries including the United States.
International Growth Portfolio seeks long-term growth of capital by
investing primarily in common stocks of foreign issuers of any size. The
Portfolio normally invests at least 65% of its total assets in issuers from at
least five different countries excluding the United States.
Balanced Portfolio seeks long-term growth of capital balanced by current
income. The Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in
securities selected primarily for their income potential.
Flexible Income Portfolio seeks to maximize total return from a combination
of current income and capital appreciation, with an emphasis on the income
component of total return. The Flexible Income Portfolio invests primarily in
income-producing securities. This Portfolio may have substantial holdings of
debt securities rated below investment grade.
Short-Term Bond Portfolio seeks a high level of current income by investing
primarily in short- and intermediate-term fixed income securities. The Portfolio
will normally maintain a dollar-weighted average portfolio maturity of less than
three years.
Money Market Portfolio seeks maximum current income to the extent
consistent with stability of capital. The Portfolio pursues its investment
objective by investing primarily in high quality short-term money market
instruments.
High-Yield Portfolio seeks to obtain high current income as its primary
objective with capital appreciation as a secondary objective when consistent
with the primary objective. The Portfolio pursues its investment objective by
investing primarily in high-yield/high-risk fixed-income securities.
Janus Capital manages the Trust's assets in accordance with policies,
programs and guidelines established by the Trustees of the Trust. Janus Capital,
located at 100 Fillmore Street, Denver, Colorado 80206, has been engaged in the
management of investment funds for over 25 years.
Shares of the Trust may in the future be sold to separate accounts of other
insurance companies to fund benefits under variable life insurance policies or
variable annuity contracts. Shares of the Trust may also be sold to retirement
plans qualifying under Section 401 of the Internal Revenue Code. It is possible
that, in the future, it may become disadvantageous to one or more classes of
investors for variable life insurance separate accounts, variable annuity
separate accounts of various insurance companies and/or retirement plans to
invest in the Trust simultaneously. Neither Western Reserve nor the Trust
currently foresees any such disadvantages or conflicts. After being notified by
Western Reserve or another insurance company of a potential or existing
conflict, the Trustees will determine if a material conflict exists and what
action, if any, it will take. If the Trustees determine that a conflict exists,
the Trustees may require one or more insurance company separate accounts or
retirement plans to withdraw its investments in one or more portfolios and to
substitute shares of another portfolio. As a result, a portfolio may be forced
to sell securities at disadvantageous prices. In addition, the Trustees may
refuse to permit the Trust to sell shares of any portfolio
11
<PAGE>
to any separate account or may suspend or terminate the offering of any
portfolio if such action is required by law or regulatory authority or the
Trustees determine such action is in the best interest of the portfolio. If the
Trustees were to conclude that separate mutual funds should be established for
variable life and variable annuity separate accounts, Western Reserve may bear a
portion of the attendant expenses, but variable life insurance policyowners,
variable annuity contract owners and plan participants would no longer have the
economies of scale resulting from a larger combined fund.
Charges and Deductions
Certain charges will be deducted in connection with the Contracts to
compensate Western Reserve for (1) administering the Contracts; (2) assuming
certain risks in connection with the Contracts; and (3) incurring expenses in
distributing the Contracts. The nature and amount of these charges are described
more fully below. Western Reserve also reserves the right to charge a fee for
providing extraordinary services to individual Contract Owners. For example, a
$25.00 charge will be imposed to provide a duplicate Contract.
No Sales Charge
No deductions for sales expenses are made from Purchase Payments or from
withdrawals or Surrenders. However, any Surrender or partial withdrawal may be
subject to taxation, and the Owner should, therefore, consult with his or her
tax adviser before requesting any Surrender or partial withdrawal. (See "FEDERAL
TAX MATTERS Taxation of Annuities" on pages 23-24 and "-"Individual Retirement
Annuities" on page 24.)
Western Reserve will cover certain expenses it advances, such as the cost
of printing prospectuses and sales literature and any advertising costs, from
its general account assets, which may include profits from the Mortality and
Expense Risk Charge, described below.
Transfer Charge
After twelve free transfers of Annuity Value among the Sub-Accounts during
any one Contract Year, each additional transfer will be subject to a Transfer
Charge of $10, which will be deducted from the amount transferred to compensate
Western Reserve for the costs of the transfer. All transfers made on any one day
will be considered a single transfer, with any transfer charge allocated
equally. Western Reserve does not anticipate making a profit from this charge.
Western Reserve may, at any time, revoke or modify this transfer privilege.
Mortality and Expense Risk Charge
Western Reserve will deduct a daily Mortality and Expense Risk Charge from
the Series Account at an annual rate of 0.50% of the average daily net assets of
the Series Account. Western Reserve assumes two mortality risks: (1) that the
annuity rates under the Contracts cannot be changed to the detriment of Owners
even if Annuitants live longer than projected; and (2) Western Reserve may be
obligated to pay a death benefit claim in excess of a Contract's Cash Value.
(See "THE CONTRACT-ANNUITY PROVISIONS - Improved Annuity Rates" on page 20 and
"THE CONTRACT-ACCUMULATION PROVISIONS - Death Benefits during the Accumulation
Period" on page 18.) Western Reserve also assumes an expense risk through its
guarantee not to increase the charges for issuing and administering the
Contracts and the Series Account, regardless of its actual expenses.
If the Mortality and Expense Risk Charge is insufficient to cover actual
costs, the loss will be borne by Western Reserve; conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to Western
Reserve. This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. The Mortality and Expense Risk
Charge will not be assessed against the Fixed Account Value or to monies that
have been applied to purchase an annuity option under the Fixed Account Annuity
Payments provisions.
Annual Contract Charge
On each Anniversary through the Maturity Date, Western Reserve will deduct
an Annual Contract Charge of $30 as partial compensation for the cost of
providing administrative services under the Contracts. The Annual Contract
Charge is deducted from each Sub-Account and the Fixed Account in proportion to
the value each bears to the Annuity Value. If the Annuity Value is surrendered
other than on an Anniversary, a full $30 fee will be deducted.
Western Reserve does not expect to earn a profit on the Annual Contract
Charge. Even if administrative expenses of the Series Account increase, Western
Reserve guarantees that it will not increase the amount of the Annual Contract
Charge. Deduction of the Annual Contract Charge is currently waived when the
12
<PAGE>
Annuity Value on the Anniversary is equal to or greater than $25,000. Western
Reserve reserves the right to modify this waiver upon 30 days written notice to
Owners.
Administrative Charge
Western Reserve deducts a daily Administrative Charge from values remaining
in the Series Account at an annual rate of 0.15% of the average daily net assets
of the Series Account for the cost of providing administrative services under
the Contracts and the Account. This charge is deducted from the Series Account
both during the Accumulation Period and after the Maturity Date.
Western Reserve does not expect to earn a profit on the Administrative
Charge. Even if administrative expenses of the Contract and the Account
increase, Western Reserve guarantees that it will not increase the amount of the
Administrative Charge.
Premium Taxes
Certain states and other governmental entities may impose a premium tax,
ranging up to 3.5% of Purchase Payments. If applicable, and if Western Reserve
has incurred or reasonably expects to incur expenses in respect of premium
taxes, the tax will be deducted, either from the Purchase Payment when received,
from amounts partially withdrawn or surrendered, from death benefit proceeds, or
from the amount applied to an annuity at the time annuity payments commence.
Western Reserve will deduct any applicable premium taxes when it incurs them,
but reserves the right to defer deduction to a later date as long as such
deferral is equitable to Owners.
Premium tax rates are subject to change by the respective state
legislatures, administrative interpretations, or judicial acts. The amount of
any such tax will depend on, among other things, the Owner's state of residence,
the status of Western Reserve in that state, and the insurance tax laws of such
state.
Deductions for Other Taxes
Currently no charge is made to the Series Account for Federal income taxes
attributable to the Series Account. Western Reserve may, however, make such a
charge in the future subject to obtaining any necessary regulatory approvals.
Charges for any other applicable taxes including any tax or other economic
burden resulting from the application of tax laws that Western Reserve
determines to be properly attributable to the Series Account may also be made.
(See "FEDERAL TAX MATTERS - Company Tax Status" on page 22.)
Expenses of the Trust
Because the Series Account purchases shares of the Trust, the net assets of
the Series Account will reflect the investment advisory fee and other expenses
incurred by the Trust, as described in the Trust's Prospectus.
The Contract - Accumulation Provisions
Purchase Payments
Owners may make Purchase Payments as frequently as they elect. Purchase
Payments after the initial Purchase Payment are payable at Western Reserve's
Administrative Office. The initial Purchase Payment generally must accompany the
application, and must be at least $2,500 unless Western Reserve consents to a
smaller amount. Subsequent Purchase Payments are not required but may be made at
any time and in any amount provided that each payment is for a minimum of $100,
unless Western Reserve consents to a smaller amount and further provided that
total Purchase Payments in any Contract Year do not exceed $1,000,000, unless
Western Reserve consents to a larger amount. If elected in the application or by
subsequent written request from the Owner, Western Reserve will bill Owners for
additional periodic Purchase Payments on a monthly bank draft basis. Western
Reserve may reject any application or Purchase Payment for any reason permitted
by law.
As an accommodation to Owners, Western Reserve will accept transmittal of
both initial Purchase Payments of at least $2,500 and subsequent Purchase
Payments of at least $1,000 by wire transfer. For initial Purchase Payments, the
wire transfer must be accompanied by a simultaneous telephone facsimile
transmission of an application ("FAXED Application"). Initial Purchase Payments
accepted via wire transfer with FAXED Application will be invested at the value
next determined following receipt. Initial Purchase Payments made by wire
transfer not accompanied by simultaneous FAXED Application, or accompanied by an
incomplete FAXED Application, will be retained for a period up to five business
days while Western Reserve attempts to obtain the FAXED Application or complete
the essential information required to establish
13
<PAGE>
the Contract and allocate the initial Purchase Payment at the Accumulation Unit
Value which will be determined after receipt of the FAXED Application or
information necessary to complete the application. If Western Reserve cannot
obtain the FAXED Application or essential information within five business days,
Western Reserve will return the initial Purchase Payment to the applicant,
unless the applicant consents to allow Western Reserve to retain the initial
Purchase Payment until the required FAXED Application or essential information
is received. When the FAXED Application contains all information necessary to
issue the Contract and allocate the Net Purchase Payment, but the FAXED
Application has not been signed by the Owner, Western Reserve will issue the
Contract and allocate the Net Purchase Payment as indicated in the FAXED
Application. At the same time, Western Reserve will also electronically prepare
a new application form, containing the same information received on the FAXED
Application, for delivery with the Contract to the Owner. Upon delivery, the
Owner will sign the electronically prepared application, which will be retained
by Western Reserve.
In the event the original application with original signature is later
received and the allocation instructions in that application are, for any
reason, inconsistent with those previously designated on the FAXED Application,
the initial Purchase Payment will be reallocated in accordance with the
allocation instructions in the application with original signature at the
Accumulation Unit Value next determined after receipt of such application.
Owners wishing to make payments via bank wire should instruct their banks
to wire Federal Funds as follows to:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Owner's Name:
Contract Number:
Attention: Annuity Accounting
Fax Number: (813) 588-1620
Western Reserve may reject any application or Purchase Payment for any
reason permitted by law.
Net Purchase Payments
The Net Purchase Payment is equal to the Purchase Payment less any premium
taxes. (See "CHARGES AND DEDUCTIONS - Premium Taxes" on page 13.) Initial and
subsequent Net Purchase Payments are allocated according to the Owner's
direction among the Sub-Accounts of the Series Account, to the Fixed Account, or
to a combination of both. (For Contracts issued in the State of Washington, the
Fixed Account is not available for allocation of Net Purchase Payments.) The
Owner may change the allocation of subsequent Purchase Payments at any time upon
written request to Western Reserve, or by calling 1-800-504-4440. Western
Reserve reserves the right to limit such change to once each Contract Year. Upon
allocation to the Series Account, Net Purchase Payments are converted into units
of the appropriate Sub-Account based upon the Accumulation Unit Value in that
Sub-Account on or following the Valuation Date on which the Purchase Payment is
received at Western Reserve's Administrative Office. (See "Accumulation Unit
Value" on page 14.) If the Contract application and other information necessary
for processing the request to apply the Purchase Payment (collectively
"application") are complete upon receipt, Western Reserve will accept the
application and apply the initial Net Purchase Payment within two business days
of receipt. If it is incomplete, Western Reserve will attempt to have it
properly completed within five business days of receipt, and if unable to do so,
Western Reserve will inform the prospective purchaser of the reasons that the
application is incomplete and request that the prospective purchaser consent to
Western Reserve retaining the Purchase Payment until the application is properly
completed. If such consent is not obtained, Western Reserve will immediately
return the entire Purchase Payment. Once the application is complete, Western
Reserve will accept it and apply the initial Net Purchase Payment within two
business days.
Accumulation Unit Value
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When each
Sub-Account was first established, the initial Accumulation Unit Value for the
Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for each
Sub-Account at the close of a Valuation Period is determined by multiplying the
Accumulation Unit Value for that Sub-Account at the close of the immediately
preceding Valuation Period by the experience
14
<PAGE>
factor for that Sub-Account for the current Valuation Period. The Accumulation
Unit Value may increase, decrease, or remain the same from Valuation Period to
Valuation Period.
Experience Factor
During the Accumulation Period, the experience factor measures investment
experience for a Valuation Period. Each Sub-Account has its own distinct
experience factor. In calculating a Sub-Account's experience factor for a
Valuation Period, the net asset value for each share of the corresponding
Portfolio of the Trust at the end of the current Valuation Period is increased
by the amount per portfolio share of any dividend or capital gain distribution
received by the Portfolio during the current Valuation Period and decreased by a
per portfolio share charge for any applicable taxes. The total is then divided
by the net asset value per portfolio share at the end of the preceding Valuation
Period. A charge equal to 0.50% on an annual basis of the net assets for each
day in the Valuation Period is then subtracted to compensate Western Reserve for
certain mortality and expense risks, and a charge equal to 0.15% on an annual
basis of the net assets for each day in the Valuation Period is also subtracted
to compensate Western Reserve for certain administrative expenses. (See "CHARGES
AND DEDUCTIONS - Mortality and Expense Risk Charge" on page 12 and "-
Administrative Charge" on page 13.)
Computing Sub-Account Value
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are
allocated to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account
or the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any
premium taxes and any transfer charge.
Portfolio Share Net Asset Value
The net asset value per share of each Portfolio of the Trust is determined,
once daily, as of the close of the regular session of business on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each day the New York
Stock Exchange is open.
Transfers to and from, and among Allocation Options
Before the Maturity Date, the Owner may, at any time, transfer amounts
among Sub-Accounts or from Sub-Accounts to the Fixed Account. (For Contracts
issued in the State of Washington, the Fixed Account is not available to receive
Annuity Value transferred from the Sub-Accounts.) Transfers may also be made
from the Fixed Account to the Sub-Accounts, subject to certain restrictions.
(See "THE FIXED ACCOUNT - Allocations, Transfers and Partial Withdrawals" on
page 27.) Transfers are not available if the Owner has elected Systematic
Exchanges.
The amount of Annuity Value available for transfer from any Sub-Account or
the Fixed Account, is determined at the end of the Valuation Period during which
the transfer request is received at Western Reserve's Administrative Office. As
explained in the previous paragraph, the net asset value for each share of the
corresponding Portfolio of any Sub-Account is determined, once daily, as of the
close of the regular business session of the New York Stock Exchange (currently
4:00 p.m., Eastern time), which coincides with the end of each Valuation Period.
Therefore, any transfer request received after 4:00 p.m., Eastern time, on any
day the New York Stock Exchange is open for business will be processed utilizing
the net asset value for each share of the applicable Portfolio determined as of
4:00 p.m., Eastern time, on the next day the New York Stock Exchange is open for
business.
The amount available for transfer from the Fixed Account will be determined
in the same manner. Owners may make transfer requests in writing, or by
telephone. Written requests must be in a form acceptable to Western Reserve.
Western Reserve automatically provides Owners with the ability to make transfers
by telephone. All telephone transfers should be made by calling our toll-free
number: 1-800-504-4440.
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Western Reserve will not be liable for complying with telephone
instructions it reasonably believes to be authentic, nor for any loss, damage,
cost or expense in acting on such telephone instructions, and Owners will bear
the risk of any such loss. Western Reserve will employ reasonable procedures to
confirm that telephone instructions are genuine. If Western Reserve does not
employ such procedures, it may be liable for losses due to unauthorized or
fraudulent instructions. Such procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmation of such transactions to Owners, and/or tape
recording of telephone transfer request instructions received from Owners.
Excessive trading activity can disrupt portfolio management strategy and
increase portfolio expenses, which are borne by all Owners participating in the
portfolio, regardless of their transfer activity. Therefore, Western Reserve
may, at any time, limit the number of transfers permitted, revoke or otherwise
modify the transfer privilege. Western Reserve ordinarily will effect transfers
and determine all values in connection with transfers at the end of the
Valuation Period during which the transfer request is received at Western
Reserve's Administrative Office. Western Reserve will impose a $10 charge for
each transfer after the first twelve transfers during any one Contract Year.
(See "CHARGES AND DEDUCTIONS - Transfer Charge" on page 12.)
Systematic Exchanges
The Owner may direct Western Reserve to automatically transfer specified
amounts from the Money Market Sub-Account, the Flexible Income Sub-Account, the
Short-Term Bond Sub-Account, the High-Yield Sub-Account, the Fixed Account or
any combination of these Accounts on a monthly basis to any other Sub-Account(s)
within the Series Account. This service is intended to allow the Owner to
utilize "Systematic Exchanges," also known as "Dollar Cost Averaging," a
long-term investment method which provides for regular, level investments over
time. Western Reserve makes no guarantees that Systematic Exchanges will result
in a profit or protect against loss.
To qualify for Systematic Exchanges, a minimum of $2,500 must be allocated
to each Sub-Account from which transfers will be made and at least $100, in the
aggregate, must be transferred each month. These $2,500 allocations can be made
by an initial or subsequent investment or by transferring amounts into the Money
Market, Flexible Income, Short-Term Bond and/or High-Yield Sub-Account from the
other Sub-Accounts or the Fixed Account within the Contract. Transfers from the
Fixed Account may be subject to certain restrictions. (See "THE FIXED ACCOUNT -
Allocations, Transfers and Partial Withdrawals" on page 27.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Owner in order to begin transfers. Once elected,
transfers from the Money Market, Flexible Income, Short-Term Bond and/or
High-Yield Sub-Account will be processed monthly until the entire value of each
Sub-Account from which transfers are made is completely depleted or the Owner
instructs Western Reserve in writing to cancel the monthly transfers. For
example, if $15,000 is allocated to the Flexible Income Sub-Account and $10,000
is allocated to the Short-Term Bond Sub-Account and transfers of $500 are made
each month from each of these Sub-Accounts to the Growth Sub-Account, transfers
of $500 per month will continue to be made from the Flexible Income Sub-Account
even though transfers from the Short-Term Bond Sub-Account cease as a result of
depletion of value. There is no charge for Systematic Exchanges. However, each
transfer which occurs under Systematic Exchanges will be counted towards the
twelve free transfers allowed during each Contract Year. (See "CHARGES AND
DEDUCTIONS - Transfer Charge" on page 12.)Western Reserve reserves the right to
discontinue offering Systematic Exchanges upon 30 days' written notice to
Owners. Systematic Exchanges are not available if the Owner has elected
Systematic Partial Withdrawals.
Partial Withdrawals and Surrenders
1. Partial Withdrawals. Prior to the Maturity Date or the death of the
Annuitant (when no Contingent Annuitant has been named), the Owner may partially
withdraw a portion of the Series Account Value upon written request, complete
with all necessary information, to Western Reserve's Administrative Office.
Although partial withdrawals are currently permitted at any time prior to the
Maturity Date, Western Reserve reserves the right to refuse to permit any
partial withdrawals prior to the first Anniversary. No more than one partial
withdrawal during any Contract Year is permitted without the consent of Western
Reserve. Unless Western Reserve consents, no partial withdrawal is permitted if
the Cash Value would be reduced below $2,500. No partial withdrawals from the
Fixed Account may be made without the consent of Western Reserve. (See "THE
FIXED ACCOUNT - Allocations, Transfers and Partial Withdrawals" on page 27.) All
requests for partial withdrawals are processed at the Accumulation Unit Value
for each Sub-Account next computed after receipt and acceptance of the request
by Western Reserve at its Administrative Office. Western Reserve
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will cancel units equal to the amount requested from each Sub-Account and will
pay the partial withdrawal amount requested less any applicable premium taxes.
(See "CHARGES AND DEDUCTIONS - Premium Taxes" on page 13.) The Sub-Accounts for
a partial withdrawal may be specified and the amount requested to be withdrawn
from each specified Sub-Account may not exceed the value of that Sub-Account. If
not specified, partial withdrawals will be based on the Owner's current
allocation election.
2. Systematic Partial Withdrawals. The Owner may elect in writing on a form
provided by Western Reserve to partially withdraw from the Series Account up to
10% of the Cash Value annually (10% of the initial Purchase Payment if elected
at time of application for a Contract), in equal monthly payments ("Systematic
Partial Withdrawals") of at least $200 per month. The first withdrawal will
occur during the month which follows receipt of the form, providing the form is
received by the 25th day of the month. If Systematic Partial Withdrawals are
elected at the time of application for a Contract, a minimum initial Purchase
Payment of at least $25,000 must accompany the application, unless Western
Reserve consents to a smaller amount. A subsequent election is subject to the
Contract then having a minimum of $25,000 of Cash Value. Western Reserve will
pay the Systematic Partial Withdrawal amount requested and cancel units equal to
the amount withdrawn from the Sub-Accounts in the same manner as the current Net
Purchase Payment allocation instructions, except no Systematic Partial
Withdrawals are permitted from the Fixed Account. The amount to be partially
withdrawn from each Sub-Account may not exceed the Cash Value of the
Sub-Account. Western Reserve will not process a Systematic Partial Withdrawal if
the Cash Value for the entire Contract would be reduced below $5,000.
Systematic Partial Withdrawals may be discontinued by the Owner at any time
by notifying Western Reserve in writing. Western Reserve reserves the right to
discontinue offering Systematic Partial Withdrawals upon 30 days' written notice
to Owners. Western Reserve also reserves the right to assess a processing fee
for this service. Generally, under a Non-Qualified Contract, Systematic Partial
Withdrawals, like other distributions prior to the Maturity Date, are first
treated as taxable income to the extent that the Annuity Value immediately
before a withdrawal exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable. Further, under a Non-Qualified
Contract, a 10% penalty tax will generally be imposed on the taxable portion of
a Systematic Partial Withdrawal made prior to the Owner's age 591/2, unless
certain exceptions apply. The Owner should, therefore, consult with his or her
tax adviser before requesting any Systematic Partial Withdrawals. (See "FEDERAL
TAX MATTERS - Taxation of Annuities" on pages 23-24.)
3. Surrenders. The Owner may completely surrender the Contract at any time
prior to the Maturity Date. All requests for Surrender are processed at the
Accumulation Unit Value for each Sub-Account next computed after receipt and
acceptance of the Surrender request by Western Reserve at its Administrative
Office. Western Reserve will deduct the $30 Annual Contract Charge and any
applicable premium taxes from the Surrender proceeds.
4. Partial Withdrawals and Surrenders. The amount of any partial withdrawal
or Surrender will be paid promptly, and in any event within seven days of
receipt of the request, complete with all necessary information at Western
Reserve's Administrative Office, except that Western Reserve reserves the right
to defer the right of partial withdrawal or Surrender under certain
circumstances. (See "OTHER MATTERS RELATING TO THE CONTRACT - Contract Payments"
on page 21.) Under Non-Qualified Contracts, Western Reserve will withhold from
each partial withdrawal, systematic partial withdrawal or surrender for tax
purposes the minimum amount required by law, unless the Owner affirmatively
elects, before payments begin, to have either nothing withheld or a different
amount withheld. When Western Reserve incurs extraordinary charges, such as wire
transfers or overnight mail expenses, for expediting delivery of a partial
withdrawal or Surrender payment to a Contract Owner, Western Reserve will deduct
such charges from the payment. The current charge for a wire transfer is $15.
The current charge for overnight delivery is $20. For the protection of Owners,
all requests for partial withdrawals or surrenders of more than $100,000, or
where the partial withdrawal or surrender proceeds are to be sent to an address
other than the address of record will require a signature guarantee. All
required guarantees of signatures must be made by a national or state bank, a
member firm of a national stock exchange or any other institution which is an
eligible guarantor institution as defined by rules and regulations of the SEC.
If the Owner is a corporation, partnership, trust or fiduciary, evidence of the
authority of the person seeking redemption is required before the request for
withdrawal is accepted, including withdrawals under $100,000. For information,
Owners may call (800) 504-4440. Partial withdrawals and Surrenders may be
subject to tax including a penalty tax. (See "FEDERAL TAX MATTERS - Taxation of
Annuities" on pages 23-24.) For certain Qualified Contracts, a partial
withdrawal may require the consent of the Owner's spouse under the Code and the
regulations promulgated thereunder by the Treasury Department (the "Treasury
Regulations"). (See "FEDERAL TAX MATTERS - Individual Retirement Annuities" on
page 24.)
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Death Benefits during the Accumulation Period
1. General. In general, if the Annuitant dies during the Accumulation
Period and the Owner is a natural person other than the Annuitant, the Owner
will automatically become the new Annuitant and the Contract will continue in
force and no death benefit will be payable to the Beneficiary. If the Annuitant
dies during the Accumulation Period and the Owner is either the same individual
as the Annuitant or other than a natural person, Western Reserve will pay the
death benefit proceeds to the Beneficiary in a lump sum upon receipt of due
proof of death unless a written Alternative Election, as described below, is
made.
2. Amount of Death Benefit Proceeds. If the Annuitant dies during the
Accumulation Period and the Owner is either the same person as the Annuitant or
other than a natural person, the death benefit proceeds, if payable, will be the
greater of: (i) the Cash Value as of the date Western Reserve receives due proof
of death and a written election as to the method of payment, as described above;
or (ii) the excess of (a) the amount of Purchase Payments paid less (b) any
amounts partially withdrawn from the Contract to pay for partial withdrawals.
3. Alternative Elections. If the Beneficiary is entitled to receive the
death benefit proceeds as in 2. above and is the spouse of the deceased
Annuitant, then the Beneficiary may elect to become the new Owner and Annuitant
and keep the Contract in force in lieu of receiving the death benefit proceeds.
If the Beneficiary is not the spouse of the deceased Annuitant and is entitled
to receive the death benefit proceeds, the Beneficiary may elect, in lieu of a
lump sum payment, one of the following options that provide for complete
distribution of the death benefit proceeds and termination of the Contract: (i)
within five years of the date of the Annuitant's death; (ii) over the lifetime
of the Beneficiary; or (iii) over a period that does not exceed the life
expectancy of such Beneficiary, as defined by the Code and the Treasury
Regulations. Options (ii) and (iii) may be elected only if the Beneficiary is a
natural person and payments start within one year of the date of the Annuitant's
death. (For a more detailed explanation of these requirements, see "FEDERAL TAX
MATTERS - Additional Considerations" on page 24.)
For (i) and (iii) above, the Annuity Value as of the date Western Reserve
receives due proof of death and a written election as to the method of payment,
if any, will be adjusted to equal the death benefit proceeds, as described
below, and the Contract will remain in force as a deferred annuity until the end
of the elected distribution period. For subparagraph (ii), the Maturity Date
will be changed to the date Western Reserve receives due proof of death and a
written election as to the method of payment, if any, and the death benefit
proceeds will be used to purchase annuity payments under the annuity provisions
of the Contract. (See "THE CONTRACT-ANNUITY PROVISIONS" on page 19.)
4. Death of an Owner Who is Not an Annuitant. If an Owner is not the same
individual as the Annuitant and dies before the Annuitant:
(a) If no Successor Owner has been named or, if named, is no longer alive,
the Owner's estate will become the new Owner. The Cash Value must be
distributed within five years of the former Owner's death; or
(b) If a Successor Owner has been named, is alive and is the Owner's
spouse, the Contract will continue with the spouse as the new Owner; or
(c) If a Successor Owner has been named, is alive and is not the Owner's
spouse, the Successor Owner will become the new Owner. The Cash Value
must be distributed either:
(1) within five years of the former Owner's death; or
(2) over the lifetime of the new Owner, if a natural person, with
payments beginning within one year of the former Owner's death; or
(3) over a period that does not exceed the life expectancy (as defined
by the Code and Regulations adopted under the Code) of the new
Owner, if a natural person, with payments beginning within one year
of the former Owner's death.
5. Qualified Contracts. If a Qualified Contract is issued to a retirement
plan, similar provisions will apply upon the death of the plan participant.
However, the required distribution rules are more complex in the case of a
Qualified Contract held by a plan. Plan participants should consult a qualified
pension or tax adviser concerning the operation of these rules.
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THE CONTRACT - ANNUITY PROVISIONS
Maturity Date and Selection of Annuity Options
Provided the Contract is still in force, annuity payments will begin on the
Maturity Date, which is, for Non-Qualified Contracts the Anniversary nearest the
Annuitant's Attained Age 90. For Qualified Contracts, distributions must begin
no later than April 1 of the calendar year following the calendar year in which
the Owner reaches age 701/2. However, the Owner may change the Maturity Date at
any time prior to the Maturity Date by written request. Any new Maturity Date
must be at least five years after the Contract Date, and the Attained Age of the
Annuitant as of the new Maturity Date cannot be greater than 90. After the
Maturity Date, no additional Purchase Payments, partial withdrawals, transfers,
full Surrenders, or change of Annuitants or annuity options may be made under
the Contract. The Qualified Contract is designed for use with retirement plans
that qualify for special Federal income tax treatment under Section 408 of the
Code. A tax adviser should be consulted about the use of a Qualified Contract
with qualified plans, including the specified minimum distribution rules
applicable to such plans.
Annuity Payments will be paid under Option D (described on page 20), with
120 payments guaranteed, unless the Owner elects otherwise. The Owner may change
the annuity option by written request at any time prior to the Maturity Date.
Thirty days prior to the Maturity Date, Western Reserve will mail to the Owner a
notice and a form upon which the Owner can select Allocation Options for the
annuity proceeds as of the Maturity Date, which cannot be changed thereafter and
will remain in effect until the Contract terminates. If a Series Account annuity
option is chosen, the Owner must include in the written notice the Sub-Account
allocation of the Annuity Proceeds as of the Maturity Date. If Western Reserve
does not receive that form or other written notice acceptable to Western Reserve
prior to the Maturity Date, the Contract's existing Allocation Options will
remain in effect until the Contract terminates. The Owner may also, prior to the
Maturity Date, select or change the frequency of annuity payments, which may be
monthly, quarterly, semi-annually or annually, provided that the annuity option
and payment frequency provides for payments of at least $100 per period. If none
of these is possible, a lump sum payment will be made.
The Owner may select one of the Fixed Account annuity options or Series
Account annuity options described below or any alternate form of settlement
acceptable to Western Reserve. Treasury Regulations may preclude the
availability of certain annuity options in connection with Qualified Contracts.
Fixed Account annuity options provide equal monthly payments of a specified
amount that Western Reserve guarantees will not change. The amount of the
periodic annuity payment will be based on the Annuity Proceeds on the Maturity
Date, the annuity option selected (i.e., the form and duration of payments), the
age of the Annuitant or Beneficiary (or ages of Co-Annuitants), the sex of the
Annuitant (except for certain Qualified Contracts), and the applicable annuity
rate shown in the Contract (or a more favorable current rate available under the
Contracts on the Maturity Date). The annuity rates shown in the Contract are
based on the Society of Actuaries 1983 Table A with projection and an assumed
investment rate of 3%. Western Reserve may in its sole discretion, increase the
amount of a payment or payments once payments begin.
Series Account annuity options (i.e., variable annuity options) are similar
to fixed annuity options except that the amount of each periodic payment after
the first will vary to reflect the net investment experience of the Sub-Accounts
selected by the Owner. The amount of the first annuity payment is determined in
the manner described in the Statement of Additional Information for a Series
Account annuity option. Under a Series Account annuity option, the Owner applies
the Annuity Proceeds to one or more of the nine Sub-Accounts designated to
support annuity payments by purchasing units issued in connection with one or
more of these Sub-Accounts. The number of units purchased is equal to the amount
of the first annuity payment allocated to a particular Sub-Account divided by
the Annuity Unit Value for that Sub-Account on the Maturity Date. The number of
units of a particular Sub-Account supporting payments to an Annuitant never
changes, but the second and subsequent payments will vary with the Annuity Unit
Value because each payment will equal the number of units in each selected
Sub-Account multiplied by the Annuity Unit Value of that Sub-Account on the date
the payment is processed. Annuity Proceeds allocated to Series Account annuity
options are subject to a daily Mortality and Expense Risk Charge of 0.50% per
annum and a daily Administrative Charge of 0.15% per annum.
The Annuity Unit Value for a Sub-Account, designated to support annuity
payments, is first calculated in the same manner as the Accumulation Unit Value
corresponding to the same Trust Portfolio would be calculated (see "THE CONTRACT
- - ACCUMULATION PROVISIONS" on page 13) and then is adjusted to reflect a 5%
assumed investment return. The adjustment results in the Annuity Unit Value
increasing
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to the extent that the net investment factor increases at greater than an annual
rate of 5.85%. It results in the Annuity Unit Value decreasing to the extent
that the net investment factor decreases or increases at less than an annual
rate of 5.85%. Consequently, if, for a monthly periodic payment, the net
investment experience of a Sub-Account for a given month exceeds an annual rate
of 5.85%, the monthly payment from that Sub-Account will be greater than the
previous payment. Likewise, if the net investment experience for that month is
less than an annual rate of 5.85%, the payment will be less than the previous
payment.
Fixed Account Annuity Options
The following options are available for payment of fixed account monthly
annuity payments.
Option A - Fixed Installments. The Annuity Proceeds will be paid in equal
installments over a fixed period of 5, 10, 15, or 20 years or any other fixed
period acceptable to Western Reserve.
Option B - Life Income. The Annuity Proceeds will be paid in equal
installments: (1) during the lifetime of the Annuitant only ("Life Annuity");
(2) during a 10-year fixed period certain and for the remaining lifetime of the
Annuitant ("Certain Period"); or (3) until the sum of installments paid equals
the Annuity Proceeds applied and for the remaining life of the Annuitant
("Installment Refund").
Option C - Joint and Survivor Life Income. The Annuity Proceeds will be
paid during the joint lifetimes of the Annuitant and a designated Co-Annuitant
and will continue upon the death of the first payee for the remaining lifetime
of the survivor.
Series Account Annuity Options
Under the Series Account annuity options, the Contract's Annuity Proceeds
will be used to purchase annuity units of the Sub-Accounts selected by the
Owner. The following Series Account annuity options are available:
Option D - Variable Life Income. The Annuity Proceeds will be paid in
installments determined in accordance with the table set forth in the Contract.
Such installments are payable (1) during the payee's lifetime only ("Variable
Life Annuity"); or (2) during a 10-year fixed period certain and for the payee's
remaining lifetime ("Variable Certain Period").
Option E - Variable Joint and Survivor Life Income. The Annuity Proceeds
will be paid in installments during the joint lifetime of two payees and
continuing upon the death of the first payee for the remaining lifetime of the
survivor.
Death Benefits after the Maturity Date
The death benefit, if any, payable after the Maturity Date and after the
commencement of annuity payments depends upon the annuity option selected. If a
payee dies on or after the commencement of annuity payments, the remaining
portion of any interest in the Contract will be distributed at least as rapidly
as under the method of distribution being used as of the date of the payee's
death. (For additional information about death benefit payments under the
Contract, see "THE CONTRACT ACCUMULATION PROVISIONS - Death Benefits during the
Accumulation Period" on page 18.)
Improved Annuity Rates
Western Reserve may offer improved annuity rates to Owners if, at the
Maturity Date, it is offering annuity contracts of the same type and class as
the Contract with more favorable rates than those contained in the Contract's
income tables.
Proof of Age, Sex, and Survival
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If required
by law to ignore differences in sex of any payee, annuity payments will be
determined using unisex rates.
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Other Matters Relating to the Contract
Changes in Purchase Payments
The Owner may change the amount and the mode of the anticipated Purchase
Payment pattern specified in the Contract if agreed to by Western Reserve.
Right To Examine Contract
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and obtain
a refund equal to the sum of: (1) the Purchase Payments received; plus (or
minus) (2) the accumulated gains (or losses), if any, in the Series Account for
the Contract as of the date Western Reserve receives the returned Contract.
Certain states require a Free-Look Period longer than ten days, either for all
Contract Owners or for certain classes of Contract Owners. The Owner bears the
investment risk during the ten-day period. (Certain states require Western
Reserve to refund the Purchase Payment, which may be greater or less than the
amount computed above. In these states, Western Reserve bears the investment
risk during the ten-day period.) In addition, certain states require an
examination period longer than ten days. If either of these differences are
applicable to a particular Contract, they will be set forth in the "Right to
Examine Contract" provision of that Contract.
Contract Payments
All payments under the Contract will be paid in one sum unless the Owner
elects otherwise. Western Reserve reserves the right to suspend or postpone the
right of partial withdrawal and Surrender or postpone the date of payment for
any period: (1) the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the New York Stock Exchange is
restricted as determined by the SEC; (2) the SEC by order permits postponement
for the protection of Owners; or (3) an emergency exists, as determined by the
SEC, as a result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or
bank draft may be delayed until the check or bank draft has cleared the payor's
bank.
Ownership
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of the
Owner prior to the death of the Annuitant. (See "THE CONTRACT - ACCUMULATION
PROVISIONS - Death Benefits during the Accumulation Period - 2. Death of an
Owner Who is Not an Annuitant," on page 20.)
With regard to Non-Qualified Contracts, ownership of the Contract may be
changed or the Contract collaterally assigned at any time during the lifetime of
the Annuitant and prior to the Maturity Date, subject to the rights of any
irrevocable Beneficiary. The assignment of a Contract will be treated as a
distribution of the Annuity Value for Federal tax purposes. (See "FEDERAL TAX
MATTERS - Taxation of Annuities" on pages 23-24.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and shall not be responsible for the validity or effect of
any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior
designation of Successor Owner, but it does not change the Beneficiary or
Annuitant.
With regard to Qualified Contracts, ownership of the Contract may be
assigned only to the extent permitted by the Code.
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Annuitant
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. Prior to
the Maturity Date, if the Owner is a natural person and upon agreement with
Western Reserve, the Owner may elect a different Annuitant. As of the Maturity
Date, and upon agreement with Western Reserve, the Owner may elect a different
Annuitant or, if either annuity Option C or Option E has been selected, add a
joint Annuitant. On the Maturity Date, the Annuitant(s) will become the payee(s)
and receive the annuity payments.
Beneficiary
The Beneficiary is the person or persons named in the application or as
subsequently changed. The Beneficiary may be changed during the lifetime of the
Annuitant, subject to the rights of any irrevocable Beneficiary. Any change must
be made in writing and received at Western Reserve's Administrative Office and,
if accepted, will be effective as of the date on which signed by the Owner.
Western Reserve assumes no liability for any payments made or actions taken
before the change is received and shall not be responsible for the validity or
effect of the change. Prior to the Maturity Date, if no Beneficiary survives the
Annuitant, the Owner, if living, or the Owner's estate will be the Beneficiary.
The interest of any Beneficiary is subject to that of any assignee. In the case
of certain Qualified Contracts, the Treasury Regulations may prescribe certain
limitations on the designation of a Beneficiary.
Unless Western Reserve receives written notice from the Owner to the
contrary, no Beneficiary may assign any payments under the Contract before such
payments are due. To the extent permitted by law, no payments under the Contract
will be subject to the claims of any Beneficiary's creditors.
Modification or Waiver
The contract and the application constitute the entire Contract. Only
statements in the application can be used to void the Contract or defend a
claim. The statements are considered representations and not warranties. No
Contract provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provision of the Contract.
The Contract may not be modified by Western Reserve without the consent of
the Owner, except as may be required to make it conform to any law or regulation
or ruling issued by a governmental agency or to improve the rights and/or
benefits under the Contract.
Federal Tax Matters
Introduction
The Contracts are designed for use by individuals to accumulate Annuity
Value and may be used by retirement plans that qualify for special Federal
income tax treatment under Section 408 of the Code, generally known as
"Individual Retirement Annuities". The ultimate effect of Federal income taxes
on the amounts held under a Contract, on annuity payments, and on the economic
benefits to the Owner, Annuitant or Beneficiary depends on Western Reserve's tax
status, on the type of retirement plan for which the Contract is purchased, and
upon the tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. Moreover, the
discussion is based upon Western Reserve's understanding of the Federal income
tax laws as they are currently interpreted. Western Reserve makes no
representations regarding the likelihood of continuation of the Federal income
tax laws, the Treasury Regulations, or the current interpretations by the
Internal Revenue Service (the "Service"). For a discussion of Federal income
taxes as they relate to the Trust, please see the accompanying Prospectus for
the Portfolios of the Trust.
Company Tax Status
Western Reserve is taxed as a life insurance company under Part I of
Subchapter L of the Code. Because the Series Account is not a separate entity
from Western Reserve and its operations form a part of Western Reserve, it will
not be taxed separately as a "regulated investment company" under Subchapter M
of the Code. Investment income and realized capital gains on the assets of the
Series Account are reinvested and taken into account in determining the Annuity
Value. Western Reserve believes that under existing Federal income tax law, the
Series Account's investment income, including realized net capital gains, will
not be taxed to Western Reserve. Based upon this belief, it is anticipated that
no charges will be made
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against the Series Account for Federal income tax. If any such charge is made, a
Contract's Annuity Value will reflect a deduction for the charge. Western
Reserve reserves the right to make a deduction from the assets of the Series
Account should any tax or other economic burden resulting from the application
of tax laws that Western Reserve determines to be properly attributable to the
Account be imposed with respect to such items in the future.
Taxation of Annuities
The following discussion assumes the Contract will qualify as an annuity
contract for Federal income tax purposes.
1. In General. Code Section 72 governs taxation of annuities. In general,
an Owner is not taxed on increases in value under a Contract until some form of
distribution is made under the Contract. The exception to this rule is that
generally, an Owner of any deferred annuity contract who is not a natural person
must include in income any increase in the excess of the Contract's Annuity
Value over the Contract's investment in the Contract during the taxable year.
However, there are some exceptions to this exception and you may wish to discuss
these with your tax counsel. The taxable portion of a distribution (in the form
of an annuity or lump sum payment) is generally taxed as ordinary income. For
this purpose, the assignment, pledge, or agreement to assign or pledge any
portion of the Annuity Value generally will be treated as a distribution.
2. Partial Withdrawals and Surrenders. In the case of a partial withdrawal,
Systematic Partial Withdrawal, or Surrender distributed to a participant or
Beneficiary under a Qualified Contract, a ratable portion of the amount received
is taxable, generally based on the ratio of the investment in the Contract to
the total Annuity Value. The "investment in the Contract" generally equals the
portion, if any, of any Purchase Payments paid by or on behalf of an individual
under a Contract which is not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
Contract" can be zero.
Generally, in the case of a partial withdrawal, Systematic Partial
Withdrawal, or Surrender under a Non-Qualified Contract before the Maturity
Date, amounts received are first treated as taxable income to the extent that
the Annuity Value immediately before the partial withdrawal, Systematic Partial
Withdrawal, or Surrender exceeds the "investment in the Contract" at that time.
Any additional amount partially withdrawn, applied to a Systematic Partial
Withdrawal or Surrender, is not taxable. In the event of a partial withdrawal or
Systematic Partial Withdrawal from, or Surrender of, a Non-Qualified Contract,
Western Reserve will withhold for tax purposes the minimum amount required by
law, unless the Owner affirmatively elects, before payments begin, to have
either nothing withheld or a different amount withheld.
3. Annuity Payments. Although the tax consequences may vary depending on
the Annuity Payment elected under the Contract, in general, only the portion of
the Annuity Payment that represents the amount by which the Annuity Value
exceeds the investment in the Contract will be taxed; after the investment in
the Contract is recovered, the full amount of any additional Annuity Payments is
taxable. For variable annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the Contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the Contract." For
Fixed Annuity Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the Contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable until the
recovery of the investment in the Contract, and thereafter the full amount or
each Annuity Payment is taxable. If death occurs before full recovery of the
investment in the Contract, the unrecovered amount may be deducted on the
Annuitant's final tax return.
4. Penalty Tax on Certain Distributions. In the case of a distribution
pursuant to a Non-Qualified Contract, a penalty tax may be imposed equal to 10%
of the amount treated as taxable income. The penalty tax is not imposed in
certain circumstances, including, generally, distributions: (1) made on or after
the date on which the Owner attains age 591/2, (2) made as a result of death of
the Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full surrender
of the Contract, as described above, or (2) if distributed under an annuity
option, they are taxed in the same manner as annuity payments, as described
above. For these purposes, the investment in the Contract is not affected by the
Owner's or Annuitant's death. That is, the investment in the Contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
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6. Multiple Contracts. All non-qualified, deferred annuity contracts
entered into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same Owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one Contract or other annuity
contracts.
7. Transfers, Assignments or Exchanges of Contracts. A transfer of
ownership or assignment of a Contract, the designation of an Annuitant or other
Beneficiary who is not also the Owner, the selection of certain maturity dates,
or a change of Annuitant, may result in certain income or gift tax consequences
to the Owner that are beyond the scope of this discussion. An Owner
contemplating any such transfer, assignment or change should contact a competent
tax adviser in respect to the potential tax effects of such a transaction.
8. Possible Changes in Taxation. In past years, legislation has been
proposed that would have adversely modified the Federal taxation of certain
annuities. For example, one such proposal would have changed the tax treatment
of non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
Prospectus Congress is not considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as the IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be effective prior to the date of the change.
Individual Retirement Annuities
The Qualified Contract is designed for use with retirement plans that
qualify for special Federal income tax treatment under Sections 219 and 408 of
the Code, generally known as "Individual Retirement Annuities." 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 591/2 (subject to certain
exceptions), distributions that do not conform to specified minimum distribution
rules, aggregate distributions in excess of a specified annual amount, and in
certain other circumstances. Individual Retirement Annuities are subject to
limitations on the amount which may be contributed and deducted and the time
when distributions may commence. In addition, distributions from certain other
types of qualified plans may be placed into an Individual Retirement Annuity on
a tax-deferred basis.
Under the tax qualification rules for Section 408 plans, distributions
generally must commence no later than April 1 of the calendar year following the
calendar year in which the Owner reaches age 701/2, and must be made in a
specified form and manner. Special rules and other restrictions may apply
depending on the type of plan and the particular circumstances. Each Owner is
responsible for making contributions and requesting distributions under the
Contract that satisfy applicable tax rules, and should consult a qualified tax
adviser.
The above description of Federal income tax consequences pertaining to the
Individual Retirement Annuity is only a brief summary and is not intended as tax
advice. The rules governing the provisions of Individual Retirement Annuities
are complex and often difficult to comprehend. In addition, the Tax Reform Act
of 1986 significantly changed a great many rules for Individual Retirement
Annuities. Anything less than full compliance with the applicable rules, all of
which are subject to change, may have significant adverse tax consequences.
Owners of Individual Retirement Annuities are responsible for requesting
distributions in accordance with, and for determining that contributions and
other transactions comply with, applicable law. A prospective purchaser
considering the purchase of a Contract in connection with an Individual
Retirement Annuity should first consult a qualified and competent tax adviser
with regard to the suitability of the Contract as an Individual Retirement
Annuity.
Additional Considerations
1. Diversification. Section 817(h) of the Code requires that the
investments of the Series Account must be "adequately diversified" in accordance
with Treasury regulations in order for the Contracts to qualify as annuity
contracts under Section 72 of the Code. The Series Account, through the Trust,
intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817.5, which affect how the Trust's assets may be
invested. Western Reserve believes the Series Account will, thus, meet the
diversification requirements of Section 817(h). If the Series Account does not
meet those diversification requirements, Owners would be taxed currently on any
investment income under the Contract.
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In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
annuity contract owner's gross income. The Treasury Department has stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement further
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of more subaccounts in which to
allocate net purchase payments and Contract Values, and may be able to transfer
among subaccounts more frequently than in such rulings. These differences could
result in an Owner being treated as the owner of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Contract as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Series Account.
2. Distribution-at-Death Rules. The Code also requires Non-Qualified
Annuity Contracts to contain specific provisions for distribution of the
Contract proceeds upon the death of the Owner. In order to be treated as an
Annuity Contract for Federal income tax purposes, the Code requires that such
Contract provide that (a) if any Owner dies on or after the Maturity Date and
before the entire interest in the Contract has been distributed, the remaining
portion must be distributed at least as rapidly as under the method in effect on
the Owner's death; and (b) if any Owner dies before the Maturity Date, the
entire interest in the Contract must generally be distributed within 5 years
after the Owner's date of death. These requirements will be considered satisfied
if the entire interest of the Contract is used to purchase an immediate annuity
under which payments will begin within one year of the Owner's death and will be
made for the life of the Beneficiary or for a period not extending beyond the
life expectancy of the Beneficiary. The Owner's Beneficiary is the person to
whom ownership of the Contract passes because of death and must be a natural
person. (In the Contract, the successor owner is the Owner's Beneficiary.) If
the Beneficiary is the Owner's surviving spouse, the Contract may be continued
with the surviving spouse as the new Owner. Non-Qualified Contracts will be
reviewed and modified if necessary to attempt to assure that they comply with
the Code requirements when clarified by regulation or otherwise. Other rules may
apply to Qualified Contracts.
3. Withholding. Withholding of Federal income taxes on the taxable portion
of all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies Western Reserve of that election.
Different rules may apply to United States citizens or expatriates living
abroad. In addition, some states have enacted legislation requiring withholding.
4. Section 1035 Exchanges. Code Section 1035 generally provides that no
gain or loss shall be recognized on the exchange of one Annuity Contract for
another. If the surrendered Contract was issued prior to August 14, 1982, the
tax rules that formerly provided that the Surrender was taxable only to the
extent the amount received exceeds the Owner's investment in the Contract will
continue to apply to amounts allocable to investment in the Contract before
August 14, 1982. In contrast, Contracts issued on or after January 19, 1985 in a
Code Section 1035 exchange are treated as new Contracts for purposes of the
penalty and distribution-at-death rules. Special rules and procedures apply to
Code Section 1035 transactions. Prospective purchasers wishing to take advantage
of Code Section 1035 should consult their tax advisers.
5. Diversification and Qualified Plans. Code Section 817(h) applies to
variable annuity contracts other than pension plan contracts. The regulations
reiterate that the diversification requirements do not apply to pension plan
contracts. All of the Qualified Plans (described above) are defined as pension
plan contracts for these purposes. Notwithstanding the exception of Qualified
Contracts from application of the diversification rules, the investment vehicle
for Western Reserve's Qualified Contracts (i.e., the Trust) will be structured
to comply with the diversification standards because it serves as the investment
vehicle for Non-Qualified Contracts as well as Qualified Contracts.
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The Fixed Account
An Owner may allocate Net Purchase Payments and transfer Annuity Value to
the Fixed Account, which is part of Western Reserve's general account. The
Insurance Department of the State of Washington has disapproved, for Contracts
issued in Washington, the ability both to allocate Net Purchase Payments to the
Fixed Account and to transfer Annuity Value from Sub-Accounts of the Series
Account to the Fixed Account. Because of exemptive and exclusionary provisions,
interests in the Fixed Account have not been registered under the Securities Act
of 1933 and neither the Fixed Account nor the general account has been
registered as an investment company under the 1940 Act. Accordingly, neither the
Fixed Account, the general account nor any interests therein are generally
subject to the provisions of these Acts, and Western Reserve has been advised
that the staff of the SEC has not reviewed the disclosures in this Prospectus
relating to the Fixed Account. Disclosures regarding the Fixed Account may,
however, be subject to certain generally applicable provisions of the Federal
securities laws relating to the accuracy and completeness of statements made in
prospectuses.
The portion of the Annuity Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's general
account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to Western Reserve's
general liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
The Fixed Account Value is guaranteed to accumulate at a minimum effective
annual interest rate of 4%. Western Reserve presently credits the Fixed Account
Value with current rates in excess of the minimum guarantee, but it is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Because
Western Reserve, at its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the Fixed
Account Value will be credited with different current interest rates.
Western Reserve further guarantees that when a higher or lower current
interest rate is declared on an allocation to the Fixed Account Value, that
interest rate will be guaranteed on such allocation for at least a one year
period measured from the date of each Purchase Payment or transfer (the
"Guarantee Period"). At the end of the Guarantee Period, Western Reserve
reserves the right to declare a new current interest rate on such allocation and
accrued interest thereon (which may be a different current interest rate than
the current interest rate on new allocations to the Fixed Account Value on that
date). The rate declared on such allocation, and the accrued interest thereon at
the end of each Guarantee Period will be guaranteed again for another Guarantee
Period. At the end of any Guarantee Period, any interest credited on the Fixed
Account Value in excess of the minimum guaranteed rate of 4% per year will be
determined in the sole discretion of Western Reserve. The Owner assumes the risk
that interest credited may not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) partial withdrawal
amounts, b) transfers to the Series Account, or c) the Annual Contract Charge
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting
interest from time to time, provided that such changes will not have the effect
of reducing the guaranteed rate of interest below 4% per annum.
Fixed Account Value
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Purchase Payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts withdrawn from the Fixed Account to pay for partial
withdrawals; minus
5. Any amounts transferred to a Sub-Account from the Fixed Account; minus
6. Any amounts charged to pay the Annual Contract Charge, premium tax, and
transfer charges, if any.
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Allocations, Transfers and Partial Withdrawals
Net Purchase Payments and transfers to the Fixed Account will be allocated
to the Fixed Account on the first Valuation Date on or following the date
Western Reserve receives the payment or transfer request at its Administrative
Office, except that any allocation of an initial Net Purchase Payment will take
place on the Contract Date.
Transfers may be made from the Fixed Account to a Sub-Account once each
Contract Year. The amount that may be transferred is currently the entire amount
available in the Fixed Account; however, Western Reserve reserves the right to
limit the amount available to be transferred to the greater of (a) 25% of the
amount in the Fixed Account, or (b) the amount transferred in the prior Contract
Year from the Fixed Account, unless Western Reserve consents otherwise. No
transfer charge will apply to transfers from the Fixed Account to a Sub-Account.
Amounts may be withdrawn from the Fixed Account for partial withdrawals and
Surrenders only upon written request and (other than for Surrenders) only with
Western Reserve's consent. Western Reserve further reserves the right to defer
payment of transfers, partial withdrawals, or Surrenders from the Fixed Account
for up to six months. In addition, Contract provisions relating to transfers,
partial withdrawals or Surrenders from the Series Account will also apply to the
Fixed Account. Systematic Exchanges may be done from the Fixed Account. (See
"THE CONTRACT - ACCUMULATION PROVISIONS - Systematic Exchanges," on page 16.)
Distribution of the Contracts
InterSecurities, Inc. ("ISI") located at 201 Highland Avenue, Largo,
Florida 34640, an affiliate of Western Reserve, serves as the distributor and
principal underwriter of the Contracts. ISI is registered with the SEC under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No amounts have been retained by ISI for acting as
distributor or principal underwriter for the Contracts. There are no sales
commissions payable upon the sale of Contracts. The offering of Contracts will
be made on a continuous basis.
Voting Rights
To the extent required by law, Western Reserve will vote the Trust shares
held in the Series Account at shareholder meetings of the Trust in accordance
with instructions received from persons having voting interests in the
corresponding Sub-Accounts of the Series Account. Except as required by the 1940
Act, the Trust does not hold regular or special shareholder meetings. If the
1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Western Reserve determines
that it is permitted to vote the Trust shares in its own right, it may elect to
do so.
The number of votes that an Owner has the right to instruct will be
calculated separately for each Sub-Account, and will be determined during the
Accumulation Period by dividing the portion of the Annuity Value in that
Sub-Account by $100. Fractional shares will be counted. After the Maturity Date,
the number of votes that an Annuitant has the right to instruct will be
calculated based on the liability for future variable annuity payments. This
liability will be calculated on the basis of the mortality assumptions used in
determining the number of units purchased by the Annuitant. Because this
liability generally declines as any Annuitant ages, the number of votes
attributable to that Annuitant will decrease over time.
The number of votes of the Portfolio that the Owner or Annuitant has the
right to instruct will be determined as of the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Trust. Voting instructions will be solicited by written communications prior to
such meeting in accordance with procedures established by the Trust.
Western Reserve will vote Trust shares as to which no timely instructions
are received and Trust shares that are not attributable to Owners in proportion
to the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain on any item to
be voted upon will reduce the votes eligible to be cast by Western Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
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Legal Proceedings
There are at present no legal proceedings to which the Series Account is a
party or to which the assets of the Series Account are subject. Western Reserve
is not involved in any litigation that is of material importance in relation to
its total assets or that relates to the Series Account. ISI, the Series
Account's principal underwriter and distributor, is not presently a party to any
legal proceedings that are likely to have a material adverse effect upon its
ability to perform its contract with the Series Account.
Statement of Additional Information
The Statement of Additional Information contains information and financial
statements relating to the Series Account and Western Reserve. The Table of
Contents of the Statement of Additional Information is set forth below:
1. Custodian
2. Independent Accountants
3. Legal Matters
4. Calculation of Performance Related Information
5. Addition, Deletion, and Substitution of Investments
6. Calculation of Variable Annuity Payments
7. Financial Statements
8. Index to Financial Statements
Inquiries and requests for a Statement of Additional Information should be
directed to Western Reserve Life Assurance Co. of Ohio, P.O. Box 9052,
Clearwater, Florida 34618-9052; telephone number (800) 504-4440.
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PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
Janus Retirement Advantage(SM)
Flexible Payment Variable Deferred Annuity Contract
- --------------------------------------------------------------------------------
Statement Of Additional Information
WRL Series Annuity Account B
May 1, 1996
- --------------------------------------------------------------------------------
ISSUED BY
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 34640
Please direct all telephone inquiries to 1-800-504-4440.
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Janus Retirement Advantage(SM) Prospectus, dated
May 1, 1996, which is available without charge by contacting Western Reserve
Life Assurance Co. of Ohio ("Western Reserve") at P.O. Box 9052, Clearwater,
Florida 34618-9052 or at the above telephone number.
<PAGE>
TABLE OF CONTENTS PAGE
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Custodian 2
Independent Accountants 2
Legal Matters 2
Calculation of Performance Related Information 2
Addition, Deletion, and Substitution of Investments 4
Calculation of Variable Annuity Payments 4
Financial Statements 5
Index to Financial Statements 5
- --------------------------------------------------------------------------------
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Custodian
The assets of WRL Series Annuity Account B (the "Series Account") are held
by Western Reserve. The assets of the Series Account are kept physically
segregated and held apart from the general account and any other separate
accounts of Western Reserve. Western Reserve maintains records of all purchases
and redemptions of shares of the Janus Aspen Series (the "Trust"). Additional
protection for the assets of the Series Account is provided by a blanket bond
issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the amount of $5
million (subject to a $1 million deductible), covering all of the employees of
AEGON U.S. and its affiliates, including Western Reserve. A Stockbrokers Blanket
Bond, issued to AEGON U.S.A. Securities, Inc. provides additional fidelity
coverage, to a limit of $11,000,000, subject to a $50,000 deductible.
Independent Accountants
The accounting firm of Price Waterhouse LLP, independent accountants,
provided audit services to the Series Account for the year ended December 31,
1995. The principal business address of Price Waterhouse LLP is 1055 Broadway,
Kansas City, Missouri 64105. The accounting firm of Ernst & Young LLP,
independent auditors, provided audit services to Western Reserve for the year
ended December 31, 1995. The principal business address of Ernst & Young LLP is
801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764.
Legal Matters
Sutherland, Asbill & Brennan, Washington, D.C., has provided advice on
certain legal matters concerning Federal securities laws in connection with the
Contracts. All matters of Ohio law pertaining to the Contracts, including the
validity of the Contracts and Western Reserve's right to issue the Contracts
under Ohio insurance law, have been passed upon by Thomas E. Pierpan, Esq., Vice
President and Counsel of Western Reserve.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Sub-Account
YIELD. The yield quotation set forth in the Prospectus for the Money Market
Sub-Account is for the seven days ended on the date of the most recent balance
sheet of the Series Account included in the registration statement, and is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account having a balance of one unit in the
Money Market Sub-Account at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
EFFECTIVE YIELD. The effective yield quotation for the Money Market
Sub-Account set forth in the Prospectus is for the seven days ended on the date
of the most recent balance sheet of the Series Account included in the
registration statement. The effective yield is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing Sub-Account having a balance of one Unit in the Money Market
Sub-Account at the beginning of the period. A hypothetical charge, reflecting
deductions from Owner accounts, is subtracted from the balance. The difference
is divided by the value of the Sub-Account at the beginning of the base period
to obtain the base period return, which is then compounded by adding 1. Next the
sum is raised to a power equal to 365 divided by 7, and 1 is subtracted from the
result. The following formula describes the computation:
EFFECTIVE YIELD = ({BASEPERIOD RETURN + 1} 365 / 7) - 1
The effective yield is shown at least to the nearest hundredth of one
percent.
HYPOTHETICAL CHARGE. For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all Owner accounts in proportion to the length of the base period.
Such fees and charges include the $30 Annual Contract Charge, calculated on the
basis of an average Series Account Value per Contract of $22,874, which converts
that charge to an annual rate of 0.13% of the Series Account Value. The yield
and effective yield quotations do not reflect any deduction for premium taxes or
transfer charges that may be applicable to a particular Contract. No fees or
sales charges are assessed upon anuitization under the Contracts, except premium
taxes. Realized
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gains and losses from the sale of securities, and unrealized appreciation and
depreciation of assets held by the Money Market Sub-Account and the Fund are
excluded from the calculation of yield.
B. Total Return and Yield Quotations for the Growth, Aggressive Growth,
Worldwide Growth, International Growth, Balanced, Flexible Income,
Short-Term Bond and High-Yield Sub-Accounts
The total return description set forth in the Prospectus for all of the
Sub-Accounts except the Money Market Sub-Account holding assets for the
Contracts during the Accumulation Period will be average annual total return
quotations for the one, five, and ten-year periods (or, while a Sub-Account has
been in existence for a period of less than one, five or ten years, for such
lesser period) ended on the date of the most recent balance sheet of the Series
Account and for the period from the date monies were first placed into the
Sub-Accounts until the aforesaid date. The quotations are computed by
determining the average annual compounded rates of return over the relevant
periods that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the particular period of
a hypothetical $1,000 payment made at the beginning of the
particular period or at the end of the particular period.
For purposes of the total return quotations for all of the Sub-Accounts
except the Money Market Sub-Account, the calculations will take into account all
fees that are charged to all Owner accounts during the Accumulation Period. Such
fees include the $30 Annual Contract Charge, calculated on the basis of an
estimated Series Account Value per Contract of $22,874 which converts that
charge to an annual rate of 0.13% of the Series Account Value. The calculations
will also assume a complete redemption as of the end of the particular period.
The calculations will not reflect any deduction for premium taxes or any
transfer charges that may be applicable to a particular Contract.
The yield quotations for all of the Sub-Accounts except the Money Market
Sub-Account representing the accumulation period set forth in the Prospectus
will be based on the thirty-day period ended on the date of the most recent
balance sheet of the Series Account and will be 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 Trust attributable to shares
owned by the Sub-Account
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of units outstanding during the period
d = the maximum offering price per unit on the last day of the
period
For purposes of the yield quotations for all of the Sub-Accounts except the
Money Market Sub-Account, the calculations will take into account all fees that
are charged to all Owner accounts during the Accumulation Period. Such fees
include the $30 Annual Contract Charge, calculated on the basis of an estimated
Series Account Value per Contract of $22,874, which converts that charge to an
annual rate of 0.13% of the Series Account Value. The calculations do not take
into account any premium taxes or any transfer charges.
Premium taxes currently range from 0% to 3.5% of Purchase Payments
depending upon the jurisdiction in which the Contract is delivered. There is a
transfer charge of $10.00 per transfer after twelve transfers in each Contract
Year. (See "Charges and Deductions - Transfer Charge" on page 12 of the
Prospectus.)
C. Other Performance Data
Western Reserve may from time to time disclose average annual total return
in non-standard formats and cumulative total return for Contracts funded by
these Sub-Accounts.
3
<PAGE>
Western Reserve may from time to time also disclose yield, standard total
returns, and non-standard total returns for the Trust's Portfolios. Non-standard
performance data will only be disclosed if the standard performance data for the
required periods is also disclosed.
Addition, Deletion, And Substitution Of Investments
Western Reserve reserves the right, subject to compliance with applicable
law, to make additions to, deletions from or substitutions for the shares that
are held by the Series Account or that the Series Account may purchase. Western
Reserve reserves the right to eliminate the shares of any of the Portfolios of
the Trust and to substitute shares of another Portfolio of the Trust or of
another open-end registered investment company, if the shares of a Portfolio are
no longer available for investment, or if in Western Reserve's judgment further
investment in any Portfolio should become inappropriate in view of the purposes
of the Series Account. Western Reserve will not, however, substitute any shares
attributable to an Owner's interest in a Sub-Account without notice to and prior
approval of the Securities and Exchange Commission, to the extent required by
the Investment Company Act of 1940, as amended (the "1940 Act"), or other
applicable law.
Western Reserve also reserves the right to establish additional
Sub-Accounts, each of which would invest in a new Portfolio of the Trust, or in
shares of another investment company, with a specified investment objective. New
Sub-Accounts may be established when, in the sole discretion of Western Reserve,
marketing, tax or investment conditions warrant, and any new Sub-Accounts will
be made available to existing Owners on a basis to be determined by Western
Reserve. Western Reserve may also eliminate one or more Sub-Accounts if, in its
sole discretion, marketing, tax or investment conditions warrant.
In the event of any such substitution or change, Western Reserve may by
appropriate endorsement make such changes in the Contracts and other annuity
contracts as may be necessary or appropriate to reflect such substitution or
change. If deemed by Western Reserve to be in the best interests of persons
having voting rights under the Contracts, the Series Account may be operated as
a management company under the 1940 Act, or, subject to any required approval,
it may be deregistered under that Act in the event such registration is no
longer required.
Western Reserve reserves the right to change the investment objective of
any Sub-Account. Additionally, if required by law or regulation, Western Reserve
will not materially change an investment objective of the Series Account or of a
Portfolio designated for a Sub-Account unless a statement of the change is filed
with and approved by the appropriate insurance official of the state of Western
Reserve's domicile or deemed approved in accordance with such law or regulation.
Calculation Of Variable Annuity Payments
Under a Series Account annuity option, the Owner applies his or her Annuity
Proceeds (or a portion thereof) on the Maturity Date to one or more of the nine
Sub-Accounts designated to support annuity payments by purchasing units issued
in connection with each Sub-Account selected by the Owner. The Annuity Unit
Value of any Sub-Account will increase or decrease in accordance with the
investment experience of that Sub-Account. The Annuity Unit Value of any
Sub-Account at the end of a Valuation Period is equal to the product of (a) the
Annuity Unit Value for that Sub-Account at the end of the immediately preceding
Valuation Period, multiplied by (b) the net investment factor for that
Sub-Account for the Valuation Period, multiplied by (c) the "assumed investment
return adjustment factor" for the Valuation Period.
The "assumed investment return adjustment factor" for a Valuation Period is
the product of discount factors of .99986634 per day, and is designed to
recognize the 5% effective annual assumed investment return.
The net investment factor used to calculate the Annuity Unit Value in each
Sub-Account for the Valuation Period is equal to (a) the net result of (1) the
net asset value of a Trust share held in that Sub-Account determined as of the
end of the current Valuation Period; plus (2) the per share amount of any
dividend or capital gain distributions made by the Trust for shares held in that
Sub-Account if the ex-dividend date occurs during the Valuation Period; plus or
minus (3) a per share charge or credit for any taxes reserved for, which Western
Reserve determines to have resulted from the investment operations of the
Sub-Account; divided by (b) the net asset value of a Trust share held in the
Sub-Account determined as of the end of the immediately preceding Valuation
Period; minus (c) a factor representing the mortality and expense risk charge
and administrative charge. This factor is equal, on an annual basis, to 0.65% of
the daily net asset value of a Trust share held in the Series Account for the
Sub-Account.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first
variable payment is determined by multiplying the Annuity Proceeds times the
appropriate rate for the variable option selected. The rates
4
<PAGE>
are based on the Society of Actuaries 1983 Individual Mortality Table A with
projection and a 5% effective annual assumed investment return and assuming a
Maturity Date in the year 2000. Gender based mortality tables will be used
unless prohibited by law.
The amount of the first payment depends upon the adjusted age of the
Annuitant. The adjusted age is the Annuitant's actual age nearest birthday at
the Maturity Date, adjusted as follows:
Maturity Date Adjusted Age
------------- ------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After the year 2040 as determined by Western Reserve.
Determination of Subsequent Variable Payments
The amount of variable annuity payments after the first will increase or
decrease according to the Annuity Unit Value which reflects the investment
experience of the selected Sub-Account(s). Each variable annuity payment after
the first will be equal to the number of units attributable to the Contract in
each selected Sub-Account multiplied by the Annuity Unit Value of that
Sub-Account on the date the payment is processed. The number of such units is
determined by dividing the first payment allocated to that Sub-Account by the
Annuity Unit Value of that Sub-Account on the date the first annuity payment is
processed.
Financial Statements
The financial statements of Western Reserve which are included in this
Statement of Additional Information should be considered only as bearing on the
ability of Western Reserve to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the assets
held in the Series Account.
Financial Statements for Western Reserve for the years ended December 31,
1995, 1994 and 1993 have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
Index To Financial Statements
WRL Series Annuity Account B
Statements of Operations for the period or year ended December 31, 1995
Statements of Assets, Liabilities and Equity Accounts as of December 31,
1995
Statements of Changes in Equity Accounts for the years or periods ended
December 31, 1995 and 1994
Selected Per Unit Data and Ratios for the years or periods ended December
31, 1995, 1994 and 1993
Notes to Financial Statements
Report of Independent Accountants dated January 31, 1996
Western Reserve Life Assurance Co. of Ohio
Report of Independent Auditors dated February 23, 1996
Statutory-basis balance sheets at December 31, 1995 and 1994
Statutory-basis statements of operations for the years ended December 31,
1995, 1994 and 1993
Statutory-basis statements of capital and surplus for the years ended
December 31, 1995, 1994 and 1993
Statutory-basis statements of cash flows for the years ended December 31,
1995, 1994 and 1993
Notes to Statutory-basis financial statements
Statutory-basis financial statement schedules
5
<PAGE>
JANUS RETIREMENT ADVANTAGE WRL SERIES ANNUITY ACCOUNT B
<TABLE>
<CAPTION>
Statements of Operations
Aggressive International Worldwide Flexible Short-Term Money
For the year or period ended Growth Growth Growth Growth Balanced Income Bond Market
December 31, 1995 Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 214,035 $ 149,299 $ 2,670 $ 41,948 $ 52,858 $109,445 $ 78,573 $54,761
Capital Gains -- 488 -- 1,227 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Mortality and expense
risk charges 62,059 68,615 11,789 69,145 23,253 14,589 13,482 8,998
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment
income/(loss) 151,976 81,172 (9,119) (25,970) 29,605 94,856 65,091 45,763
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Net realized gain/
(loss)from
securities
transactions 312,599 1,007,159 249,575 308,438 57,563 106,996 35,589 --
Unrealized
appreciation/
(depreciation) 1,398,652 992,844 85,351 1,682,590 500,276 153,913 34,279 --
- ------------------------------------------------------------------------------------------------------------------------------------
NET GAIN/(LOSS) ON
INVESTMENTS 1,711,251 2,000,003 334,926 1,991,028 557,839 260,909 69,868 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease)
in net assets
resulting from
operations $1,863,227 $2,081,175 $325,807 $1,965,058 $587,444 $355,765 $134,959 $45,763
====================================================================================================================================
</TABLE>
(1) Period May 1, 1995 (inception) to December 31, 1995
JANUS RETIREMENT ADVANTAGE WRL SERIES ANNUITY ACCOUNT B
Statements of Assets, Liabilities and Equity Accounts
<TABLE>
<CAPTION>
Statements of Operations
Aggressive International Worldwide Flexible Short-Term Money
Growth Growth Growth Growth Balanced Income Bond Market
As of December 31, 1995 Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Shares 749,633.559 680,235.988 133,181.777 724,478.500 248,660.597 219,250.094 120,878.640 1,735,296.510
====================================================================================================================================
Investments
at cost $ 8,691,048 $10,083,137 $1,517,633 $ 9,483,173 $2,796,251 $2,317,304 $1,213,464 $1,735,296
====================================================================================================================================
Investments at
net asset value $10,082,571 $11,618,430 $1,591,522 $11,091,766 $3,240,047 $2,435,868 $1,212,413 $1,735,296
Accrued transfers
from/(to)
depositor - net 42,747 62,931 4,086 7,431 42,679 -- -- (10,074)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 10,125,318 11,681,361 1,595,608 11,099,197 3,282,726 2,435,868 1,212,413 1,725,222
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES: -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $10,125,318 $11,681,361 $1,595,608 $11,099,197 $3,282,726 $2,435,868 $1,212,413 $1,725,222
====================================================================================================================================
EQUITY ACCOUNTS:
Policyowners' equity:
Units 743,709.9093 678,536.2368 132,702.4346 732,814.0239 247,388.1409 200,343.8513 111,109.6535 164,953.0656
====================================================================================================================================
Unit Value $13.612776 $17.212994 $11.801621 $15.143928 $13.264176 $12.152373 $10.902046 $10.302721
====================================================================================================================================
Value $10,123,957 $11,679,640 $1,566,104 $11,097,683 $3,281,400 $2,434,653 $1,211,323 $1,699,465
- ------------------------------------------------------------------------------------------------------------------------------------
Depositor's
equity:
Units 100.000 100.000 2,500.000 100.000 100.000 100.000 100.000 2,500.000
====================================================================================================================================
Unit Value $13.612776 $17.212994 $11.801621 $15.143928 $13.264176 $12.152373 $10.902046 $10.302721
====================================================================================================================================
Value 1,361 1,721 29,504 1,514 1,326 1,215 1,090 25,757
- ------------------------------------------------------------------------------------------------------------------------------------
Total Equity $10,125,318 $11,681,361 $1,595,608 $11,099,197 $3,282,726 $2,435,868 $1,212,413 $1,725,222
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
Janus Retirement Advantage December 31, 1995 Annual Report
6
<PAGE>
<TABLE>
<CAPTION>
JANUS RETIREMENT ADVANTAGE WRL SERIES ANNUITY ACCOUNT B
Statements of Changes in Equity Accounts
For the years or periods ended
December 31, 1995 and Growth Aggressive Growth International Growth
December 31, 1994 Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income/(loss) $ 151,976 $ (10,681) $ 81,172 $ 15,098 $ (9,119) $ (2,755)
Net gain/(loss)
on investments 1,711,251 (6,662) 2,000,003 560,930 334,926 (11,755)
- ------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) in
equity accounts
resulting from
operations 1,863,227 (17,343) 2,081,175 576,028 325,807 (14,510)
- ------------------------------------------------------------------------------------------------------------------
EQUITY TRANSACTIONS:
Proceeds from units
sold:
Net payments 3,802,593 4,796,414 5,063,374 4,270,619 375,984 901,004
Less cost of units
redeemed:
Surrender benefits 298,389 22,219 291,278 19,738 10,046 7,631
- ------------------------------------------------------------------------------------------------------------------
Increase from equity
transactions 3,504,204 4,774,195 4,772,096 4,250,881 365,938 893,373
- ------------------------------------------------------------------------------------------------------------------
Net increase in
equity accounts 5,367,431 4,756,852 6,853,271 4,826,909 691,745 878,863
Depositor's equity
contribution -- -- -- -- -- 25,000
EQUITY ACCOUNTS:
Beginning of period 4,757,987 1,035 4,828,090 1,181 903,863 --
- ------------------------------------------------------------------------------------------------------------------
End of period $10,125,318 $4,757,887 $11,681,361 $4,828,090 $1,595,608 $903,863
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the years or
periods ended
December 31, 1995 and Worldwide Growth Balanced Flexible Income Short-Term Bond Money Market
December 31, 1994 Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994 1995 1994 1995(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income/(loss) $ (25,970) $ (35,925) $ 29,605 $ 6,885 $ 94,856 $ 27,931 $ 65,091 $ 47,221 $ 45,763
Net gain/(loss)
on investments 1,991,028 (81,417) 557,839 (59,629) 260,909 (46,022) 69,868 (37,639) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) in
equity accounts
resulting from
operations 1,965,058 (117,342) 587,444 (52,744) 355,765 (18,091) 134,959 9,582 45,763
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY TRANSACTIONS:
Proceeds from units
sold:
Net payments 2,622,007 6,896,375 728,290 2,222,639 1,200,811 1,189,132 (140,677) 2,484,743 1,698,398
Less cost of units
redeemed:
Surrender benefits 225,540 42,552 195,419 8,556 13,433 279,323 1,218,839 58,358 43,939
- ------------------------------------------------------------------------------------------------------------------------------------
Increase from equity
transactions 2,396,467 6,853,823 532,871 2,214,083 1,187,378 909,809 (1,359,516) 2,426,385 1,654,459
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in
equity accounts 4,361,525 6,736,481 1,120,315 2,161,339 1,543,143 891,718 (1,224,557) 2,435,967 1,700,222
Depositor's equity
contribution -- -- -- -- -- -- -- -- 25,000
EQUITY ACCOUNTS:
Beginning of period 6,737,672 1,191 2,162,411 1,072 892,725 1,007 2,436,970 1,003 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $11,099,197 $6,737,672 $3,282,726 $2,162,411 $2,435,868 $ 892,725 $1,212,413 $2,436,970 $1,725,222
====================================================================================================================================
</TABLE>
(1) Period May 2, 1994 (inception) to December 31, 1994
(2) Period May 1, 1995 (inception) to December 31, 1995
<TABLE>
<CAPTION>
JANUS RETIREMENT ADVANTAGE WRL SERIES ANNUITY ACCOUNT B
Selected Per Unit Data and Ratios*
For each year or period ended
December 31, Growth Aggressive Growth International Growth
Sub-Account Sub-Account Sub-Account
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993(1) 1995 1994 1993(1) 1995 1994(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $10.55 $10.35 $10.00 $13.62 $11.81 $10.00 $ 9.66 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income/(loss) .26 (.04) .03 .15 .08 .01 (.06) (.05)
Net realized and
unrealized gain/(loss)
on investments 2.80 .24 .32 3.44 1.73 1.80 2.20 (.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Total income/(loss)
from operations 3.06 .20 .35 3.59 1.81 1.81 2.14 (.34)
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE,
END OF PERIOD $13.61 $10.55 $10.35 $17.21 $13.62 $11.81 $11.80 $ 9.66
=================================================================================================================================
Total return** 29.07% 1.90% 3.50% 26.41% 15.35% 18.05% 22.11% (3.35%)
=================================================================================================================================
RATIOS AND SUPPLEMENTAL
DATA:
Net assets at end
of period $10,125,318 $4,757,887 $1,035 $11,681,361 $4,828,090 $1,181 $1,595,608 $903,863
Ratio of net
investment
income/(loss)
to average net
assets** 2.08% (0.35%) 0.29% 1.00% 0.63% 0.05% (0.66%) (0.59%)
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
For each year or period ended
December 31 Worldwide Growth Balanced Flexible Income
Sub-Account Sub-Account Sub-Account
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993(1) 1995 1994 1993(1) 1995 1994 1993(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $11.99 $11.91 $10.00 $10.72 $10.72 $10.00 $ 9.90 $10.07 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income/(loss) (.04) (.10) .02 .13 .05 .08 .57 .41 .10
Net realized and
unrealized gain/(loss)
on investments 3.19 .18 1.89 2.41 (.05) .64 1.68 (.58) (.03)
- -----------------------------------------------------------------------------------------------------------------------------
Total income/(loss)
from operations 3.15 .08 1.91 2.54 -- .72 2.25 (.17) .07
- -----------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE,
END OF PERIOD $15.14 $11.99 $11.91 $13.26 $10.72 $10.72 $12.15 $9.90 $10.07
=============================================================================================================================
Total return** 26.29% 0.68% 19.10% 23.73% 0.00% 7.20% 22.81% (1.74%) 0.70%
=============================================================================================================================
RATIOS AND SUPPLEMENTAL
DATA:
Net assets at end
of period $11,099,197 $6,737,672 $1,191 $3,282,726 $2,162,411 $1,072 $2,435,868 $892,725 $1,007
Ratio of net
investment
income/(loss)
to average net
assets** (0.32%) (0.86%) 0.19% 1.08% 0.51% 0.79% 5.53% 4.69% 1.03%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
For each year or period ended
December 31 Short-Term Bond Money Market
Sub-Account Sub-Account
- -------------------------------------------------------------------------------------------
1995 1994 1993(1) 1995(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCUMULATION UNIT VALUE,
BEGINNING OF PERIOD $10.04 $10.03 $10.00 $10.00
- -------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income/(loss) .40 .50 .10 .30
Net realized and
unrealized gain/(loss)
on investments .46 (.49) (.07) --
- -------------------------------------------------------------------------------------------
Total income/(loss)
from operations .86 .01 .03 .30
- -------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE,
END OF PERIOD $10.90 $10.04 $10.03 $10.30
===========================================================================================
Total return** 8.61% 0.08% 0.30% 3.03%
===========================================================================================
RATIOS AND SUPPLEMENTAL
DATA:
Net assets at end
of period $1,212,413 $2,436,970 $1,003 $1,725,222
Ratio of net
investment
income/(loss)
to average net
assets** 4.11% 5.35% 1.04% 2.95%
===========================================================================================
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
** Not annualized for periods of less than 1 full year.
(1) Period September 13, 1993 (inception) to December 31, 1993
(2) Period May 2, 1994 (inception) to December 31, 1994
(3) Period May 1, 1995 (inception) to December 31, 1995
See Notes to Financial Statements
Janus Retirement Advantage December 31, 1995 Annual Report
7 and 8
<PAGE>
JANUS RETIREMENT ADVANTAGE WRL SERIES ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Annuity Account B (the "Account") was established as a variable
accumulation deferred annuity separate account of Western Reserve Life Assurance
Co. of Ohio ("WRL") and is registered as a unit investment trust under the
Investment Company Act of 1940, as amended. The Account encompasses the Janus
Retirement Advantage,(R) a tax deferred variable annuity contract issued by WRL.
The Account contains eight investment options referred to as Sub-Accounts:
Growth; Aggressive Growth; International Growth; Worldwide Growth; Balanced;
Flexible Income; Short-Term Bond; and Money Market. Each Sub-Account invests in
the corresponding Portfolio of the Janus Aspen Series Trust (the "Trust"), which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended.
The Account's equity transactions are accounted for using the appropriate
effective date at the corresponding accumulation unit value.
On May 1, 1995, WRL made an initial depositor's equity contribution of $25,000
to the Money Market Sub-Account for which it received 2,500 units of the
Sub-Account.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently used in preparation of the Account's financial statements.
VALUATION OF INVESTMENTS
The investments in the Trust's shares are stated at the closing net asset value
("NAV") per share as determined by the Trust on December 31, 1995. Investment
transactions are accounted for on the trade date, using the Trust NAV per share
next determined after receipt of sale or redemption order without sales charges.
Dividend income and capital gains distributions are recorded on the ex-dividend
date. The cost of investments sold is determined on a first-in, first-out basis.
FEDERAL INCOME TAXES
The operations of the Account are a part of and are taxed with the total
operations of WRL, which is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended. Under current law, the investment income of
the Account, including realized and unrealized capital gains, is not taxable to
WRL. Accordingly, no provision for Federal income taxes has been made.
2. CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and administration
of the Contracts.
CONTRACT CHARGE
On each anniversary through maturity date, WRL will deduct an annual contract
charge as partial compensation for providing administrative services under the
Contracts. Deduction of the annual contract charge is currently waived when the
account value on the anniversary is equal to or greater than $25,000.
ANNUITY SUB-ACCOUNT CHARGE
A daily charge equal to an annual rate of .85% of average daily net assets of
each sub-account is assessed to compensate WRL for assumption of mortality and
expense risks and administrative services in connection with issuance and
administration of the Contracts. This charge (not assessed at the individual
contract level) effectively reduces the value of a unit outstanding during the
year.
3. DIVIDENDS AND DISTRIBUTIONS
Dividends of the Trust's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining Trust portfolios are declared and
reinvested semiannually, while capital gains distributions are declared and
reinvested annually. Dividends and distributions of the Trust are generally paid
to and reinvested by the Account the next business day after declaration.
4. OTHER MATTERS
As of December 31, 1995 the equity accounts include net unrealized appreciation
(depreciation) on investments as follows:
SUB-ACCOUNT:
Growth $1,391,523
Aggressive Growth 1,535,293
International Growth 73,889
Worldwide Growth 1,608,593
Balanced 443,796
Flexible Income 118,564
Short-Term Bond (1,051)
Money Market N/A
Janus Retirement Advantage December 31, 1995 Annual Report
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO AND
CONTRACT OWNERS OF THE JANUS RETIREMENT ADVANTAGE WRLSERIES ANNUITY ACCOUNT B
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of the Growth, Aggressive Growth,
Worldwide Growth, International Growth, Balanced, Flexible Income, Short-Term
Bond and Money Market sub-accounts of the WRL Series Annuity Account B (a
separate account of Western Reserve Life Assurance Co. of Ohio, hereafter
referred to as the "Account") at December 31, 1995, the results of each of their
operations, the changes in each of their equity accounts and the selected per
unit data and ratios for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
selected per unit data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1996
Janus Retirement Advantage December 31, 1995 Annual Report
10
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1995 and 1994, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
The Company presents its financial statements in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Ohio. The variances between such practices and generally accepted accounting
principles are described in Note 1. The effects of these variances are not
reasonably determinable but we believe they are material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Western
Reserve Life Assurance Co. of Ohio at December 31, 1995 and 1994, or the results
of its operations or its cash flows for each of the three years in the period
ended December 31, 1995.
11
<PAGE>
In addition, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Ohio. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic statutory-basis
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 23, 1996
12
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 4,999 $ 46,722
Bonds 452,474 423,758
Stocks:
Preferred, at market (cost: $78 in 1994) - 14
Common, at market (cost: $473 in 1995 and
$1,944 in 1994) 834 2,541
Mortgage loans on real estate 6,181 9,539
Home office properties, at cost less accumulated
depreciation ($1,505 in 1995 and $1,358 in 1994) 5,121 4,818
Policy loans 37,125 27,520
-----------------------------------
Total cash and invested assets 506,734 514,912
Premiums deferred and uncollected 1,787 1,763
Accrued investment income 7,565 7,505
Receivable from affiliates 4,337 481
Other assets 4,264 3,504
Separate account assets 2,419,205 1,596,736
-----------------------------------
Total admitted assets $2,943,892 $2,124,901
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 73,163 $ 84,689
Annuity 319,353 314,124
Policy and contract claim reserves 6,612 5,119
Other policyholders' funds 2,384 2,495
Remittances and items not allocated 5,136 4,613
Federal income taxes payable 1,417 96
Asset valuation reserve 5,590 8,491
Interest maintenance reserve 6,392 6,720
Payable to affiliate - 674
Other liabilities 10,102 8,239
Separate account liabilities 2,415,804 1,594,621
-----------------------------------
Total liabilities 2,845,953 2,029,881
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 28,424 25,505
-----------------------------------
Total capital and surplus 97,939 95,020
-----------------------------------
Total liabilities and capital and surplus $2,943,892 $2,124,901
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Operations - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life $191,508 $150,991 $107,008
Annuity 378,390 449,141 449,361
Net investment income 40,891 40,139 46,197
Amortization of interest maintenance reserve 882 726 618
Commissions and expense allowances on
reinsurance ceded 11 12 14
Other income 8,237 6,354 4,322
----------------------------------------------
619,919 647,363 607,520
Benefits and expenses:
Benefits paid or provided for:
Death, surrender and other life insurance and
annuity benefits 243,658 230,511 111,785
Increase (decrease) in aggregate reserves for
policies and contracts:
Life (15,023) (11,332) (4,259)
Annuity 5,229 (78,590) (12,486)
----------------------------------------------
233,864 140,589 95,040
Insurance expenses:
Net transfers to separate accounts 242,427 386,174 414,357
Commissions 82,903 78,168 60,975
General insurance expenses 37,246 33,100 24,701
Taxes, licenses and fees 8,919 5,931 5,682
----------------------------------------------
371,495 503,373 505,715
----------------------------------------------
605,359 643,962 600,755
----------------------------------------------
Gain from operations before federal income
taxes and realized capital gains (losses) on
investments 14,560 3,401 6,765
Federal income tax expense 8,917 3,406 4,206
----------------------------------------------
Gain (loss) from operations before realized capital
gains (losses) on investments 5,643 (5) 2,559
Netrealized capital gains (losses) on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve) (1,678) (1,133) 2,348
----------------------------------------------
Net income (loss) $ 3,965 $ (1,138) $ 4,907
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
15
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
Additional Total
Common Paid-In Unassigned Capital and
Stock Capital Surplus Surplus
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $1,500 $23,015 $19,109 $43,624
Net income for 1993 - - 4,907 4,907
Net unrealized capital gains - - 1,503 1,503
Decrease in non-admitted assets - - 5,535 5,535
Increase in asset valuation reserves - - (1,706) (1,706)
Increase in surplus in separate
accounts - - 633 633
Dividend to stockholder - - (5,600) (5,600)
Other adjustments - - 513 513
------------- --------------- --------------- ----------------
Balance at December 31, 1993 1,500 23,015 24,894 49,409
Capital contribution - 45,000 - 45,000
Net loss for 1994 - - (1,138) (1,138)
Net unrealized capital losses - - (9) (9)
Decrease in non-admitted assets - - 368 368
Decrease in asset valuation
reserves - - 4,321 4,321
Decrease in surplus in separate
accounts - - (748) (748)
Other adjustments - - (2,183) (2,183)
------------- --------------- --------------- ----------------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 - - 3,965 3,965
Net unrealized capital losses - - (500) (500)
Decrease in non-admitted assets - - 903 903
Decrease in asset valuation reserve - - 2,901 2,901
Decrease in surplus in separate
accounts - - 541 541
Change in reserve valuation - - (3,496) (3,496)
Other adjustments - - (1,395) (1,395)
------------- --------------- --------------- ----------------
Balance at December 31, 1995 $1,500 $68,015 $28,424 $97,939
============= =============== =============== ================
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of reinsurance $569,934 $600,405 $556,353
Net investment income 42,359 41,977 47,424
Other income 8,052 6,311 4,245
----------------------------------------------
620,345 648,693 608,022
Life claims (16,759) (14,660) (12,820)
Surrender benefits and other fund withdrawals (206,250) (196,169) (81,902)
Other benefits to policyholders (19,041) (18,251) (17,385)
Commissions, other expenses and taxes (128,314) (119,755) (92,572)
Dividends to policyholders (26) (22) (44)
Federal income taxes (7,531) (3,378) (3,573)
Net increase in policy loans (9,605) (4,496) (4,686)
Net transfers to separate accounts (242,427) (386,174) (414,357)
----------------------------------------------
Net cash used by operations (9,608) (94,212) (19,317)
Proceeds from investments sold, matured or repaid:
Bonds and redeemable preferred stock 108,554 99,241 203,547
Common stocks 2,108 80,066 81,391
Mortgage loans on real estate 1,954 132 764
Real estate - - 109
Miscellaneous - (28) -
----------------------------------------------
Total cash from investments 112,616 179,411 285,811
Capital contribution - 45,000 -
Other sources 2,830 6,135 5,899
----------------------------------------------
Total sources of cash 105,838 136,334 272,393
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 139,402 47,214 165,967
Common stocks 589 65,911 82,767
Mortgage loans on real estate 6 1,004 290
Real estate 449 37 478
----------------------------------------------
Total investments acquired 140,446 114,166 249,502
Dividend to stockholder - - 5,600
Other applications, net 7,115 6,086 1,959
----------------------------------------------
Total applications of cash 147,561 120,252 257,061
----------------------------------------------
Net change in cash and short-term investments (41,723) 16,082 15,332
Cash and short-term investments at beginning of year 46,722 30,640 15,308
----------------------------------------------
Cash and short-term investments at end of year $ 4,999 $ 46,722 $ 30,640
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
17
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis
(Dollars in thousands)
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ in some respects from generally accepted
accounting principles. The more significant of these differences are as follows:
(a) bonds are generally carried at amortized cost rather than segregating the
portfolio into held-to-maturity (carried at amortized cost), available-for-sale
(carried at fair value), and trading (carried at fair value) classifications;
(b) acquisition costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of the
policies; (c) policy reserves on traditional life products are based on
statutory mortality rates and interest which may differ from reserves based on
reasonable assumptions of expected mortality, interest, and withdrawals which
include a provision for possible unfavorable deviation from such assumptions;
(d) policy reserves on certain investment products use discounting methodologies
utilizing statutory interest rates rather than full account values; (e)
reinsurance amounts are netted against the corresponding receivable or payable
rather than shown as gross amounts on the balance sheet; (f) deferred income
taxes are not provided for the difference between the financial statement and
income tax bases of assets and liabilities; (g) net realized gains or losses
attributed to changes in the
18
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) declines
in the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as a
liability) changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated as
"non-admitted assets" have been charged to surplus rather than being reported as
assets; (j) revenues for universal life and investment products consist of
premiums received rather than policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; and (k) pension expense is recorded as amounts are paid. The
effects of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1996,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount includes $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates prospectively when such assumptions are
changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks are carried at market and include shares of mutual funds (money market
and other). Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other "admitted assets" are valued,
principally at cost, as required or permitted by Ohio Insurance Laws.
19
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1995, 1994 and 1993, net realized capital gains of $554, $436 and $4,270,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$882, $726 and $618 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1995, 1994 and 1993, the
Company excluded investment income due and accrued of $1, $237 and $0,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by law.
The aggregate policy reserves for traditional life insurance policies are based
principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25% to 5.50% and are computed principally on the Net Level Valuation and the
Commissioner's Reserve Valuation Method (CRVM). Reserves for universal life
policies are based on account balances adjusted for the CRVM.
20
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method plus excess interest reserves to cover situations where
the future interest guarantees plus the decrease in surrender charges are in
excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 7.00% to 9.25% and mortality rates, where appropriate, from a variety of
tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNT
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $467,142, $533,536 and $489,243
in 1995, 1994 and 1993, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
21
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those estimates
can only be made at excessive cost. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS: The carrying amounts
reported in the statutory-basis balance sheet for these instruments
approximate their fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices and are recognized in the statutory-basis
balance sheet.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
22
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------- -------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 452,474 $ 479,656 $ 423,758 $ 414,541
Stocks 834 834 2,555 2,555
Mortgage loans on real estate 6,181 6,536 9,539 7,915
Policy loans 37,125 37,125 27,520 27,520
Cash and short-term investments 4,999 4,999 46,722 46,722
Separate account assets 2,419,205 2,419,205 1,596,736 1,596,736
LIABILITIES
Investment contract liabilities 309,556 279,347 302,890 245,161
Separate account annuities 1,930,590 1,930,590 1,316,237 1,316,237
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government 15,079 940 - 16,019
Public utilities 16,143 1,425 - 17,568
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
---------------------------------------------------------------
Total bonds $452,474 $28,101 $919 $479,656
===============================================================
</TABLE>
23
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and
agencies $ 11,277 $ 17 $ 1,048 $ 10,246
State, municipal and other
government 13,117 - 423 12,694
Public utilities 13,296 75 432 12,939
Industrial and miscellaneous 238,389 3,668 7,543 234,514
Mortgage-backed securities 147,679 1,597 5,128 144,148
---------------------------------------------------------------
Total bonds 423,758 5,357 14,574 414,541
Preferred stock 14 - - 14
---------------------------------------------------------------
$423,772 $5,357 $14,574 $414,555
===============================================================
</TABLE>
Preferred stock required writedowns for the securities not in good standing to
fair values of $64 in 1994.
The carrying value and fair value of bonds at December 31, 1995 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 23,820 $ 23,842
Due one through five years 109,362 114,336
Due five through ten years 91,534 101,034
Due after ten years 37,881 42,579
-------------------------------
262,597 281,791
Mortgage and other asset backed securities 189,877 197,865
-------------------------------
$452,474 $479,656
===============================
</TABLE>
24
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Interest on bonds $38,047 $37,318 $43,744
Dividends on equity investments 30 700 1,533
Interest on mortgage loans 573 616 832
Interest on policy loans 2,353 1,830 1,465
Other investment income 1,919 1,802 1,010
----------------------------------------
Gross investment income 42,922 42,266 48,584
Investment expenses (2,031) (2,127) (2,387)
----------------------------------------
Net investment income $40,891 $40,139 $46,197
========================================
</TABLE>
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Proceeds $108,554 $99,241 $203,547
============================================
Gross realized gains $ 1,631 $ 2,019 $ 7,584
Gross realized losses 1,346 1,362 703
--------------------------------------------
Net realized gains $ 285 $ 657 $ 6,881
============================================
</TABLE>
At December 31, 1995, bonds with an aggregate carrying value of $4,483 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
25
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
-----------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 285 $ 657 $6,881
Equity securities - (1,579) -
Mortgage loans (1,409) - -
Real estate - - (37)
-----------------------------------------------------
(1,124) (922) 6,844
Tax effect - 225 (226)
Transfer to interest maintenance reserve (554) (436) (4,270)
-----------------------------------------------------
Net realized gains (losses) $(1,678) $(1,133) $2,348
=====================================================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
--------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Debt securities $36,399 $(43,354) $5,598
Common stock (236) 1,009 1,581
--------------------------------------------
Change in unrealized appreciation (depreciation) $36,163 $(42,345) $7,179
============================================
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
UNREALIZED
------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Unrealized gains $361 $597 $1,045
Unrealized losses - - 1,457
------------------------------------------
Net unrealized gains (losses) $361 $597 $ (412)
==========================================
</TABLE>
The Company issued no mortgage loans during 1995. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
26
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1995, 1994 and 1993, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1995, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Direct premiums $570,413 $600,608 $556,641
Reinsurance assumed 1,569 1,232 1,015
Reinsurance ceded (2,084) (1,708) (1,287)
-----------------------------------------------------
Net premiums earned $569,898 $600,132 $556,369
=====================================================
</TABLE>
The Company received reinsurance recoveries in the amount of $512, $1,146 and
$1,135 during 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2 and $85, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1995 and 1994 of $848 and $807,
respectively.
27
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $5,096 $1,190 $2,368
Purchase accounting tax adjustments - - (424)
Deferred acquisition costs - tax basis 4,241 4,043 3,395
Tax reserve valuation (49) (1,353) (817)
Investment income differences 85 (109) (192)
Amortization of IMR (309) (254) (216)
Other, net (147) (111) 92
------------------------------------------
Federal income tax expense $8,917 $3,406 $4,206
==========================================
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1995). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service. The agreed upon settlement totaled $2.26 million in taxes and
interest. The Company's former parent company, Kansas City Southern Industries,
is principally liable for reimbursing this amount to the Company under the terms
of an indemnification agreement made coincident with the sale of the Company. A
charge to surplus of $1.8 million was made as a prior period adjustment related
to this assessment.
28
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately 7.7% and 8.2% of life
insurance in force at December 31, 1995 and 1994, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------- ---------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 13,422 1% $ 12,345 1%
Subject to discretionary withdrawal at
book value less surrender charge 60,970 3 73,733 4
Subject to discretionary withdrawal at
market value 1,930,590 85 1,316,237 81
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 227,549 10 207,779 13
Not subject to discretionary withdrawal
provision 20,034 1 22,788 1
---------------------------- -------------------------
2,252,565 100% 1,632,882 100%
========== ==========
Less reinsurance ceded - -
----------------- ----------------
Total policy reserves on annuities and
deposit fund liabilities $2,252,565 $1,632,882
================= ================
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1995 and 1994, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
29
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
------------- -------------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 - 379
Reinsurance ceded (100) - (100)
------------- -------------- -----------
$2,033 $246 $1,787
============= ============== ===========
DECEMBER 31, 1994
Ordinary direct first year business $ 46 $ 17 $ 29
Ordinary direct renewal business 1,649 252 1,397
Group life direct business 362 - 362
Reinsurance ceded (25) - (25)
------------- -------------- -----------
$2,032 $269 $1,763
============= ============== ===========
</TABLE>
At December 31, 1995 and 1994, the Company had insurance in force aggregating
$2,374 and $3,403, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $32 and $40 to cover these deficiencies at December 31, 1995 and
1994, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $3,496 and $450 was
made for the years ended December 31, 1995 and 1994, respectively, related to
the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The maximum dividend payout which may be made without prior
approval in 1996 is approximately $9,644.
30
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $505, $397 and $249 for the years ended
December 31, 1995, 1994 and 1993, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $305, $250 and $176 for the years ended
December 31, 1995, 1994 and 1993, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
31
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $86, $70 and
$0 for the years ended December 31, 1995, 1994 and 1993, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives investment advisory and management services from certain
affiliates. During 1995, 1994 and 1993, the Company paid $8,825, $7,497 and
$4,583, respectively, for such services, which approximates their costs to the
affiliates. The Company provides office space, marketing and administrative
services to certain affiliates. During 1995, 1994 and 1993, the Company received
$4,545, $3,261 and $1,900, respectively, for such services, which approximates
their cost. The Company had a receivable (payable) with affiliates of $3,625 and
$(674) at December 31, 1995 and 1994, respectively.
The Company paid a cash dividend to its immediate parent, First AUSA Life
Insurance Company, of $5,600 in 1993, and during 1994 received capital
contributions of $45,000.
The Company has an agreement with an affiliate through which net agents debit
balances are sold for cash. The net non-admitted assets sold during 1995, 1994
and 1993 aggregated $5,887, $3,553 and $4,555, respectively.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
32
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,445 at December 31, 1995 for its estimated share of future
guaranty fund assessments related to several post major insurer insolvencies. An
asset of $1,319 at December 31, 1995 has been recorded relating to anticipated
offsets available for certain state premium taxes to be utilized in future
periods. The guaranty fund expense was $1,950, $618 and $329 at December 31,
1995, 1994 and 1993, respectively.
33
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Summary of Investments Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1995
SCHEDULE I
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $108,398 $112,590 $108,213
Foreign governments 15,196 16,019 15,079
Public utilities 16,179 17,568 16,143
All other corporate bonds 315,676 333,479 313,039
---------------------------------------------------------------
Total fixed maturities 455,449 479,656 452,474
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 473 834 834
---------------------------------------------------------------
Total equity securities 473 834 834
Mortgage loans on real estate 6,181 6,536 6,181
Real estate 5,121 5,121 5,121
Policy loans 37,125 37,125 37,125
Cash and short-term investments 4,999 4,999 4,999
---------------------------------------------------------------
Total investments $509,348 $534,271 $506,734
===============================================================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts. Real estate is net of accumulated depreciation.
34
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
----------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Individual life $ 65,259 $41 $5,811
Group life and health 7,904 - 701
Annuity 319,353 - 100
----------------------------------------------------------
$392,516 $41 $6,612
==========================================================
YEAR ENDED DECEMBER 31, 1994
Individual life $ 77,366 $52 $4,501
Group life 7,323 - 481
Annuity 314,124 - 137
----------------------------------------------------------
$398,813 $52 $5,119
==========================================================
YEAR ENDED DECEMBER 31, 1993
Individual life $ 78,371 $56 $2,757
Group life 17,380 - 488
Annuity 392,714 - 763
----------------------------------------------------------
$488,465 $56 $4,008
==========================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information-(Continued)
(Dollars in thousands)
SCHEDULE III-(Continued)
NET BENEFITS OTHER
PREMIUM INVESTMENT AND CLAIMS OPERATING PREMIUMS
REVENUE INCOME EXPENSES EXPENSES WRITTEN
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Individual life $188,143 $ 9,470 $ 36,066 $ 83,675 $ 99,115
Group life and health 3,365 1,054 2,217 946 780
Annuity 378,390 30,367 205,375 44,447 342,949
--------------------------------------------------------------------------------------------------
$569,898 $40,891 $243,658 $129,068 $442,844
==================================================================================================
YEAR ENDED DECEMBER 31, 1994
Individual life $147,282 $10,146 $ 29,272 $ 71,807 $ 89,467
Group life 3,709 372 1,754 1,329 1,846
Annuity 449,141 29,621 199,485 44,063 421,176
--------------------------------------------------------------------------------------------------
$600,132 $40,139 $230,511 $117,199 $512,489
==================================================================================================
YEAR ENDED DECEMBER 31, 1993
Individual life $101,621 $10,943 $ 24,086 $ 52,514 $ 62,600
Group life 5,387 201 1,293 1,104 4,063
Annuity 449,361 35,053 86,406 37,740 419,037
--------------------------------------------------------------------------------------------------
$556,369 $46,197 $111,785 $ 91,358 $485,700
==================================================================================================
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Reinsurance
(Dollars in thousands)
SCHEDULE IV
ASSUED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force $21,057,581 $1,365,119 $ - $19,692,462 0.0%
=====================================================================================
Premiums:
Individual life $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life and health 2,153 357 1,569 3,365 46.6
Annuity 378,390 - - 378,390 0.0
-------------------------------------------------------------------------------------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=====================================================================================
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $1,090,845 $1,271,402 $14,501,943 8.8%
=====================================================================================
Premiums:
Individual life $ 148,766 $ 1,484 $ - $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 - - 449,141 0.0
-------------------------------------------------------------------------------------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=====================================================================================
YEAR ENDED DECEMBER 31, 1993
Life insurance in force $ 9,881,904 $ 851,042 $1,009,201 $10,040,063 10.1%
=====================================================================================
Premiums:
Individual life $ 102,817 $ 1,196 $ - $ 101,621 0.0%
Group life 4,463 91 1,015 5,387 18.8
Annuity 449,361 - - 449,361 0.0
-------------------------------------------------------------------------------------
$ 556,641 $ 1,287 $ 1,015 $ 556,369 0.2%
=====================================================================================
</TABLE>
37
<PAGE>
WRL Series Annuity Account B
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements for the WRL Series Annuity Account B
and for Western Reserve Life Assurance Co. of Ohio ("Western
Reserve") are included in Part B.
(b) Exhibits
(1) Copy of resolution of the Board of Directors of Western Reserve
establishing the Series Account. 1/ -
(2) Not Applicable.
(3) Distribution of Contracts
(a) Form of Master Agreement. 3/
(b) Form of Participation Agreement. 3/
(c) Form of Principal Underwriting and Distribution Agreement.
3/
(d) Broker-Dealer Selling Agreement
(4) Form of Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract. 1/
(5) (a) Application Form for Flexible Payment Variable Accumulation
Deferred Annuity Contract. 3/
(b) Endorsement (Form END00117-04/95). 4/
(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. 4/
C-1
<PAGE>
(10) (a) Written Consent of Sutherland, Asbill & Brennan.
(b) Written Consent of Ernst & Young LLP.
(c) Written Consent of Price Waterhouse LLP.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedules for Computation of Performance Quotations. 2/
(14) Not Applicable.
(15) Powers of Attorney 4/
- ---------------------
1/ This exhibit was previously filed on Form N-4 Registration Statement
dated May 25, 1993 and is incorporated herein by reference.
2/ This exhibit was previously filed on Post-Effective Amendment No. 1 to
Form N-4 Registration Statement dated April 29, 1993 (File No. 33-49550)
and is incorporated herein by reference.
3/ This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
N-4 Registration Statement dated August 18, 1993 (File No. 33-63246) and
is incorporated herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment No. 2 to
Form N-4 Registration Statement dated April 28, 1995 (File No. 33-63246)
and is incorporated herein by reference.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
John R. Kenney (1) Chairman of the Board,
Chief Executive Officer
and President
Patrick S. Baird 4333 Edgewood Rd. N.E. Director
Cedar Rapids, Iowa 52499
Lyman H. Treadway 30195 Chagrin Blvd. Director
Suite 210N
Cleveland, Ohio 44124
- --------------
(1) 201 Highland Avenue, Largo, Florida 34640
C-2
<PAGE>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------- --------------------
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
Alan M. Yaeger (1) Executive Vice President,
Actuary, and Chief
Financial Officer
G. John Hurley (1) Executive Vice President
and Chief Operating
Officer
William H. Geiger (1) Senior Vice President,
Secretary and General
Counsel
Richard B. Franz, II (1) Senior Vice President
and Treasurer
Allan J. Hamilton (1) Vice President and
Controller
- --------------
(1) 201 Highland Avenue, Largo, Florida 34640
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON Netherlands Membership Association
AEGON n.v. Netherlands Corporation (55.19%)
AEGON Netherland n.v. Netherlands Corporation (100%)
AEGON Nevark Holding B.V. Netherlands Corporation (100%)
Groninger Financieringen B.V. Netherlands Corporation (100%)
AEGON International B.V. Netherlands Corporation (100%)
Voting Trust - (Trustees - K.J. Storm, William H. Foster, H.B. Van Wijk)
AEGON U.S. Holding Corporation (DE) (100%)
Short Hills Management Company (NJ) (100%)
CORPA Reinsurance Company (NY) (100%)
AEGON Management Company (IN) (100%)
RCC North America Inc. (DE) (100%)
AEGON USA, Inc. - Holding Co. (IA) (100%
First AUSA Life Insurance Company - Insurance Holding Co. (MD) (100%)
AUSA Life Insurance Company, Inc. - Insurance (NY) (100%)
Life Investors Insurance Company of America - Insurance (IA) (100%)
International Life Investors Insurance Company - Insurance
(NY) (100%)
Bankers United Life Assurance Company - Insurance (IA) (100%)
PFL Life Insurance Company - Insurance (IA) (100%)
Southwest Equity Life Insurance Company - Insurance (AZ) (100%
Voting Common)
C-3
<PAGE>
Iowa Fidelity Life Insurance Company - Insurance (AZ) (100% Voting
Common)
Western Reserve Life Assurance Company of Ohio - Insurance (OH) (100%)
WRL Series Fund, Inc. - Mutual fund (MD)
Monumental Life Insurance Company - Insurance (MD) (100%)
Monumental General Casualty Company - Insurance (MD) (100%)
United Financial Services, Inc. - General Agency (MD) (100%)
Bankers Financial Life Insurance Company - Insurance (AZ)
The Whitestone Corporation - Insurance agency (MD) (100%)
Cadet Holding Corp. - Holding company (IA) (100%)
AUSA Holding Company - Holding company (MD) (100%)
Monumental General Insurance Group, Inc. - Holding company (MD)
(100%)
Monumental General Administrators, Inc. - Provides management
services to unaffiliated third party administrator (MD)
(100%)
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services (MD) (100%)
Monumental General Mass Marketing, Inc. - Marketing arm for
sale of mass marketed insurance coverages (MD) (100%)
AUSA Financial Markets, Inc. - Marketing (IA) (100%)
Universal Benefits Corporation - Third party administrator (IA) (100%)
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - Trust company (IA) (100%)
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies (DE) (100%)
Zahorik Company, Inc. - Broker-dealer (CA) (100%) ZCI, Inc. (AL)
(100%)
InterSecurities, Inc. - Broker-dealer (DE) (100%)
ISI Insurance Agency Inc. & its Subsidiaries - Insurance agency
(CA) (100%)
Associated Mariner Financial Group, Inc. - Holding company
management services (MI) (100%)
Mariner Financial Services, Inc. - Broker/Dealer (MI) (100%)
Mariner/ISI Planning Corporation - Financial planning (MI)
(100%)
Associated Mariner Agency, Inc. and its Subsidiaries -
Insurance agency (MI)(100%)
Mariner Mortgage Corporation - Mortgage origination (MI)
(100%)
Idex Investor Services, Inc. - Shareholder services (FL) (100%)
Idex Management, Inc. - Investment advisor (DE) (50%)
Idex Fund - Mutual fund (MA)
Idex II Series Fund - Mutual fund (MA)
Idex Fund 3 - Mutual fund (MA)
Transunion Casualty Company - Insurance (IA) (100%)
AUSA Institutional Marketing Group, Inc. - Insurance agency (MN)
(100%)
Colorado Annuity Agency, Inc. - Insurance agency (MN) (100%)
Diversified Investment Advisors, Inc. - Registered investment advisor
(DE) (100%)
Diversified Investors Securities Corporation - Broker-dealer (DE)
(100%)
AEGON USA Securities, Inc. - Broker-dealer (IA) (100%)
AEGON USA Managed Portfolios, Inc. - Mutual fund (MD)
American Forum for Fiscal Fitness, Inc. - Marketing (IA) (100%)
Supplemental Insurance Division, Inc. - Insurance (TN) (100%)
Creditor Resources, Inc. - Credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. -
Insurance agency (Canada)
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AEGON USA Investment Management, Inc. - Investment advisor (IA)
(100%)
AEGON USA Realty Advisors, Inc. - Provides real estate
administrative and real estate investment services (IA)
(100%)
Melson & Associates, Inc. - Real estate financial
management consulting (TX) (100%)
Landauer Realty Advisors, Inc. - Real estate counseling
(IA) (100%)
Landauer Associates, Inc. - Real estate counseling (DE)
(100%)
AEGON USA Realty Management, Inc. - Real estate management
(IA) (100%)
Realty Information Systems, Inc. - Information systems for
real estate investment management (IA) (100%)
USP Real Estate Investment Trust - Real estate
investment trust (IA)
Cedar Income Fund Ltd. - Real estate investment trust (IA)
Forty-Six Hundred Limited Partnership - Limited
partnership (IA)
JLW Financial Management Systems, Inc. - Provides management
expertise and administrative services for credit unions (IN) (60%)
Item 27. NUMBER OF CONTRACTOWNERS.
As of March 31, 1996, 1,930 nonqualified contracts and 87 qualified
contracts were in force.
Item 28. INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended
Code of Regulations of Western Reserve whereby Western Reserve may
indemnify certain persons against certain payments incurred by such
persons. The following excerpts contain the substance of these
provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a
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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;
(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
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referred to in divisions (E)(1) and (2) of this section is pursuant to section
1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a
director in defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final disposition of the
action, suit, or proceeding upon receipt of an undertaking by or on behalf of
the director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, 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.
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SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(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
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<PAGE>
(c) by the shareholders, or (d) by the court of common pleas or the court in
which such action, suit, or proceeding was brought. Any determination made by
the disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination that a written undertaking
need not be submitted to the corporation shall in no way affect the entitlement
of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(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.
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The corporation may purchase and maintain insurance on behalf of such named
fiduciary covering any liability to the same extent that it contracts to
indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of any other corporation in which this
Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Western Reserve of expenses
incurred or paid by a director, officer or controlling person of Western Reserve
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Western Reserve will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
(a) InterSecurities, Inc. ("ISI"), formerly known as IDEX
Distributors, Inc. and before that, as Pioneer Western
Distributors, Inc., currently distributes securities of WRL
Series Life Account and the mutual funds managed by IDEX
Management, Inc., an affiliate of ISI.
(b) Directors and Officers of ISI
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH UNDERWRITER
---- ---------------- --------------------
John R. Kenney (1) Chairman of the Board
G. John Hurley (1) Director, President
and Chief Executive
Officer
- --------------------------
(1) 201 Highland Avenue, Largo, Florida 34640
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<PAGE>
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH UNDERWRITER
---- ---------------- --------------------
J. Will Paull 17199 N. Laurel Park Dr. Director
Livonia, MI 48152-3908
Thomas R. Moriarty (1) Senior Vice President
Donald L. Cudney (1) Senior Vice President
William H. Geiger (1) Director and Secretary
Richard B. Franz, II (1) Treasurer
- --------------------------
(1) 201 Highland Avenue, Largo, Florida 34640
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by the Registrant through Western Reserve, 201 Highland
Avenue, Largo, Florida 34640.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a Post-Effective amendment to
this registration statement as frequently as is necessary to
ensure that the audited financial statements in the registration
statement are never more than sixteen (16) months old for so long
as payments under the variable annuity contracts may be accepted;
(b) Registrant hereby undertakes to include either (1) 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 (2) a postcard or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional
Information; and
(c) Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statement required to be
made available under this Form promptly upon written or oral
request.
Item 33. Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 3 to its Registration Statement to be signed
on its behalf by the undersigned, thereunder duly authorized, in the City of
Largo, State of Florida, on this 15th day of April, 1996.
WRL SERIES ANNUITY ACCOUNT B
(Registrant)
By: /s/ JOHN R. KENNEY
---------------------------------------
John R. Kenney, Chairman of the Board,
Chief Executive Officer and President
of Western Reserve Life Assurance Co.
of Ohio
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(Depositor)
By: /s/ JOHN R. KENNEY
---------------------------------------
John R. Kenney, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN R. KENNEY Chairman of the Board, April 15, 1996
- ------------------------ Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
/s/ RICHARD B. FRANZ II Senior Vice President April 15, 1996
- ------------------------ and Treasurer
Richard B. Franz II
/s/ ALLAN J. HAMILTON Vice President & April 15, 1996
- --------------------- Controller
Allan J. Hamilton
<PAGE>
/s/ ALAN M. YAEGER Executive Vice President, April 15, 1996
- --------------------- Actuary and Chief Financial
Alan M. Yaeger */ Officer
/s/ PATRICK S. BAIRD Director April 15, 1996
- ---------------------
Patrick S. Baird */
/s/ LYMAN H. TREADWAY Director April 15, 1996
- ---------------------
Lyman H. Treadway */
/s/ JACK E. ZIMMERMAN Director April 15, 1996
- ---------------------
Jack E. Zimmerman */
*/ /s/ THOMAS E. PIERPAN
---------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 3 TO THE
REGISTRATION STATEMENT
ON FORM N-4
WRL SERIES ANNUITY ACCOUNT B
REGISTRATION NO. 33-63246
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
(3)(d) Broker-Dealer Selling Agreement
(10)(a) Consent of Sutherland, Asbill & Brennan
(10)(b) Consent of Ernst & Young LLP
(10)(c) Consent of Price Waterhouse LLP
S.A.B. letterhead
April 22, 1996
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account B
201 Highland Avenue
Largo, Florida 34640
RE: WRL Series Annuity Account B
FILE NO. 33-63246
Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of the
Post-Effective Amendment No. 3 to the Registration Statement on Form N-4 (File
No. 33-63246) of WRL Series Annuity Account B filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ STEPHEN E. ROTH
--------------------------------
Stephen E. Roth
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption, "Independent
Accountants" and to the use of our report dated February 23, 1996, with respect
to the statutory-basis financial statements of Western Reserve Life Assurance
Co. of Ohio included in Amendment No. 3 to Registration Statement (Form N-4 No.
33-63246) and related Prospectus of WRL Series Annuity Account B.
ERNST & YOUNG LLP
Des Moines, Iowa
April 18, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of the Janus Retirement Advantage Post-Effective Amendment No.
3 to the Registration Statement on Form N-4 of our report dated January 31, 1996
relating to the financial statements and selected per unit data and ratios of
the sub-accounts comprising the Janus Retirement Advantage WRL Series Annuity
Account B, which appears in such Statement of Additional Information. We further
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information.
PRICE WATERHOUSE LLP
Kansas City, Missouri
April 22, 1996
BROKER-DEALER SELLING AGREEMENT
This Broker-Dealer Selling Agreement (the "Agreement") is made this
15th day of March, 1996, by and among InterSecurities, Inc. ("ISI"), Western
Reserve Life Assurance Co. of Ohio ("WRL"), and Janus Distributors, Inc.
("JDI").
RECITALS
WHEREAS, ISI, a broker-dealer registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("1934
Act") and a member of the National Association of Securities Dealers, Inc.
("NASD"), is the principal underwriter of a certain variable annuity known as
Janus Retirement Advantage annuity contract (the "Contract") that is offered by
its affiliate, WRL, a life insurer;
WHEREAS, JDI is a broker-dealer registered with the SEC under the
1934 Act and a member of the NASD and is duly authorized to solicit, market and
sell the Contract in certain states which are listed in Exhibit A to this
Agreement;
WHEREAS, ISI proposes to have certain registered representatives of
JDI who have been licensed and appointed as life insurance agents of WRL, and
have become associated with ISI Insurance Agency, Inc. ("ISIIA"), or its
associated insurance agencies or principal agents (such registered
representatives hereafter referred to as "Representative-Agents") to solicit and
sell the Contract in certain states or jurisdictions, and JDI desires to sell
such Contract, through the Representative-Agents, in such states or
jurisdictions, on the terms and conditions set forth hereinafter;
WHEREAS, each Representative-Agent shall be a dual employee of ISIIA
and JDI and shall be supervised by ISIIA and JDI pursuant to the Coordination
and Supervisory Agreement dated March 15, 1996;
WHEREAS, JDI is affiliated with Janus Capital Corporation ("Janus
Capital") which has established and serves as investment adviser to Janus Aspen
Series, an open-end investment company designed to serve as an underlying
investment medium for the Contracts and for other variable annuity contracts or
variable life insurance policies;
WHEREAS, WRL, ISI, and Janus Capital have entered into a Master
Agreement dated as of March 1, 1994, as may be amended from time to time,
regarding each party's respective functions with regard to the Contracts (the
"Master Agreement");
WHEREAS, WRL and Janus Aspen Series entered into a Participation
Agreement dated as of March 1, 1994, as may be amended from time to time,
regarding each party's functions with regard to the Contracts (the
"Participation Agreement");
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. APPOINTMENT.
a. WRL authorizes ISIIA, and ISI hereby authorizes JDI to cause
the Representative-Agents to sell the Contract in the states
and jurisdictions in which JDI and the Representative-Agents
are appropriately licensed, registered or otherwise qualified
and in which the Contract is duly authorized to be sold. In
<PAGE>
addition to the Contracts, Representative-Agents may continue
to solicit investors for securities and insurance products
distributed by JDI, its affiliates and others in their
capacities as registered representatives of JDI.
b. JDI agrees to use its best efforts to solicit and sell the
Contract and perform the other functions set forth herein. JDI
shall provide the office space, support personnel, office
equipment, and other resources as may be reasonably necessary
for the Representative-Agents to solicit and sell the
Contracts. JDI shall be free to exercise its own discretion as
to whom to solicit and the time, place, and means of
performing its duties under this Agreement.
2. SUPERVISION OF REPRESENTATIVE-AGENTS BY JDI. JDI, with respect
to securities law related activities, shall have full
responsibility for the training and supervision of all
Representative-Agents associated with JDI who are engaged
directly or indirectly in the offer or sale of the Contract
and all such persons shall be subject to the control of JDI
with respect to such persons' securities-related activities in
connection with the Contract. JDI will establish rules,
procedures and supervisory techniques necessary to diligently
supervise the activities of the Representative-Agents.
JDI will use its best efforts to cause such Representative-
Agents to qualify under applicable federal and state
securities laws to engage in the sale of the Contract, will
cause such Representative-Agents to be registered
representatives of JDI before such Representative-Agents
engage in the solicitation of applications for the Contract,
will provide each of the Representative-Agents with a copy of
its compliance manual, and will cause such
Representative-Agents to limit solicitation of applications
for the Contract to jurisdictions where WRL or ISI has
authorized such solicitation.
JDI shall certify Representative-Agents' qualifications,
including certifying a General Letter of Recommendation set
forth in Exhibit B to this Agreement.
3. COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND
STATE SECURITIES AND INSURANCE LAWS. ISI and JDI shall fully
comply with the requirements of the 1934 Act and all other
applicable federal or state laws applicable to the
solicitation and service of the Contract.
4. RECORDS. JDI agrees to maintain appropriate books and records
concerning the activities of the Representative-Agents in
connection with the offering and sale of the Contracts as
required by the 1934 Act, the NASD Rules of Fair Practice, and
any other applicable securities laws or regulations. Any party
shall readily provide such records or disclosures pertaining
to sales, conduct or commissions under this Agreement, as may
be required by court order or law or by any regulatory or
self-regulatory authority to which any party is subject.
Management of WRL, ISIIA, ISI, and JDI, their designated
agents, and all regulatory bodies having jurisdiction over
them, shall have unimpeded access at all times to all records
maintained in connection with the offering and sale of the
Contracts pursuant to this Agreement.
5. PROSPECTUS, SALES PROMOTION MATERIAL AND ADVERTISING. (a)
PROSPECTUS. JDI shall forward to the Representative-Agents,
Contract prospectuses and such other materials ISI and WRL
determine to be necessary or desirable for use in connection
with sales of the Contract. (b) SALES MATERIAL AND
ADVERTISING. JDI shall ensure that no sales promotion
materials or advertising related to the Contract shall be used
by
<PAGE>
Representative-Agents in connection with the sale of any
Contract unless the specific item has been approved in the
manner and by the specified parties as provided in the Master
Agreement and the Participation Agreement. (c) RESPONSIBILITY
FOR FILING SALES LITERATURE AND ADVERTISING WITH NASD. As
between ISI and JDI, the party developing and publishing the
respective sales literature or advertising relating to the
Contracts shall be responsible for filing it with the NASD.
The allocation under this Agreement of the responsibility to
file such materials with the NASD does not waive in any way
the review and approval of such material by the various
parties as required under the Master Agreement and the
Participation Agreement.
6. APPLICATIONS. JDI shall cause all applications for the
Contract to be made on application forms supplied by WRL, and
all payments collected by JDI or any Representative-Agent to
be remitted promptly in full, together with such application
forms and any other documentation directly to WRL at the
address indicated on such application. JDI shall review all
such applications for completeness. Checks or money orders in
payment on any such Contract shall be drawn to the order of
WRL. Applications are subject to rejection by WRL if not in
good order. JDI agrees to remit in full to WRL promptly upon
receipt, all premiums received on such applications, forms and
any other required documentation obtained in respect of
participants in the Contract. ISI and WRL represent and
warrant that all Contracts are legally issued, registered and
filed as required by applicable federal securities and state
insurance laws in all jurisdictions authorized by WRL and ISI.
7. COMPENSATION. No compensation shall be due to any party or any
Representative-Agent from any other party under this
Agreement. Each party shall pay all expenses incurred by it
hereunder.
8. INVESTIGATIONS. WRL, ISI, and JDI agree to cooperate fully in
any investigation or proceeding with respect to any
Representative-Agent to the extent that such investigation or
proceeding is in connection with the Contract. Without
limiting the foregoing:
a. ISI or WRL will promptly notify JDI of any substantive
customer complaints or notice of any regulatory
investigation or proceeding or judicial proceeding received
by it or any of its affiliates with respect to JDI or any
Representative-Agent in connection with the Contract or any
activity in connection therewith.
b. JDI will promptly notify ISI and/or WRL of any substantive
customer complaints or notice of any regulatory
investigation or proceeding or judicial proceeding received
by JDI with respect to JDI or any Representative-Agent in
connection with the Contract or any activity in connection
therewith.
c. In the case of a substantive customer complaint in
connection with the Contract, WRL, ISI, and JDI will
cooperate in investigating such complaint. However, any
response thereto affecting or involving the rights or
obligations of WRL under the Contract shall be the sole
responsibility of WRL.
9. INDEMNIFICATION. JDI agrees to hold ISI and WRL harmless and
indemnify ISI and WRL against all loss, claims, attorneys'
fees and expenses that result from breach of this Agreement by
JDI or from any negligent, fraudulent, or intentional acts,
omissions or errors of JDI, its employees, its agents, or the
Representative-Agents in the performance of any services or
duties hereunder or related in any way to this Agreement.
<PAGE>
ISI and WRL agree to hold JDI harmless and indemnify JDI
against all loss, claims, attorneys' fees and expenses that
result from breach of this Agreement by ISI or WRL or from any
negligent, fraudulent, or intentional acts, omissions or
errors of ISI or WRL, their employees, and their agents in the
performance of any services or duties hereunder or related in
any way to this Agreement.
Without limiting the foregoing indemnities, each party to this
Agreement agrees to indemnify and hold harmless the other
against any breach of representation, warranty or covenant
herein by the indemnifying party.
10. TERMINATION.
a. ISI may terminate this Agreement immediately and without
notice if JDI fails to maintain its registration as a
broker-dealer under the 1934 Act or a member of the NASD.
b. Each party to this Agreement may terminate this Agreement
upon written notice to the other party if the other party
breaches any material provision of this Agreement and fails
to cure such breach within thirty (30) days of the written
notice.
c. Each party to this Agreement shall have the right, upon
thirty (30) days' written notice to the other parties, to
terminate this Agreement for whatever reason deemed
appropriate by such party.
d. This Agreement shall terminate simultaneously with the
earlier of the termination of the Master Agreement or of
the Coordination and Supervisory Agreement.
e. Notwithstanding the termination of this Agreement, ISI and
JDI acknowledge that each of them shall be individually and
respectively liable, responsible and accountable for any
and all action undertaken prior to the effective date of
the termination of this Agreement.
f. Notice of termination shall be deemed to be given on the
day mailed or delivered by hand to an officer of either
party.
11. FIDELITY BOND. JDI shall secure and maintain a fidelity bond
in at least the amount prescribed under Article III, Section
32 of the NASD Rules of Fair Practice.
12. INDEPENDENT CONTRACTORS. ISI and JDI enter into this Agreement
as independent contractors and nothing contained in this
Agreement and no act done under this Agreement shall be
construed as establishing a partnership, joint venture, or
principal-agent relationship among the parties.
13. ASSIGNMENT. None of the parties to this Agreement may assign
this Agreement without the prior written approval of the other
parties.
14. CONFIDENTIALITY. Each party will keep confidential information
it may acquire as a result of this Agreement regarding ISI and
JDI and their affiliates' affairs. The parties agree that
ownership of or rights to any customer list or other propriety
information that either
<PAGE>
party may acquire in the performance of this Agreement shall
be governed by the Master Agreement.
15. NOTICES. All notices hereunder are to be made in writing and
shall be given:
if to ISI, to: 201 Highland Avenue
Largo, FL 34640
Attn: William Geiger, Secretary
if to JDI, to: 100 Fillmore Street
Denver, CO 80206
Attn: David Tucker, General Counsel
if to WRL, to: 201 Highland Avenue
Largo, FL 34640
Attn: William Geiger, Secretary
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute
one and the same instrument.
17. SEVERABILITY. This is a severable Agreement. In the event that
any provisions of this Agreement would require a party to take
action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable
federal or state law, then it is the intention of the parties
hereto that such provisions shall be enforced to the extent
permitted under the law, and, in any event, that all other
provisions of this Agreement shall remain valid and duly
enforceable as if the provision at issue had never been a part
hereof.
18. SURVIVAL. The provisions of Sections 9, 10, 14 and 17 of this
Agreement shall survive termination of this Agreement.
19. GOVERNING LAW. This Agreement shall be interpreted in
accordance with the laws of the State of Colorado.
20. HEADINGS. The sections and other headings contained in this
Agreement are for reference purposes only and shall not affect
the meaning or interpretation of any provisions of this
Agreement.
21. AMENDMENT. This Agreement may not be amended except by a
writing signed by each of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officials thereunto duly authorized, as of the day
and year first above written.
Attest: INTERSECURITIES, INC.
/s/ William H. Geiger By: /s/ Thomas R. Moriarty
--------------------------------
Title: Senior Vice President
Attest: JANUS DISTRIBUTORS, INC.
/s/ Bonnie Howe By: /s/ Dana R. Cunningham
--------------------------------
Title: President
Attest: WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
/s/ William H. Geiger By: /s/ Alan Yaeger
--------------------------------
Title: Executive Vice President
<PAGE>
EXHIBIT A TO BROKER-DEALER SELLING AGREEMENT
The following is a list of jurisdictions in which JDI is duly registered or
licensed as a dealer or broker and is fully authorized to sell the Contract.
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or all states of the United States except:
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<PAGE>
EXHIBIT B TO BROKER-DEALER SELLING AGREEMENT
GENERAL LETTER OF RECOMMENDATION
JDI hereby certifies to ISI and WRL that all the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants submitted by JDI. JDI will, upon
request, forward proof of compliance with same to ISI in a timely manner. "We"
refers to JDI.
1. We have made a thorough and diligent inquiry and investigation
relative to each applicant's identity, residence and business
reputation and declare that each applicant is personally known to
us, has been examined by us, is known to be of good moral
character, has a good business reputation, is reliable, is
financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to hold
himself out in good faith to the general public in connection
with the Contracts.
2. We have on file a U-4 form which was completed by each applicant.
We have fulfilled all the necessary investigative requirements
for the registration of each applicant as a registered
representative through our NASD member firm, and each applicant
is presently registered as an NASD registered representative.
The above information in our files indicates no fact or condition
which would disqualify the applicant from receiving a license and
all the findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for
the specified state each applicant is requesting a license in,
and that all such persons have fulfilled the appropriate
examination, education and training requirements.
4. If the applicant is required to submit his picture, his
signature, and securities registration in the state in which he
is applying for a license, we certify that those items forwarded
to WRL are those of the applicant and the securities registration
is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a
license with WRL in order to place insurance chiefly and solely
on his life or property, or lives or property of his relatives,
or property or liability of his associates.
6. We will not permit any applicant to directly or indirectly
solicit Contracts unless WRL has advised JDI the applicant is
duly licensed and appointed to do so.
