JANUS RETIREMENT ADVANTAGE(R)
FLEXIBLE PAYMENT VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
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Prospectus
May 1, 1997
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ISSUED BY: DISTRIBUTED BY:
Western Reserve Life Assurance Co. of Ohio InterSecurities, Inc.
201 Highland Avenue 201 Highland Avenue
Largo, Florida 33770-2597 Largo, Florida 33770-2597
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 eleven 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 eleven investment portfolios
of the Trust are: the Growth Portfolio, the Aggressive Growth Portfolio, the
Capital Appreciation Portfolio, the Worldwide Growth Portfolio, the
International Growth Portfolio, the Balanced Portfolio, the Equity Income
Portfolio, the Flexible Income Portfolio, the High-Yield Portfolio, the
Short-Term Bond Portfolio and the Money Market 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, 1997, 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 26 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.
[JANUS LOGO]
<PAGE>
TABLE OF CONTENTS
Page
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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 ............................................... 11
Charges and Deductions ................................................ 11
No Sales Charge .................................................. 11
Transfer Charge .................................................. 12
Mortality and Expense Risk Charge ................................ 12
Annual Contract Charge ........................................... 12
Administrative Charge ............................................ 12
Premium Taxes .................................................... 12
Deductions for Other Taxes ...................................... 12
Expenses of the Trust ............................................ 13
The Contract - Accumulation Provisions................................. 13
Purchase Payments ................................................ 13
Net Purchase Payments ............................................ 13
Accumulation Unit Value .......................................... 14
Computing Sub-Account Value ...................................... 14
Portfolio Share Net Asset Value .................................. 14
Transfers to and from, and among Allocation Options .............. 14
Systematic Exchanges ............................................. 15
Partial Withdrawals and Surrenders ............................... 15
Death Benefits during the Accumulation Period .................... 16
The Contract - Annuity Provisions ..................................... 17
Maturity Date and Selection of Annuity Options ................... 17
Fixed Account Annuity Options .................................... 18
Series Account Annuity Options ................................... 18
Death Benefits after the Maturity Date ........................... 19
Improved Annuity Rates ........................................... 19
Proof of Age, Sex, and Survival .................................. 19
Other Matters Relating to the Contract ................................ 19
Changes in Purchase Payments ..................................... 19
Right to Examine Contract ........................................ 19
Contract Payments ................................................ 19
Ownership ........................................................ 20
Annuitant ........................................................ 20
Beneficiary ...................................................... 20
Modification or Waiver ........................................... 20
Federal Tax Matters ................................................... 21
Introduction ..................................................... 21
Company Tax Status ............................................... 21
Taxation of Annuities ............................................ 21
Individual Retirement Annuities .................................. 22
Additional Considerations ........................................ 23
The Fixed Account ..................................................... 24
Minimum Guaranteed and Current Interest Rates .................... 24
Fixed Account Value .............................................. 24
Allocations, Transfers and Partial Withdrawals ................... 25
Distribution of the Contracts ......................................... 25
Voting Rights ......................................................... 25
Legal Proceedings ..................................................... 25
Statement of Additional Information .................................. 26
JANUS ASPEN SERIES
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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 Allocation Option under the Contract that provides for
accumulation of Net Purchase Payments and options for annuity payments 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.
IN FORCE - Condition under which the Contract is active and the Owner is
entitled to exercise all rights under the Contract.
ISSUE AGE - Refers to the age on the birthday nearest the Contract Date.
MATURITY DATE - The date on which the Accumulation Period ends and annuity
payments are to 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.
3
<PAGE>
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.
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 13 and "THE CONTRACT - Annuity Provisions" on
page 17.) (For information about tax status, see "FEDERAL TAX MATTERS" on pages
21-24.)
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 19.)
THE TRUST
The underlying variable investments for the Contract are shares of the
eleven Portfolios of the Trust: the Growth Portfolio, the Aggressive Growth
Portfolio, the Capital Appreciation Portfolio, the Worldwide Growth Portfolio,
the International Growth Portfolio, the Balanced Portfolio, the Equity Income
Portfolio, the Flexible Income Portfolio, the High-Yield Portfolio, the
Short-Term Bond Portfolio and the Money Market 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 11.)
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 15.) Moreover, a partial withdrawal or Surrender may have Federal income
tax consequences. (See "FEDERAL TAX MATTERS - Individual Retirement Annuities"
on page 22.)
4
<PAGE>
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 59-1/2 and other exceptions do not apply. (See "FEDERAL TAX MATTERS" on
pages 21-24.)
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.) This charge is deducted from the Series Account both during
the Accumulation Period and after the Maturity Date.
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $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 12.)
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
12.)
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 11 and
the Prospectuses 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.
<TABLE>
<CAPTION>
Owner Transaction Expenses
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<S> <C>
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
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</TABLE>
<TABLE>
<CAPTION>
Separate Account Annual Expenses (as a % of average Series Account Value)
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<S> <C>
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%
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</TABLE>
<TABLE>
<CAPTION>
Trust Annual Expenses** (as a % of average net assets for the period ended December 31, 1996)
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AGGRESSIVE CAPITAL WORLDWIDE INTERNATIONAL
GROWTH GROWTH APPRECIATION GROWTH GROWTH BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO**** PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.65% 0.72% 0.75% 0.66% 0.05% 0.79%
Other Expenses
(after
reimbursement) 0.04% 0.04% 0.30% 0.14% 1.21% 0.15%
Total Operating
Expenses 0.69% 0.76% 1.05% 0.80% 1.26% 0.94%
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</TABLE>
[RESTUBBED TABLE FROM ABOVE]
<TABLE>
<CAPTION>
EQUITY FLEXIBLE HIGH- SHORT-TERM MONEY
INCOME INCOME YIELD BOND MARKET
PORTFOLIO**** PORTFOLIO PORTFOLIO*** PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.95% 0.65% 0.00% 0.47% 0.00%
Other Expenses
(after
reimbursement) 0.30% 0.19% 1.01% 0.19% 0.50%
Total Operating
Expenses 1.25% 0.84% 1.01% 0.66% 0.50%
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<FN>
* Deduction of the Annual Contract Charge is currently waived when the
Annuity Value on the Anniversary is equal to or greater than $25,000.
** The fees and expenses in the table are based on gross expenses of the
shares before expense offset arrangements for the fiscal year ended
December 31, 1996. The information for each Portfolio, other than the
Flexible Income Portfolio, is net of fee waivers or reductions from Janus
Capital. Fee reductions for the Growth, Aggressive Growth, Capital
Appreciation, Worldwide Growth, International Growth, Balanced and Equity
Income Portfolios reduce the management fee to the level of the
corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, Management Fees, Other Expenses and Total
Operating Expenses for the Portfolios for the fiscal year ended December
31, 1996 would have been: 0.79%, 0.04% and 0.83% for Growth Portfolio;
0.79%, 0.04% and 0.83% for Aggressive Growth Portfolio; 1.00%, 0.30% and
1.30% for Capital Appreciation Portfolio; 0.77%, 0.14% and 0.91% for
Worldwide Growth Portfolio; 1.00%, 1.21% and 2.21% for International Growth
Portfolio; 0.92%, 0.15% and 1.07% for Balanced Portfolio; 1.00%, 0.30% and
1.30% for Equity Income Portfolio; 0.75%, 5.54% and 6.29% for High-Yield
Portfolio; 0.65%, 0.19% and 0.84% for Short-Term Bond Portfolio; and 0.25%,
0.53% and 0.78% for Money Market Portfolio.
*** Because the High-Yield Portfolio commenced operations on May 1, 1996, the
percentages set forth as "Other Expenses" and "Total Operating Expenses"
are annualized.
**** Because of its limited operating history, the percentages set forth above
are based on estimate of expenses for the initial fiscal year for the
Capital Appreciation Portfolio and the Equity Income Portfolio.
</FN>
</TABLE>
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, 1996, except that
the "Other Expenses" and "Total Operating Expenses" for the High-Yield Portfolio
are annualized, and the "Other Expenses" and "Total Operating Expenses" for the
Capital Appreciation and Equity Income 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 11 and the Trust Prospectuses which accompany
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Sub-Account $15 $46 $79 $172
Aggressive Growth Sub-Account $15 $48 $82 $180
Capital Appreciation Sub-Account $18 $57 N/A N/A
Worldwide Growth Sub-Account $16 $49 $84 $184
International Growth Sub-Account $20 $63 $108 $234
Balanced Sub-Account $17 $53 $92 $200
Equity Income Sub-Account $20 $63 N/A N/A
Flexible Income Sub-Account $16 $50 $86 $189
High-Yield Sub-Account $18 $55 $95 $207
Short-Term Bond Sub-Account $14 $45 $77 $169
Money Market Sub-Account $13 $40 $69 $151
- -------------------------------------------------------------------------------------------------
</TABLE>
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 $30,633 which translates
that charge into an assumed charge at an annual rate of 0.10% of the Series
Account value.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
DEATH BENEFIT
If the Annuitant is also the Owner or if the Owner is not a natural person,
and the Annuitant dies at any time before the Maturity Date, a death benefit
will be provided, unless certain elections have been made that would keep the
Contract in force. After the Maturity Date, death benefits will be paid in
accordance with the annuity option then in effect. (See "THE CONTRACT -
ACCUMULATION PROVISIONS - Death Benefits during the Accumulation Period" on page
16 and "THE CONTRACT - ANNUITY PROVISIONS - Death Benefits after the Maturity
Date" on page 19.)
ANNUITY PAYMENT OPTIONS
Annuity payment options are available under the Contract for distribution
of the Annuity Proceeds after the Maturity Date. The Maturity Date may not be
earlier than the end of the fifth Contract Year and cannot be deferred beyond
the Annuitant reaching Attained Age 90. Subject to these limitations, the
default Maturity Date may be changed by the Owner, at any time prior to that
date, by delivering a written request to Western Reserve. (See "THE
CONTRACT-ANNUITY PROVISIONS - Maturity Date and Selection of Annuity Options" on
page 17.)
TRANSFERS
Prior to the Maturity Date, the Owner may transfer any or all of the
Annuity Value from any Sub-Account to the Fixed Account, from the Fixed Account
to any Sub-Account, or among the Sub-Accounts. (For Contracts issued in the
State of Washington, the Fixed Account is not available for transfers of Annuity
Value from the Sub-Accounts.) (See "THE CONTRACT - ACCUMULATION PROVISIONS -
Transfers to and from, and among Allocation Options" on page 14.) Western
Reserve will impose a charge of $10 for each transfer following the first twelve
transfers made during any Contract Year. This charge will not be increased.
Certain restrictions apply to transfers from the Fixed Account. Western Reserve
may at any time revoke or modify the transfer privilege. (See "THE CONTRACT -
ACCUMULATION PROVISIONS - Transfers to and from, and among Allocation Options"
on page 14 and "THE FIXED ACCOUNT - Allocations, Transfers and Partial
Withdrawals" on page 25.)
6
<PAGE>
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 24.
<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
International Growth 9.665 11.801 135,202.435
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
- ---------------------------------------------------------------------------------------------------------------------------
</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>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
VALUE AT BEGINNING VALUE AT END OUTSTANDING AT END
SUB-ACCOUNT OF PERIOD OF PERIOD OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth $13.613 $16.010 1,042,859.684
Aggressive Growth 17.213 18.449 1,020,107.090
International Growth 11.801 15.785 390,010.601
Worldwide Growth 15.144 19.402 1,211,235.201
Balanced 13.264 15.301 348,749.461
Flexible Income 12.152 13.175 166,841.253
Short-Term Bond 10.902 11.255 89,662.336
Money Market 10.303 10.744 567,317.336
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM 5/1/96* TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------
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>
High-Yield $10.000 $11.191 58,905.138
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations of the Sub-Account.
Because the Capital Appreciation and Equity Income Sub-Accounts did not
commence operations until May 1, 1997, there is no condensed financial
information for these Sub-Accounts for the year ended December 31, 1996.
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, 1996, the current yield and effective
yield for the Money Market Sub-Account were as follows:
Current Yield = 4.55%
Effective Yield = 4.66%
The yield of a Sub-Account other than the Money Market Sub-Account refers
to the income produced by a hypothetical Series Account Value in the other
Sub-Account 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
8
<PAGE>
Value. Based on the method of calculation described in the Statement of
Additional Information, for the thirty-day period ended December 31, 1996, the
yield for the following Sub-Account was as follows:
Short-Term Bond Sub-Account = 4.80%
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. (The $30 Annual Contract Charge is not included in
these calculations.) 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,
1996, were as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION ONE YEAR PERIOD THREE YEAR PERIOD
SUB-ACCOUNT TO 12/31/96 ENDED 12/31/96 ENDED 12/31/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth 15.32% 17.61% 15.65%
Aggressive Growth 20.38% 7.18% 16.05%
Worldwide Growth 22.23% 28.12% 17.66%
International Growth 18.66% 33.75% N/A
Balanced 13.75% 15.36% 12.59%
Flexible Income 8.71% 8.41% 9.37%
High-Yield 11.91% N/A N/A
Short-Term Bond 3.65% 3.24% 3.92%
Money Market 4.39% 4.28% N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. The High-Yield
Sub-Account commenced operations on May 1, 1996. Because the Capital
Appreciation and Equity Income Sub-Accounts commenced operations on May 1, 1997,
there is no performance information for these Sub-Accounts.
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.
9
<PAGE>
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 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
10
<PAGE>
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.
The Trust currently has eleven Portfolios: the Growth Portfolio, the
Aggressive Growth Portfolio, the Capital Appreciation Portfolio, the Worldwide
Growth Portfolio, the International Growth Portfolio, the Balanced Portfolio,
the Equity Income Portfolio, the Flexible Income Portfolio, the High-Yield
Portfolio, the Short-Term Bond Portfolio and the Money Market 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.
Janus Capital serves as Investment Adviser to each Portfolio. There is no
assurance that any Portfolio will achieve its investment objective. More
detailed information, including a description of risks, can be found in the
Prospectuses for the Trust, which should be read carefully.
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 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 21-22 and "-"Individual Retirement
Annuities" on page 22.)
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.
11
<PAGE>
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 may, at any time, revoke or modify this transfer
privilege. The Transfer Charge may not be increased.
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 19 and
"THE CONTRACT-ACCUMULATION PROVISIONS - Death Benefits during the Accumulation
Period" on page 16.) Western Reserve also assumes an expense risk through its
guarantee not to increase the charges for issuing and administering the
Contracts and the Series Account, regardless of its actual expenses.
This charge is deducted from the Series Account both during the
Accumulation Period and after the Maturity Date. The Mortality and Expense Risk
Charge will not be assessed against 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.
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
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.
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 21.)
12
<PAGE>
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 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 12.) Initial and
subsequent Net Purchase Payments are allocated according to the Owner's
direction among the Sub-Accounts of the Series Account, to the Fixed Account, or
to a combination of both. Western Reserve does not currently require that
allocation of Net Purchase Payments to an Account meet a minimum percentage.
Western Reserve does reserve the right to limit allocation of Net Purchase
Payments to any Account to no less than 10% of each Net Purchase Payment. No
fractional percentages are permitted. (For Contracts issued in the 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
13
<PAGE>
Contract Year. Upon allocation to the Series Account, Net Purchase Payments are
converted into units of the appropriate Sub-Account based upon the Accumulation
Unit Value in that Sub-Account on or following the Valuation Date on which the
Purchase Payment is received at Western Reserve's Administrative Office. (See
"Accumulation Unit Value," below.) If the Contract application and other
information necessary for processing the request to apply the Purchase Payment
(collectively "application") are complete upon receipt, Western Reserve will
accept the application and apply the initial Net Purchase Payment within two
business days of receipt. If it is incomplete, Western Reserve will attempt to
have it properly completed within five business days of receipt, and if unable
to do so, Western Reserve will inform the prospective purchaser of the reasons
that the application is incomplete and request that the prospective purchaser
consent to Western Reserve retaining the Purchase Payment until the application
is properly completed. If such consent is not obtained, Western Reserve will
immediately return the entire Purchase Payment. Once the application is
complete, Western Reserve will accept it and apply the initial Net Purchase
Payment within two business days.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value will vary from one Valuation Period to the next
depending on the investment results experienced by each Sub-Account. When the
Sub-Accounts were first established, the initial Accumulation Unit Value for
each Sub-Account was arbitrarily set at $10. The Accumulation Unit Value for
each Sub-Account at the end of a Valuation Period is the result of:
1. The total value of the assets held in the Sub-Account. This value is
determined by multiplying the number of shares of the designated Fund Portfolio
owned by the Sub-Account times the Portfolio's net asset value per share; minus
2. The accrued daily percentage for the Administrative Charge and Mortality
and Expense Risk Charge multiplied by the net assets of the Sub-Account; minus
3. The accrued amount of reserve for any taxes that are determined by
Western Reserve to have resulted from the investment operations of the
Sub-Account; divided by
4. The number of outstanding units in the Sub-Account.
The Mortality and Expense Risk Charge is deducted at an annual rate of
0.50% of net assets for each day in the Valuation Period and compensates Western
Reserve for certain mortality and expense risks. The Administrative Charge is
deducted at an annual rate of 0.15% of net assets for each day in the Valuation
Period and compensates Western Reserve for certain administrative expenses. (See
"CHARGES AND DEDUCTIONS - Mortality and Expense Risk Charge" on page 12 and
"- Administrative Charge" on page 12.) The Accumulation Unit Value may increase,
decrease, or remain the same from Valuation Period to Valuation Period.
COMPUTING SUB-ACCOUNT VALUE
At the end of any Valuation Period, a Sub-Account's value is equal to the
number of units that the Contract has in the Sub-Account, multiplied by the
Accumulation Unit Value of that Sub-Account.
The number of units that a Contract has in each Sub-Account is equal to:
1. The initial units purchased on the Contract Date; plus
2. Units purchased at the time additional Net Purchase Payments are
allocated to the Sub-Account; plus
3. Units purchased through transfers from another Sub-Account or the Fixed
Account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another Sub-Account
or the Fixed Account; minus
6. Any units that are redeemed to pay the Annual Contract Charge, any
premium taxes and any Transfer Charge.
PORTFOLIO SHARE NET ASSET VALUE
The net asset value per share of 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 25.) Transfers are not available if the Owner has elected Systematic
Exchanges.
14
<PAGE>
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 the toll-free
number: 1-800-504-4440.
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 25.)
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 earlier of the Maturity Date or the
death of the Annuitant (when no Contingent Annuitant has been named), the Owner
may partially withdraw a portion of the Series Account Value upon written
request, complete with all necessary information, to Western Reserve's
Administrative Office. Unless Western Reserve consents, no partial withdrawal is
permitted if the Cash Value would be reduced below $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 25.) All requests for partial withdrawals are processed at
the Accumulation Unit Value for each Sub-Account next computed
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after receipt and acceptance of the request by Western Reserve at its
Administrative Office. Western Reserve 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 12.) 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 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. 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 59-1/2, unless
certain exceptions apply. Other penalties may apply to Qualified Contracts. 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 21-22.)
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 19.) 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 21-22.) 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 22.)
DEATH BENEFITS DURING THE ACCUMULATION PERIOD
1. GENERAL. In general, if the Annuitant dies during the Accumulation
Period and the Owner is a natural person other than the Annuitant, the Owner
will automatically become the new Annuitant and the Contract will continue in
force and no death benefit will be payable to the Beneficiary. If the Annuitant
dies during the Accumulation Period and an Owner is either the same individual
as the Annuitant or other than a natural person, Western Reserve will pay the
death benefit proceeds to the Beneficiary in a lump sum upon receipt of due
proof of death unless a written Alternative Election, as described below, is
made.
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2. AMOUNT OF DEATH BENEFIT PROCEEDS. If the Annuitant dies during the
Accumulation Period and an Owner is either the same person as the Annuitant or
other than a natural person, the death benefit proceeds, if payable, will be the
greater of: (i) the Annuity 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 spousal Beneficiary may elect to become the new Owner and
Annuitant and keep the Contract in force in lieu of receiving the death benefit
proceeds. If the Beneficiary is not the spouse of the deceased Annuitant and is
entitled to receive the death benefit proceeds, the Beneficiary may elect, in
lieu of a lump sum payment, one of the following options that provide for
complete distribution of the death benefit proceeds and termination of the
Contract: (i) within five years of the date of 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 23.) Multiple Beneficiaries may
choose individually among any of the three options.
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" below.)
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.
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 70-1/2. 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 19), 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
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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 to the extent that the net investment factor increases at greater
than an annual rate of 5.65%. 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 5.65%. Consequently, if, for a monthly periodic payment, the net
investment experience of a Sub-Account for a given month exceeds an annual rate
of 5.65%, 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 5.65%, 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:
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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 16.)
IMPROVED ANNUITY RATES
Western Reserve may offer improved annuity rates to Owners if, at the
Maturity Date, it is offering annuity contracts of the same type and class as
the Contract with more favorable rates than those contained in the Contract's
income tables.
PROOF OF AGE, SEX, AND SURVIVAL
Western Reserve may require proper proof of age and sex of any Annuitant or
Co-Annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the Annuitant or
Co-Annuitant is alive and legally qualified to receive such payment. If required
by law to ignore differences in sex of any payee, annuity payments will be
determined using unisex rates.
OTHER MATTERS RELATING TO THE CONTRACT
CHANGES IN PURCHASE PAYMENTS
The Owner may change the amount and the mode of the anticipated Purchase
Payment pattern specified in the Contract if agreed to by Western Reserve.
RIGHT TO EXAMINE CONTRACT
An Owner may, within ten days of receipt of the Contract (the "Free-Look
Period"), return it to Western Reserve at its Administrative Office, and obtain
a refund equal to the sum of: (1) the Purchase Payments received; plus (or
minus) (2) the accumulated gains (or losses), if any, in the Series Account for
the Contract as of the date Western Reserve receives the returned Contract.
Certain states require a Free-Look Period longer than ten days, either for all
Contract Owners or for certain classes of Contract Owners. The Owner bears the
investment risk during the Free-Look Period. (Certain states require Western
Reserve to refund the Purchase Payment, which may be greater or less than the
amount computed above. In these states, Western Reserve bears the investment
risk during the Free-Look Period.) The specific terms applicable to a particular
Contract will be set forth in the "Right to Examine Contract" provision of that
Contract.
CONTRACT PAYMENTS
All payments under the Contract will be paid in one sum unless the Owner
elects otherwise. Western Reserve reserves the right to suspend or postpone the
right of partial withdrawal and Surrender or postpone the date of payment for
any period: (1) the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the New York Stock Exchange is
restricted as determined by the SEC; (2) the SEC by order permits postponement
for the protection of Owners; or (3) an emergency exists, as determined by the
SEC, as a result of which valuation or disposal of securities is not reasonably
practicable. Transfers may also be postponed under these circumstances.
Payments of any amounts derived from Purchase Payments paid by check or
bank draft may be delayed until the check or bank draft has cleared the payor's
bank.
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OWNERSHIP
The Owner is the person entitled to exercise all rights under the Contract.
Prior to the Maturity Date, the Owner is the person designated on the Contract
Schedule page or as subsequently named. These rights may be subject to the
consent of any assignee or irrevocable Beneficiary.
A Successor Owner can be named in the application for the Contract or by
notifying Western Reserve in writing. If the Owner is not the Annuitant, the
Successor Owner will become the new Owner of the Contract upon the death of the
Owner prior to the death of the Annuitant. (See "THE CONTRACT - ACCUMULATION
PROVISIONS - Death Benefits during the Accumulation Period - 4. Death of an
Owner Who is Not an Annuitant," on page 17.)
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 21-22.) Any change of ownership or
assignment must be made in writing and accepted by Western Reserve, and, if
accepted, will be effective as of the date accepted by Western Reserve. Western
Reserve assumes no liability for any payments made or actions taken before a
change is accepted and shall not be responsible for the validity or effect of
any change of ownership or assignment.
Changing the Owner or naming a new Successor Owner cancels any prior
designation of Successor Owner, but it does not change the Beneficiary or
Annuitant.
With regard to Qualified Contracts, ownership of the Contract generally may
be assigned, but any assignment may be subject to restrictions, penalties, or
even prohibition under the Code, and must also be permitted under the terms of
the underlying retirement plan.
ANNUITANT
The Annuitant is the person named in the application to receive annuity
payments. If no person is so named, the Owner will be the Annuitant. 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.
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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 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 Owner'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
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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 59-1/2, (2) made as a result of death of
the Owner or disability of the taxpayer, or (3) received in substantially equal
installments as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Contract.
5. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of an Owner or an Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full surrender
of the Contract, as described above, or (2) if distributed under an annuity
option, they are taxed in the same manner as annuity payments, as described
above. For these purposes, the investment in the Contract is not affected by the
Owner's or Annuitant's death. That is, the investment in the Contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
6. MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts
entered into after October 21, 1988 that are issued by Western Reserve (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. There may be other situations in which the Treasury
may conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same Owner. Accordingly, an Owner should consult a
competent tax 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, selection 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 59-1/2 (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 70-1/2, 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
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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.
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 Sub-Accounts in which to
allocate net purchase payments and Contract Values, and may be able to transfer
among Sub-Accounts more frequently than in such rulings. These differences could
result in an Owner being treated as the owner of a pro rata share 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 an 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
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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.
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 15.)
DISTRIBUTION OF THE CONTRACTS
InterSecurities, Inc. ("ISI") located at 201 Highland Avenue, Largo,
Florida 33770, 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.
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.
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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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