P R O S P E C T U S
August 6, 1999
WRL FREEDOM NAVIGATOR(SM)
issued by
WRL Series Life Account
by
Western Reserve Life Assurance Co.
of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
1-800-851-9777
(727) 299-1800
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
An investment in this Policy is not
a bank deposit. The Policy is not
insured or guaranteed by the Federal
Deposit Insurance Corporation or any
other government agency.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED The prospectus for the WRL Series
OR DISAPPROVED THESE SECURITIES Fund, Inc. must accompany this
OR PASSED UPON THE ADEQUACY OF prospectus. Certain portfolios may
THIS PROSPECTUS. ANY not be available in all states.
REPRESENTATION TO THE CONTRARY Please read this document before
IS A CRIMINAL OFFENSE. investing and save it for future
reference.
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TABLE OF CONTENTS
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Glossary ........................................................ 1
Policy Summary .................................................. 4
Risk Summary .................................................... 9
Portfolio Annual Expense Table .................................. 13
Western Reserve and the Fixed Account ........................... 14
Western Reserve ............................................. 14
The Fixed Account Options ................................... 14
The Separate Account and the Portfolios ......................... 15
The Separate Account ........................................ 15
The Portfolios .............................................. 16
Addition, Deletion, or Substitution of Investments .......... 19
Your Right to Vote Portfolio Shares ......................... 20
The Policy ...................................................... 21
Purchasing a Policy ......................................... 21
Underwriting Standards ...................................... 21
When Insurance Coverage Takes Effect ........................ 22
Ownership Rights ............................................ 23
Policy Split Option ......................................... 25
Canceling a Policy .......................................... 26
Premiums ........................................................ 26
Initial Premium ............................................. 26
Additional Premiums ......................................... 27
Allocating Premiums ......................................... 27
Policy Values ................................................... 29
Cash Value .................................................. 29
Net Surrender Value ......................................... 29
Subaccount Value ............................................ 29
Subaccount Unit Value ....................................... 30
Fixed Account Value ......................................... 30
Transfers ....................................................... 31
General ..................................................... 31
Standard Fixed Account Transfers ............................ 32
Conversion Rights ........................................... 32
Standard Dollar Cost Averaging .............................. 32
Fixed DCA Account ........................................... 34
Asset Rebalancing Program ................................... 34
Third Party Asset Allocation Services ....................... 35
Charges and Deductions .......................................... 35
Premium Deductions .......................................... 36
Monthly Deduction ........................................... 36
Daily Charge ................................................ 37
Surrender Charge ............................................ 39
Transfer Charge ............................................. 39
Portfolio Expenses .......................................... 39
Guaranteed Minimum Death Benefit Rider Charge ............... 40
Death Benefit ................................................... 40
Death Benefit Proceeds ...................................... 40
Death Benefit ............................................... 40
Effects of Partial Withdrawals on the Death Benefit ......... 41
Guaranteed Minimum Death Benefit Rider ...................... 41
This Policy is not available in the State of New York.
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Changing the Specified Amount .......................................... 42
Payment Options ........................................................ 42
Surrenders and Partial Withdrawals ......................................... 42
Surrenders ............................................................. 42
Partial Withdrawals .................................................... 42
Loans ...................................................................... 43
General ................................................................ 43
Interest Rate Charged .................................................. 45
Loan Reserve Interest Rate Credited .................................... 45
Preferred Loans ........................................................ 45
Effect of Policy Loans ................................................. 45
Policy Lapse and Reinstatement ............................................. 46
Lapse .................................................................. 46
Reinstatement .......................................................... 46
Federal Income Tax Considerations .......................................... 47
Tax Status of the Policy ............................................... 47
Tax Treatment of Policy Benefits ....................................... 48
Other Policy Information ................................................... 50
Our Right to Contest the Policy ........................................ 50
Suicide Exclusion ...................................................... 50
Misstatement of Age or Gender .......................................... 50
Modifying the Policy ................................................... 50
Benefits at Maturity ................................................... 51
Payments We Make ....................................................... 51
Reports to Owners ...................................................... 52
Records ................................................................ 52
Policy Termination ..................................................... 52
IMSA ....................................................................... 52
Performance Data ........................................................... 52
Rates of Return ........................................................ 52
Hypothetical Illustrations Based on Adjusted Portfolio Performance ..... 53
Other Performance Data in Advertising Sales Literature ................. 61
Western Reserve's Published Ratings .................................... 62
Additional Information ..................................................... 62
Sale of the Policies ................................................... 62
Legal Matters .......................................................... 62
Legal Proceedings ...................................................... 63
Variations in Policy Provisions ........................................ 63
Year 2000 Readiness Disclosure ......................................... 63
Experts ................................................................ 64
Financial Statements ................................................... 64
Additional Information about Western Reserve ........................... 64
Western Reserve's Directors and Officers ............................... 65
Additional Information about the Separate Account ...................... 67
Appendix A--Illustrations .................................................. 68
Appendix B--Wealth Indices of Investments in the U.S. Capital Market ....... 75
Appendix C--Surrender Charge Table ......................................... 76
Index to Financial Statements .............................................. 79
WRL Series Life Account ................................................ 80
Western Reserve Life Assurance Co. of Ohio ............................. 113
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GLOSSARY
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accounts The options to which you can allocate your money. The accounts include the
standard fixed account, the fixed DCA account and the subaccounts in the
separate account.
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age The age of the person insured on his or her last birthday before the Policy
date, plus the number of completed years since the Policy date.
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beneficiary(ies) The person or persons you select to receive the death benefit from this Policy.
You name the primary beneficiary and contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the fixed account
options. If there is a Policy loan outstanding, the cash value includes any
amounts held in our general account to secure the Policy loan.
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daily charge The amount we deduct each valuation date from assets in the subaccounts as
part of the calculation of the unit value for each subaccount.
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death benefit The amount we will pay to the beneficiary on the insured's (or surviving
proceeds insured's) death. We will reduce the death benefit proceeds by the amount of
any outstanding loan amount (including any interest you owe on the Policy
loan(s)), and plus any due and unpaid monthly deductions.
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fixed account A set of options to which you may allocate premiums and cash value. We
options guarantee that any amounts you allocate to the fixed account options will earn
interest at a declared rate. The fixed account options are the standard fixed
account and the fixed dollar cost averaging account ("fixed DCA account").
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free look period The period during which you may return the Policy and receive a refund as
described in this prospectus. The length of the free look period varies by
state. The free look period is listed in the Policy.
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fund(s) The WRL Series Fund, Inc., an investment company registered with the U.S.
Securities and Exchange Commission, and other registered investment
companies that may be added to the Policy.
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in force While coverage under the Policy is active and the insured's life remains
insured.
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initial premium The amount you must pay before insurance coverage begins under this Policy.
The initial premium is shown on the schedule page of your Policy.
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insured(s) The person or persons whose lives are insured by this Policy.
(joint insureds)
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Joint Policy A Policy that pays the death benefit to the beneficiary on the death of the
last-to-die of the two named insureds.
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</TABLE>
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<TABLE>
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lapse When life insurance coverage ends because you do not have enough cash
value in the Policy to pay the monthly deduction, the surrender charge and
any outstanding loan amount (including any interest you owe on Policy
loan(s)), and you have not made a sufficient payment by the end of a grace
period. The Policy will not lapse if you have purchased the Guaranteed
Minimum Death Benefit rider and the rider is in effect.
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loan amount The total amount of all outstanding Policy loans, including both principal and
interest due.
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loan reserve A part of the general account to which amounts are transferred as collateral
for Policy loans.
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maturity date The Policy anniversary nearest the insured's (or younger joint insured's) 100th
birthday, if the insured (or either joint insured) is living and the Policy is still
in force. It is the date when life insurance coverage under this Policy ends.
You may continue coverage, at your option, under the Policy's extended
maturity date benefit provision.
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monthly The same date each month as the Policy date. If there is no valuation date in
anniversary or the calendar month that coincides with the Policy date, the Monthiversary is
Monthiversary the next valuation date.
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monthly Policy The charge deducted from the cash value (less the loan amount) on each
charge Monthiversary.
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net surrender The amount we will pay you if you surrender the Policy while it is in force.
value The net surrender value on the date you surrender is equal to: the cash value,
minus any surrender charge, and minus any outstanding loan amount (including any interest
you owe on Policy loan(s)).
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office Our administrative office and mailing address is P.O. Box 5068, Clearwater,
Florida 33758-5068. Our street address is 570 Carillon Parkway,
St. Petersburg, Florida 33716. Our phone number is 1-800-851-9777.
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Policy date The date when our underwriting process is complete, full life insurance
coverage goes into effect, we issue the Policy, and we begin to deduct the
monthly Policy charge. The Policy date is shown on the schedule page of
your Policy. It is also the date when, depending on your state of residence,
we allocate your premium either to the reallocation account or to the
subaccounts and fixed account options you selected on your application. We
measure Policy months, years, and anniversaries from the Policy date.
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portfolio One of the separate investment portfolios of the fund.
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premiums All payments you make under the Policy other than loan repayments.
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reallocation The standard fixed account.
account
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reallocation date The date shown on the schedule page of your Policy when we reallocate any
premium (plus interest) held in the reallocation account to the subaccounts
and fixed account options you selected on your application. We place your
premium in the reallocation account only if your state requires us to return
the full premium in the event you exercise your free look right. In all other
states, the reallocation date is the Policy date.
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separate account The WRL Series Life Account. It is a separate investment account that is
divided into subaccounts. We established the separate account to receive and
invest premiums under the Policy and other variable life insurance policies
we issue.
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specified amount The death benefit under the Policy, as shown on the Policy's schedule page.
The specified amount varies by the insured's (or joint insured's) age, gender
and rate class. Any partial withdrawal proportionately decreases the specified
amount.
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subaccount A subdivision of the separate account that invests exclusively in shares of one
investment portfolio of the fund.
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surrender charge If, during the first nine Policy years, you fully surrender the Policy, we will
deduct a surrender charge from the cash value.
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surviving insured The joint insured who remains alive after the other joint insured has died.
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termination When the insured's (or either of the joint insured's) life is no longer insured
under the Policy.
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valuation date Each day the New York Stock Exchange is open for trading. Western Reserve
is open for business whenever the New York Stock Exchange is open.
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valuation period The period of time over which we determine the change in the value of the
subaccounts in order to price accumulation units and annuity units. Each
valuation period begins at the close of normal trading on the New York Stock
Exchange (currently 4:00 p.m. Eastern time on each valuation date) and ends
at the close of normal trading of the New York Stock Exchange on the next
valuation date.
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we, us, our Western Reserve Life Assurance Co. of Ohio.
(Western
Reserve)
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written notice The written notice you must sign and send us to request or exercise your
rights as owner under the Policy. To be complete, it must: (1) be in a form
we accept, (2) contain the information and documentation that we determine
we need to take the action you request, and (3) be received at our office.
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you, your The person(s) who owns the Policy, and who may exercise all rights under
(owner(s) or the Policy while the insured (or either or both joint insureds) are living. If
policyowner(s)) two owners are named, the Policy will be owned jointly and the consent of
each owner will be required to exercise ownership rights.
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</TABLE>
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POLICY SUMMARY WRL FREEDOM NAVIGATOR(SM)
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The sections in this summary correspond to sections in this prospectus,
which discuss the topics in more detail.
THE POLICY IN GENERAL
The WRL Freedom Navigator(SM) is a modified single premium variable life
insurance policy. You may purchase it either as a single life or a Joint
Policy. A Joint Policy insures two lives with a death benefit payable on the
death of the surviving insured. Joint insureds may be both male, both female or
male and female. The insured will be the surviving insured of the joint
insureds stated in the Policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for the insured(s) named in the Policy.
However, purchasing this Policy involves certain risks. (See Risk Summary, p
9.) You should consider the Policy in conjunction with other insurance you own.
The Policy is not suitable as a short-term savings vehicle.
A few of the Policy features listed below are not available in all states,
may vary depending upon when your Policy was issued and may not be suitable for
your particular situation. Certain states place restrictions on some of the
Policy features. Please consult your agent and refer to your Policy for
details.
PREMIUMS
o If the insured (or joint insureds) qualifies for simplified underwriting,
conditional life insurance coverage begins as soon as you complete an
application and pay an initial premium of at least $20,000. Once we
determine that the insured (or joint insureds) meets our underwriting
requirements, full insurance coverage begins and we will issue your Policy
and begin to deduct monthly and daily insurance charges from your premium.
This date is the Policy date. On that date, we will allocate your premium
to either the reallocation account or to the subaccounts and fixed account
options, depending on the state in which you live.
o If the insured qualifies for simplified underwriting, the maximum premium
you can pay at the time of your application is:
-- $50,000 (for ages 35-49)
-- $100,000 (for ages 50-80)
Other limits apply for Joint Policies and Policies with full underwriting.
o Once we deliver your Policy, the FREE LOOK PERIOD begins. You may return
the Policy during this period and receive a refund. Depending on your state
of residence, we will either allocate your premium to the accounts you
indicated on your application, or we will place your premium in the
reallocation account until the reallocation date. See Reallocation Account,
p. 28.
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o We will accept additional premiums only in certain limited circumstances.
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN SUBACCOUNTS AND/OR FIXED ACCOUNT
OPTIONS
o From the initial premium: None
o From additional premiums: None
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to any of the
subaccounts of the WRL Series Life Account, a separate account. Each subaccount
invests exclusively in one investment portfolio of the WRL Series Fund, Inc.
(the "fund"). THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE
VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT
PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
The portfolios available to you are:
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[ ] WRL Alger Aggressive Growth [ ] WRL AEGON Balanced
[ ] WRL VKAM Emerging Growth [ ] WRL NWQ Value Equity
[ ] WRL Janus Growth [ ] WRL C.A.S.E. Growth
[ ] WRL Janus Global [ ] WRL GE/Scottish Equitable International Equity
[ ] WRL AEGON Bond [ ] WRL Goldman Sachs Growth
[ ] WRL LKCM Strategic Total Return [ ] WRL Goldman Sachs Small Cap
[ ] WRL Federated Growth & Income [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL J.P. Morgan Real Estate Securities [ ] WRL T. Rowe Price Small Cap
[ ] WRL Dean Asset Allocation [ ] WRL Salomon All Cap
[ ] WRL GE U.S. Equity [ ] WRL Pilgrim Baxter Mid Cap Growth
[ ] WRL Third Avenue Value [ ] WRL Dreyfus Mid Cap
[ ] WRL J.P. Morgan Money Market
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FIXED ACCOUNT OPTIONS. You may also direct the money in your Policy to the
fixed account options--the standard fixed account option and the fixed dollar
cost averaging ("fixed DCA") account option. Money you place in the standard
fixed account option will earn interest at current interest rates declared from
time to time. The interest rate will equal at least 3.0%.
At the time you purchase the Policy, you may place the entire initial
premium into the fixed DCA account. Money you place in the fixed DCA account
will earn interest at an annual rate of at least 3.0%. Money will be
transferred out of the fixed DCA account in six equal monthly installments and
placed in the standard fixed account and the subaccounts of your choice.
CASH VALUE
o Cash value equals the sum of your Policy's value in the subaccounts and the
fixed account options. If there is a loan outstanding, the cash value
includes any amounts held in our general account to secure the Policy loan.
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o Cash value varies from day to day, depending on the investment experience
of the subaccounts you choose, the interest credited to the fixed account
options, the charges deducted and any other Policy transactions (such as
transfers, withdrawals, and Policy loans).
o Cash value is the starting point for calculating important values under the
Policy, such as net surrender value and the death benefit.
o There is no guaranteed minimum cash value. The Policy may lapse if you do
not have sufficient cash value in the Policy to pay the monthly Policy
charge(s), the surrender charge and/or any outstanding loan amount
(including interest you owe on any Policy loan(s)). The Policy will not
lapse if you have purchased the Guaranteed Minimum Death Benefit rider and
the rider is in effect.
TRANSFERS
o You can transfer cash value among the subaccounts and the standard fixed
account. We charge a $10 transfer processing fee for each transfer after
the first 12 transfers in a Policy year.
o You may make transfers by telephone or by fax.
o Policy loans reduce the amount of cash value available for transfers.
o Dollar cost averaging and asset rebalancing programs are available.
o You may make one transfer per Policy year from the standard fixed account
and we must receive your request within 30 days after a Policy anniversary,
unless you select dollar cost averaging from the standard fixed account.
The amount of your transfer cannot be more than the greater of:
-> 25% of the value in the standard fixed account; or
-> the amount transferred from the standard fixed account in the prior
Policy year.
CHARGES AND DEDUCTIONS
o Monthly Policy charge: Deducted from your cash value (reduced by the loan
amount) on the Policy date and on each Monthiversary. The monthly Policy
charge pays for Policy administrative expenses and the cost of providing
death benefits under the Policy. The monthly Policy charge will vary with
the gender of the insured(s), the number of insureds, and the number of
Policy years you have owned the Policy.
o Daily charge: Deducted from the unit value of each subaccount, at an annual
rate equal to 0.50%, on each valuation date.
o Cost of insurance charge: We reserve the right to charge a maximum monthly
cost of insurance charge. See Cost of Insurance Charge, p. 38. We do not
currently assess a cost of insurance charge. If, in the future, we assess a
cost of insurance charge, then we will waive the surrender charge.
o Surrender charge: Deducted when a full surrender occurs during the first
nine Policy years. We deduct a declining surrender charge of up to 9.75% of
your initial premium if you surrender your Policy or if your Policy lapses
during the first nine Policy years.
o Transfer fee: We deduct $10 for each transfer in excess of 12 per Policy
year.
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o Portfolio expenses: The portfolios deduct management fees and expenses from
the amounts you have invested in the portfolios. These charges range from
0.46% to 1.50% annually, depending on the portfolio. See Portfolio Annual
Expense Table, p. 13. See also the fund prospectus.
o Rider charges: If you select the Guaranteed Minimum Death Benefit rider at
application, we will deduct a charge from your cash value (less any
outstanding Policy loan) each month equal to:
-> .02% MULTIPLIED BY the total subaccount values; PLUS
-> .02% MULTIPLIED BY the fixed account value.
LOANS
o You may take a loan against the Policy for amounts up to 90% of the cash
value, less any surrender charge and any outstanding loan amount.
o The minimum loan amount is generally $500.
o You may request a loan by calling us or by writing or faxing us written
instructions.
o We currently charge 6.0% interest annually, payable in arrears, on any
outstanding loan amount; a lower rate applies to any preferred loans.
o We currently permit preferred loans to be taken anytime. You may borrow an
amount equal to the cash value less total premiums paid, less any
outstanding loan amount. We currently charge a 3.0% preferred loan rate.
THIS RATE IS NOT GUARANTEED.
o To secure the loan, we transfer a portion of your cash value to a loan
reserve account, which is part of our general account. You will earn at
least 3.0% interest on amounts in the loan reserve account.
o Federal income taxes and a penalty tax may apply to loans you make against
the Policy.
o If you take a loan, we will terminate any Guaranteed Minimum Death Benefit
rider.
o There are risks involved in taking a Policy loan. See Risk Summary, p. 9.
DEATH BENEFIT
o So long as the Policy does not lapse, the death benefit is the greater of:
-> the current specified amount; or
-> the product of: the Policy's cash value on the date of the insured's
(or surviving insured's) death MULTIPLIED BY the specified percentage
shown on page 41 of this prospectus.
o We will reduce the death benefit proceeds by the amount of any outstanding
Policy loan(s) (including any interest you owe on Policy loan(s)), and any
due and unpaid charges.
o We determine your Policy's specified amount based on:
-> the initial premium you pay; and
-> the insured's (or joint insureds') age, gender and rate class.
o You may not increase or decrease the specified amount.
o The death benefit should be income tax free to the beneficiary.
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o The death benefit is available in a lump sum or a variety of payout
options.
o If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the rider is
in effect, and if the net surrender value on any Monthiversary is not
sufficient to cover the monthly Policy charge, then insurance coverage will
be provided under this rider and no grace period will begin, so long as no
Policy loans have been taken under the Policy. If a death benefit is
payable under the provisions of this rider, then Western Reserve guarantees
to provide a death benefit as follows:
(1) During the first 15 Policy years, or before the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if sooner, the minimum death benefit payable will
be the greater of:
o the current specified amount; or
o the product of: the Policy's cash value on the date of the
insured's (or surviving insured's) death MULTIPLIED BY the
specified percentage shown on page 41.
(2) After the first 15 Policy years, or on or after the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if sooner, the minimum death benefit payable will
be the initial premium, reduced, on a dollar-for-dollar basis, by
any partial withdrawals.
(3) The minimum death benefit will never be less than $1,000.
If you take a Policy loan, the Guaranteed Minimum Death Benefit rider will
terminate and your Policy could lapse.
o A partial withdrawal will reduce the specified amount by the amount of the
withdrawal multiplied by the ratio of the initial specified amount to the
initial premium.
PARTIAL WITHDRAWALS AND SURRENDERS
o You can take one withdrawal of cash value every 12 months after the first
Policy year.
o We do not assess any charges for partial withdrawals.
o The amount of the withdrawal is limited to your Policy's earnings which we
compute as:
the cash value, MINUS any outstanding Policy loans, MINUS any
interest you owe on Policy loans, and MINUS total premiums paid.
o A partial withdrawal reduces the current specified amount (the minimum
death benefit) by:
Amount of withdrawal X initial specified amount
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initial premium
o A partial withdrawal does not void a Guaranteed Minimum Death Benefit
rider, but it reduces the death benefit we would pay, as described above.
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o You cannot take a partial withdrawal if it will reduce the specified amount
below $1,000.
o Federal income taxes and a penalty tax may apply to partial withdrawals and
surrenders.
o You may fully surrender the Policy at any time before the insured's (or
surviving insured's) death or the maturity date. You will receive the net
surrender value (cash value, minus any surrender charge, minus any Policy
loans outstanding, and minus any interest you owe on Policy loans). The
surrender charge will apply during the first nine Policy years.
RISK SUMMARY
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INVESTMENT If you direct us to invest your cash value in one or more
RISK subaccounts, you will be subject to the risk that investment
performance will be unfavorable and that the cash value of
your Policy will decrease. If you select the fixed account
options, you are credited with a declared rate of interest,
but you assume a risk that the rate may decrease, although
it will never be lower than a guaranteed minimum annual
effective rate of 3.0%. Because charges continue to be
deducted from cash value, if withdrawals, loans and monthly
deductions have reduced your net surrender value to too low
an amount, and/or if investment experience of your selected
subaccounts is not sufficiently favorable, and/or interest
rates credited to the fixed account are too low, then the
net surrender value of your Policy may fall to zero. In that
case, if the Guaranteed Minimum Death Benefit rider is not
in effect, the Policy will lapse without value and insurance
coverage will no longer be in effect after 61 days, unless
you make an additional payment sufficient to prevent a
lapse. On the other hand, if investment experience is
sufficiently favorable and you have kept the Policy in force
for a substantial period of time, you may be able to draw
upon cash value, through partial withdrawals and Policy
loans.
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RISK OF LAPSE Certain circumstances will cause your Policy to enter a
61-day grace period, during which you must make a sufficient
payment to keep your Policy in force. If the net surrender
value of your Policy (that is, the cash value, minus the
surrender charge and minus outstanding loan amounts) is too
low to pay a monthly Policy charge, loan charges and any
rider fees when due, and if the Guaranteed Minimum Death
Benefit rider is not in effect, then the Policy will be in
default and a grace period will begin. There is the risk
that if withdrawals, loans and monthly deductions reduce
your net surrender value to too low an amount and/or if the
investment experience of your selected subaccounts is not
sufficiently favorable and/or if interest rates credited to
the fixed account are too low, then the net surrender value
of your Policy may
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fall to zero and the Policy could lapse. In that case, you
will have a 61-day grace period to make a sufficient
payment. If we do not receive a sufficient payment before
the grace period ends, your Policy will end without value,
insurance coverage will no longer be in effect, and you will
receive no benefits. Adverse tax consequences may result.
You may not reinstate your Policy after it has lapsed unless
you completed the Policy application and had your Policy
delivered to you in a state which permits reinstatement. If
so, then you may reinstate this Policy within five years
after it has lapsed if the insured (or joint insureds) meets
the insurability requirements and you pay the amount we
require.
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TAX RISK It is reasonable to conclude that the Policy will be deemed
(INCOME TAX a life insurance policy under federal tax law, so that the
AND MEC) death benefit paid to the beneficiary ) will not be subject
to federal income tax. However, the Policy has certain
innovative features that are not addressed in existing legal
interpretations and there is, therefore, some risk that the
Policy might not be deemed a life insurance policy under
federal tax law. If the Policy is not so treated, annual
increases in the Policy's cash value will be subject to
federal income tax each year. Even if the Policy is treated
as a life insurance policy under federal tax laws, the
Policy will, in most situations, be treated as a modified
endowment contract ("MEC") under those laws. If a Policy is
treated as a MEC, partial withdrawals, surrenders and loans
will be taxable as ordinary income to the extent of its
earnings in the Policy. In addition, a 10% penalty tax may
be imposed on partial withdrawals, surrenders and loans
taken before you reach age 59 1/2. If a Policy is treated as
a life insurance policy and is not treated as a MEC, partial
surrenders and withdrawals will not be subject to tax to the
extent of your investment in the Policy, and amounts in
excess of your investment in the Policy, while subject to
tax as ordinary income, will not be subject to a 10% penalty
tax. You should consult a qualified tax advisor for
assistance in all tax matters involving your Policy.
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LIMITS ON The Policy permits you to take only one partial withdrawal
PARTIAL in any 12-month period, after the first Policy year has been
WITHDRAWALS completed. The amount you may withdraw is limited to
earnings. We calculate earnings as cash value, reduced by
any outstanding loan amount (including any interest due on
Policy loans) and any premiums paid.
A partial withdrawal will reduce the specified amount (and
the minimum death benefit under the Guaranteed Minimum Death
Benefit rider) by:
Amount of withdrawal X initial specified amount
------------------------
initial premium
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This reduction may be significant. However, in no event will
any withdrawal reduce the minimum death benefit under the
Guaranteed Minimum Death Benefit rider below $1,000.
Federal income taxes and a tax penalty may apply to partial
withdrawals and surrenders.
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LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from
the subaccounts and fixed account options and place that
amount in the loan reserve as collateral. We then credit a
fixed interest rate of 3.0% to the loan collateral. As a
result, the loan collateral does not participate in the
investment results of the subaccounts nor does it receive
the current interest rates credited to the fixed account
options. The longer the loan is outstanding, the greater the
effect is likely to be. Depending on the investment results
of the subaccounts and the interest rates credited to the
fixed account, the effect could be favorable or unfavorable.
We also charge interest on Policy loans at a rate of 6.0%
payable in arrears. Interest is added to the amount of the
loan to be repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds by the amount of the
outstanding loan, plus any interest you owe on Policy loans.
A Policy loan will terminate the Guaranteed Minimum Death
Benefit rider.
A Policy loan could make it more likely that a Policy would
lapse. There is a risk if the loan reduces your net
surrender value to too low an amount and investment
experience is unfavorable, that the Policy will lapse,
resulting in adverse tax consequences. You will have a
61-day grace period to submit a sufficient payment to avoid
the Policy's termination without value and the end of
insurance coverage. As mentioned in Risk of Lapse on p. 9,
you may only reinstate your Policy if your Policy was
delivered to you in a state which permits reinstatement.
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EFFECTS OF THE The surrender charge under this Policy will reduce your cash
SURRENDER value if you surrender your Policy in the first nine Policy
CHARGE years. You should purchase this Policy only if you have the
financial ability to keep it in force at the initial
specified amount for a substantial period of time.
Even if you do not ask to surrender your Policy, the
surrender charge plays a role in determining whether your
Policy will lapse. Net surrender value (that is, cash value
minus the surrender charge and outstanding loans) is the
measure we use each month to determine whether your Policy
will remain in force or will lapse.
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<PAGE>
COMPARISON Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and provides a cash value, loan privileges and a
INSURANCE value on surrender. However, the Policy differs from a fixed
POLICIES benefit policy because it allows you to place your premium
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will
vary with the investment performance of the amounts you
place in the subaccounts. In addition, the cash value and
net surrender value will always vary with the investment
experience of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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ILLUSTRATIONS The hypothetical illustrations in this prospectus are used
in connection with the purchase of a Policy and are based on
hypothetical rates of return. These rates are not
guaranteed, and are provided only to illustrate how the
specified amount, Policy charges and hypothetical rates of
return affect death benefit levels, cash value and net
surrender value of the Policy. We may also illustrate Policy
values based on the adjusted historical performance of the
portfolios since the portfolios' inception, reduced by
Policy and subaccount charges. The hypothetical and adjusted
historic portfolio rates illustrated should not be
considered to represent past or future performance. It is
almost certain that actual rates of return may be higher or
lower than those illustrated, so that the values under your
Policy will be different from those in the illustrations.
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<PAGE>
PORTFOLIO ANNUAL EXPENSE TABLE
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This table shows the fees and expenses charged by each portfolio. More detail
concerning each portfolio's fees and expenses is contained in the fund
prospectus.
ANNUAL PORTFOLIO OPERATING EXPENSES(1)
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER EXPENSES ANNUAL
PORTFOLIOS FEES (AFTER REIMBURSEMENT) EXPENSES
<S> <C> <C> <C>
WRL Alger Aggressive Growth 0.80% 0.11% 0.91%
WRL VKAM Emerging Growth 0.80% 0.09% 0.89%
WRL Janus Growth(2) 0.78% 0.05% 0.83%
WRL Janus Global(3) 0.80% 0.15% 0.95%
WRL AEGON Bond 0.45% 0.09% 0.54%
WRL LKCM Strategic Total Return 0.80% 0.06% 0.86%
WRL Federated Growth & Income 0.75% 0.15% 0.90%
WRL J.P. Morgan Money Market 0.40% 0.06% 0.46%
WRL Dean Asset Allocation 0.80% 0.06% 0.86%
WRL GE U.S. Equity 0.80% 0.25% 1.05%
WRL Third Avenue Value 0.80% 0.20% 1.00%
WRL J.P. Morgan Real Estate Securities(4) 0.80% 0.20% 1.00%
WRL AEGON Balanced 0.80% 0.11% 0.91%
WRL NWQ Value Equity 0.80% 0.09% 0.89%
WRL C.A.S.E. Growth 0.80% 0.20% 1.00%
WRL GE/Scottish Equitable International Equity 1.00% 0.50% 1.50%
WRL Goldman Sachs Growth(5)(6) 0.90% 0.10% 1.00%
WRL Goldman Sachs Small Cap(5) 0.90% 0.10% 1.00%
WRL T. Rowe Price Dividend Growth(5)(6) 0.90% 0.10% 1.00%
WRL T. Rowe Price Small Cap(5) 0.75% 0.25% 1.00%
WRL Salomon All Cap(5)(6) 0.90% 0.10% 1.00%
WRL Pilgrim Baxter Mid Cap Growth(5)(6) 0.90% 0.10% 1.00%
WRL Dreyfus Mid Cap(5)(7) 0.85% 0.15% 1.00%
</TABLE>
(1) Effective January 1, 1997, the fund's Board authorized the fund to charge
each portfolio of the fund an annual 12b-1 fee of up to 0.15% of each
portfolio's average daily net assets. However, the fund will not deduct
the fee from any portfolio before April 30, 2000. You will receive advance
written notice if a Rule 12b-1 fee is deducted. See the fund prospectus
for more details.
(2) WRL Janus Growth's advisory fee reflects 0.80% of the average daily net
assets for the period prior to May 1, 1998, and 0.775% of the first $3
billion of average daily net assets and 0.75% of the average daily net
assets in excess of $3 billion for the period May 1, 1998 to December 31,
1998. WRL Investment Management, Inc. ("WRL Management") currently waives
0.025% of its advisory fee for the first $3 billion of the portfolio's
average daily net assets (net fee -- 0.775%); and 0.05% for the
portfolio's average daily net assets above $3 billion (net fee -- 0.75%).
This waiver is voluntary and may be terminated at any time upon 90 days'
written notice to the fund.
(3) For WRL Janus Global, WRL Management will waive 0.025% of its advisory fee
once portfolio average daily net assets reach $2 billion (net fee --
0.775%). This waiver is voluntary and may be terminated at any time upon
90 days' written notice to the fund.
(4) Because WRL J.P. Morgan Real Estate Securities commenced operations on May
1, 1998, the percentages set forth as "Other Expenses" and "Total Annual
Expenses" are annualized.
(5) Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salmon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap commenced
operations on May 1, 1999, the percentages set forth as "Other Expenses"
and "Total Portfolio Annual Expenses" are estimates.
(6) As compensation for its services to the portfolios, WRL Management
receives monthly compensation at 0.90% for the first $100 million of the
portfolio's average daily net assets; and 0.80% for the portfolio's
average daily net assets above $100 million.
(7) As compensation for its services to the portfolios, WRL Management
receives monthly compensation at 0.85% for the first $100 million of the
portfolio's average daily net assets; and 0.80% for the portfolio's
average daily net assets above $100 million.
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The purpose of the preceding table is to help you understand the various
costs and expenses that you will bear directly and indirectly. The table
reflects charges and expenses of the portfolios of the fund for the fiscal year
ended December 31, 1998. Expenses of the fund may be higher or lower in the
future. For more information on the charges described in this table, see the
fund prospectus which accompanies this prospectus.
WRL Management, the investment adviser of the fund, has undertaken, until
at least April 30, 2000, to pay expenses on behalf of the portfolios of the
fund to the extent normal total operating expenses of a portfolio exceed a
stated percentage of each portfolio's average daily net assets. The expense
limitation for WRL Alger Aggressive Growth, WRL VKAM Emerging Growth, WRL Janus
Growth, WRL Janus Global, WRL LKCM Strategic Total Return, WRL Federated Growth
& Income, WRL Dean Asset Allocation, WRL Third Avenue Value, WRL J.P. Morgan
Real Estate Securities, WRL AEGON Balanced, WRL NWQ Value Equity, WRL C.A.S.E.
Growth, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL
Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap is 1.00% of the average
daily net assets; 0.70% of the average daily net assets for WRL AEGON Bond and
WRL J.P. Morgan Money Market; 1.50% of the average daily net assets for WRL GE/
Scottish Equitable International Equity; and 1.30% of the average daily net
assets for WRL GE U.S. Equity. In 1998, WRL Management reimbursed WRL
GE/Scottish Equitable International Equity in the amount of $127,763, WRL Third
Avenue Value in the amount of $14,229, and WRL J.P. Morgan Real Estate
Securities in the amount of $28,275. Without such reimbursement, the total fund
expenses during 1998 for WRL GE/Scottish Equitable International Equity, WRL
Third Avenue Value, and WRL J.P. Morgan Real Estate Securities would have been
1.96%, 1.13%, and 3.34%, respectively. See the fund prospectus for a
description of the expense limitation applicable to each portfolio.
WESTERN RESERVE AND THE FIXED ACCOUNT
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WESTERN RESERVE
Western Reserve Life Assurance Co. of Ohio is the insurance company
issuing the Policy. Western Reserve was incorporated under Ohio law on October
1, 1957. We have established the separate account to support the investment
options under this Policy and under other variable life insurance policies we
issue. Our general account supports the fixed account options under the Policy.
Western Reserve intends to sell this Policy in all states (except New York) and
the District of Columbia.
THE FIXED ACCOUNT OPTIONS
The fixed account is part of Western Reserve's general account. We use
general account assets to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, Western
Reserve has sole discretion over the investment of the fixed account's assets.
Western Reserve bears the full investment risk for all amounts contributed to
the fixed account. Western Reserve guarantees that the amounts
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<PAGE>
allocated to the fixed account options will be credited interest daily at a net
effective interest rate of at least 3.0%. We will determine any interest rate
credited in excess of the guaranteed rate at our sole discretion. We have no
specific formula for determining interest rates. If you allocate your initial
premium to the fixed account options, then we will credit the interest from the
date we receive the premium.
THE STANDARD FIXED ACCOUNT. Money you place into the standard fixed
account option will earn interest compounded daily at a current interest rate
in effect at the time of your allocation. The interest rate is guaranteed never
to be less than 3.0% per year. We may declare current interest rates from time
to time. We may declare more than one interest rate for different money based
upon the date of allocation or transfer to the standard fixed account.
We allocate amounts from the standard fixed account for partial
withdrawals, transfers to the subaccounts, or monthly deduction charges on a
last-in, first-out basis ("LIFO") for the purpose of crediting interest.
THE FIXED DCA ACCOUNT. At the time you purchase the Policy, you may place
your entire initial premium into the fixed DCA account. Money you place into
the fixed DCA account will earn interest at an annual rate of at least 3.0%. We
may declare current interest rates from time to time. Money will be transferred
out of the fixed DCA account in six equal monthly installments and placed in
the standard fixed account and the subaccounts of your choice. See Fixed DCA
Account, p. 34.
THE FIXED ACCOUNT OPTIONS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT
OPTIONS.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of the fund. These subaccounts buy and sell
portfolio shares at net asset value without any sales charge. Any dividends and
distributions from a portfolio are reinvested at net asset value in shares of
that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount,
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<PAGE>
portfolio or insurance company separate account under the Policies if, in our
judgment, investment in a subaccount or portfolio would no longer be possible
or becomes inappropriate to the purposes of the Policies, or if investment in
another subaccount or insurance company separate account is in the best
interest of owners. No substitution shall take place without notice to owners
and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE PORTFOLIOS
The separate account invests in shares of the portfolios. Each portfolio
is an investment division of the fund, an open-ended management investment
company registered with the SEC. Such registration does not involve supervision
of the management or investment practices or policies of the portfolios by the
SEC.
Currently, the portfolios of the fund corresponding to the subaccounts of
the separate account are: WRL Alger Aggressive Growth, WRL VKAM Emerging Growth,
WRL Janus Growth, WRL Janus Global, WRL AEGON Bond, WRL LKCM Strategic Total
Return, WRL Federated Growth & Income, WRL J.P. Morgan Money Market, WRL Dean
Asset Allocation, WRL GE U.S. Equity, WRL Third Avenue Value, WRL J.P. Morgan
Real Estate Securities, WRL AEGON Balanced, WRL NWQ Value Equity, WRL C.A.S.E.
Growth, WRL GE/ Scottish Equitable International Equity, WRL Goldman Sachs
Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T.
Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and
WRL Dreyfus Mid Cap. Each portfolio's assets are held separate from the assets
of the other portfolios, and each portfolio has investment objectives and
policies that are different from those of the other portfolios. Thus, each
portfolio operates as a separate investment fund, and the income or losses of
one portfolio has no effect on the investment performance of any other
portfolio. Pending any prior approval by a state insurance regulatory authority,
certain subaccounts and corresponding portfolios may not be available to
residents of some states.
Each portfolio's investment objective(s) and policies are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE(S). Certain portfolios may have investment objectives and policies
similar to other portfolios that are managed by the same investment adviser or
manager. The investment results of the portfolios, however, may be higher or
lower than those of such other portfolios. We do not guarantee or make any
representation that the investment results of the portfolios will be comparable
to any other portfolio, even those with the same investment adviser or manager.
You can find more detailed information about the portfolios, including a
description of risks, in the fund prospectus. You should read the fund
prospectus carefully.
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ------------------------ -----------------------------------
<S> <C> <C> <C> <C>
WRL ALGER -> Fred Alger -> Seeks long-term capital
AGGRESSIVE Management, Inc. appreciation.
GROWTH
WRL VKAM -> Van Kampen -> Seeks capital appreciation by
EMERGING Asset Management Inc. investing primarily in common
GROWTH stocks of small and medium-sized
companies.
WRL JANUS -> Janus Capital -> Seeks growth of capital.
GROWTH Corporation
WRL JANUS -> Janus Capital -> Seeks long-term growth of capital
GLOBAL Corporation in a manner consistent with the
preservation of capital.
WRL AEGON -> AEGON USA -> Seeks the highest possible current
BOND Investment income within the confines of the
Management, Inc. primary goal of insuring the
protection of capital.
WRL LKCM -> Luther King Capital -> Seeks to provide current income,
STRATEGIC Management long-term growth of income and
TOTAL RETURN Corporation capital appreciation.
WRL FEDERATED -> Federated Investment -> Seeks total return by investing in
GROWTH & INCOME Counseling securities that have defensive
characteristics.
WRL J.P. MORGAN -> J.P. Morgan Investment -> Seeks to obtain maximum current
MONEY MARKET Management Inc. income consistent with the
preservation of principal and
maintenance of liquidity.
WRL DEAN ASSET -> Dean Investment -> Seeks preservation of capital and
ALLOCATION Associates competitive investment returns.
WRL GE U.S. -> GE Investment -> Seeks long-term growth of capital.
EQUITY Management
Incorporated
WRL THIRD -> EQSF Advisers, Inc. -> Seeks long-term capital
AVENUE VALUE appreciation.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ------------------------ -------------------------------------
<S> <C> <C> <C> <C>
WRL J.P. MORGAN -> J.P. Morgan Investment -> Seeks long-term total return from
REAL ESTATE Management Inc. investments primarily in equity
SECURITIES securities of real estate companies.
Total return will consist of
realized and unrealized capital
gains and losses plus income.
WRL AEGON -> AEGON USA -> Seeks preservation of capital,
BALANCED Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
WRL NWQ VALUE -> NWQ Investment -> Seeks to achieve maximum,
EQUITY Management consistent total return with
Company, Inc. minimum risk to principal.
WRL C.A.S.E. -> C.A.S.E. -> Seeks annual growth of capital
GROWTH Management, Inc. through investment in companies
whose management, financial
resources and fundamentals appear
attractive on a scale measured
against each company's present
value.
WRL GE/SCOTTISH -> Scottish Equitable -> Seeks long-term growth of capital.
EQUITABLE Investment Management
INTERNATIONAL Limited and GE
EQUITY Investment Management
Incorporated
WRL GOLDMAN -> Goldman Sachs Asset -> Seeks long-term growth of capital.
SACHS GROWTH Management
WRL GOLDMAN -> Goldman Sachs Asset -> Seeks long-term growth of capital.
SACHS SMALL CAP Management
WRL T. ROWE -> T. Rowe Price -> Seeks to provide an increasing
PRICE DIVIDEND Associates, Inc. level of dividend income,
GROWTH long-term capital appreciation and
reasonable current income through
investments primarily in dividend
paying stocks.
WRL T. ROWE -> T. Rowe Price -> Seeks long-term growth of capital
PRICE SMALL CAP Associates, Inc. by investing primarily in common
stocks of small growth companies.
WRL SALOMON -> Salomon Brothers Asset -> Seeks capital appreciation.
ALL CAP Management Inc.
WRL PILGRIM -> Pilgrim Baxter & -> Seeks capital appreciation.
BAXTER MID CAP Associates, Ltd.
GROWTH
</TABLE>
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<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ------------- ------------- ------------------------------------
<S> <C> <C> <C> <C>
WRL DREYFUS -> The Dreyfus -> Seeks total investment returns
MID CAP Corporation (including capital appreciation and
income), which consistently
outperform the S&P 400 Mid Cap
Index.
</TABLE>
WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida
33716, a wholly-owned subsidiary of Western Reserve, serves as investment
adviser to the fund and manages the fund in accordance with policies and
guidelines established by the fund's Board of Directors. For certain
portfolios, WRL Management has engaged investment sub-advisers to provide
portfolio management services. WRL Management and each investment sub-adviser
are registered investment advisers under the Investment Advisers Act of 1940,
as amended. See the fund prospectus for more information regarding WRL
Management and the investment sub-advisers.
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that insurance companies, including Western
Reserve or its affiliates, establish to support variable annuity contracts and
variable life insurance policies. It is possible that, in the future, it may
become disadvantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the portfolios simultaneously.
Neither we nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policyowners or to variable annuity contract owners.
However, the fund's Board of Directors will monitor events in order to identify
any material conflicts between the interests of such variable life insurance
policyowners and variable annuity contract owners, and will determine what
action, if any, it should take. Such action could include the sale of portfolio
shares by one or more of the separate accounts, which could have adverse
consequences. Material conflicts could result from, for example, (1) changes in
state insurance laws, (2) changes in federal income tax laws, or (3)
differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contract owners.
If the fund's Board of Directors were to conclude that separate funds
should be established for variable life insurance and variable annuity separate
accounts, Western Reserve will bear the attendant expenses, but variable life
insurance policyowners and variable annuity contract owners would no longer
have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from, or substitute the investments that
are held by any subaccount, or that any subaccount may purchase. We will only
add, delete or substitute shares of another portfolio of the fund (or
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of another open-end, registered investment company) if the shares of a
portfolio are no longer available for investment, or if in our judgement
further investment in any portfolio would become inappropriate in view of the
purposes of the separate account. We will not add, delete or substitute any
shares attributable to your interest in a subaccount without notice to and
prior approval of the SEC, to the extent required by the 1940 Act or other
applicable law. We may also decide to purchase for the separate account
securities from other portfolios.
We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of the fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
PLEASE READ THE ATTACHED FUND PROSPECTUS TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as policyowners
instruct, so long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
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THE POLICY
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PURCHASING A POLICY
To purchase a Policy, a prospective owner must submit a completed
application and an initial premium to us. You may also send the application and
initial premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
Our address for applications submitted by World Marketing Alliance
distribution systems is:
Western Reserve
P.O. Box 628069
Orlando, Florida 32862-8069
Everyone else should submit applications to:
Western Reserve
P.O. Box 628078
Orlando, Florida 32862-8078
You may also fax your application to us at 727-299-1667 and send us your
initial premium by wire transfer. See Initial Premium, p. 26 for details.
We determine the specified amount for a Policy based on the initial
premium paid and other characteristics of the proposed insured (or joint
insureds), such as age, gender and rate class. We base the minimum initial
premium for your Policy on the guideline single premium established under
federal tax laws given the age, gender and rate class of the insured (or joint
insured). We currently require a minimum initial premium of $20,000.
We use different underwriting standards (simplified, expanded) in relation
to the Policy. We can provide you with details as to these underwriting
standards when you apply for a Policy. We must receive evidence of insurability
that satisfies our underwriting standards before we will issue a Policy.
Generally, for simplified underwriting for a single life Policy we will issue a
Policy only for an insured between the ages of 35 to 80; for a Joint Policy,
the minimum age for both insureds is 45 and the difference between the joint
insureds' ages cannot be greater than 20 years. The joint insureds must be
spouses or expanded underwriting will be required. To issue a Policy for an
insured (or joint insureds) between the ages of 18 to 34 and 81 to 90, we will
use expanded underwriting. We reserve the right to reject an application for
any reason permitted by law.
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age. Montana prohibits our use of actuarial tables that distinguish between men
and women to determine premiums and policy benefits for policies issued on the
lives of its residents. Therefore, we will base the premiums and benefits in
Policies that we issue in Montana, to insure residents of that state, on
actuarial tables that do not differentiate on the basis of gender.
Your cost of insurance charge will depend on the insured's (or each joint
insured's) rate class. We currently place insureds (or each joint insured) into
one of the following rate classes:
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o select, non-tobacco use; and
o standard, tobacco use.
We generally charge higher rates for insureds who use tobacco.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the insured
(or joint insureds) is alive and in the same condition of health as described
in the application when the Policy is delivered to the owner, and if the
initial premium is paid.
CONDITIONAL INSURANCE COVERAGE. If you pay the initial premium listed in
the conditional receipt attached to the application, and we deliver the
conditional receipt to you, you will have conditional insurance coverage under
the terms of the conditional receipt. Conditional insurance coverage is void if
the check or draft sent to pay the initial premium is not honored when we first
present it for payment.
<TABLE>
<S> <C>
THE AMOUNT OF o the specified amount applied for; or
CONDITIONAL INSURANCE o $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all other life insurance
applications that the insured (or joint insureds) has in force or
pending with us.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE o as soon as you complete an application and pay an initial
COVERAGE BEGINS: premium of at least $20,000, if the insured (or joint
insureds) qualifies for simplified underwriting; or
o on the later of:
-> the date of your application; or
-> the date the insured (or joint insureds) completes
all of the medical tests and examinations that we
require,
if the insured (or joint insureds) does not qualify for simplified
underwriting.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE o the date we determine the insured (or joint insureds) has
COVERAGE TERMINATES satisfied our underwriting requirements (the Policy date);
AUTOMATICALLY ON THE o 60 days from the date the application was completed;
EARLIEST OF: o the date we determine that any person proposed for
insurance in the application is not insurable according to
our rules, limits and standards for the plan, amount and
rate class shown in the application;
o the date we modify the plan, amount, riders and/or the
premium rate class shown in the application, or any
supplemental agreements; or
o the date we mail notice of the ending of coverage and we
refund the initial premium to the applicant at the address
shown on the application.
</TABLE>
<TABLE>
<S> <C>
SPECIAL LIMITATIONS OF THE o the conditional receipt will be VOID:
CONDITIONAL RECEIPT: -> if not signed by an authorized agent of Western
Reserve;
-> in the event the application contains any fraud or
material misrepresentation; or
-> if, on the date of the conditional receipt, the
proposed insured (or joint insureds) is under 15
days of age or over 80 years of age.
o the conditional receipt does not provide benefits for
disability and accidental death benefits.
o the conditional receipt does not provide benefits if any
proposed insured (or joint insured) commits suicide. In this
case, Western Reserve's liability will be limited to return of
the initial premium paid with the application.
</TABLE>
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured (or joint insureds) meets our underwriting
requirements, full insurance coverage begins, we issue the Policy, and we begin
to deduct monthly and daily insurance charges from your initial premium. This
day is the Policy date. On the Policy date, we will allocate your premium to
the subaccounts and fixed account options you elected on your application,
provided you live in a state that does not require a refund of full premium
during the free look period. If your state requires us to return the full
premium in the event you exercise your free look right, we will place your
premium in the reallocation account until the reallocation date. See
Reallocation Account, p. 28
On any day we credit premiums or transfer cash value to a subaccount, we
will convert the dollar amount of the premium (or transfer) into subaccount
units at the unit value for that subaccount, determined at the end of the day.
We will credit amounts to the subaccounts only on a valuation date, that is, on
a date the New York Stock Exchange ("NYSE") is open for trading. See Policy
Values, p. 29.
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<PAGE>
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. If two owners
are named, the Policy will be owned jointly, and each owner's consent will be
required to exercise ownership rights. The owner is the insured unless the
application specifies a different person as the insured. If the owner dies
before the insured (or surviving insured) and no contingent owner is named,
then ownership of the Policy will pass to the owner's estate. The owner may
exercise certain rights described below.
<TABLE>
<S> <C>
CHANGING THE o Change the owner by providing written notice to us at any
OWNER time while the insured (or surviving insured) is alive and
the Policy is in force.
o Change is effective as of the date that the written notice is
signed.
o Changing the owner does not automatically change the
beneficiary.
o Changing the owner may have tax consequences. You
should consult a tax advisor before changing the owner.
o We are not liable for payments we made before we
received the written notice.
</TABLE>
<TABLE>
<S> <C>
CHOOSING THE o The owner designates the beneficiary (the person to
BENEFICIARY receive the death benefit when the insured or surviving
insured dies) in the application.
o If you designate more than one beneficiary, then each
beneficiary shares equally in any death benefit proceeds
unless the beneficiary designation states otherwise.
o If the beneficiary dies before the insured or surviving
insured, then any contingent beneficiary becomes the
beneficiary.
o If both the beneficiary and contingent beneficiary die
before the insured or surviving insured, then the death
benefit will be paid to the owner or the owner's estate
upon the insured's or surviving insured's death.
</TABLE>
<TABLE>
<S> <C>
CHANGING THE o Change the beneficiary by providing us with a written
BENEFICIARY notice.
o Change is effective as of the date the owner signs the
written notice.
o We are not liable for any payments we made before we
received the written notice.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ASSIGNING THE o The owner may assign Policy rights while the insured (or
POLICY either or both joint insureds) is alive.
o The owner retains any ownership rights that are not
assigned.
o Assignee may not change the owner or the beneficiary, and
may not elect or change an optional method of payment.
Any amount payable to the assignee will be paid in a
lump sum.
o Claim under any assignment are subject to proof of
interest and the extent of the assignment.
o We are not:
-> bound by any assignment unless we receive a
written notice of the assignment;
-> responsible for the validity of any assignment;
-> liable for any payment we made before we
received written notice of the assignment; or
-> any assignment which results in adverse tax
consequences to the owner, insured(s) or
beneficiary(ies).
o Assigning the Policy may have tax consequences. You
should consult a tax advisor before assigning the Policy.
</TABLE>
POLICY SPLIT OPTION
For a Joint Policy, as long as you provide us with sufficient evidence
that the joint insureds meet our insurability standards, you may request that
the Policy, not including any riders, be split (the "Split Option") into two
new individual fixed account life insurance policies, one on the life of each
joint insured, if one of the three events listed below occurs. You may request
this Split Option by giving us written notice within 90 days after:
o the enactment or effective date (whichever is later) of a change in
the federal estate tax laws that would reduce or eliminate the
unlimited marital deduction;
o the date of entry of a final decree of divorce of the joint insureds;
or
o written confirmation of a dissolution of a business partnership of
which the joint insureds were partners.
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<PAGE>
<TABLE>
<S> <C>
CONDITIONS FOR EXERCISING o If more than one person owns the Policy, each owner must
SPLIT OPTION: agree to the split.
o The initial specified amount for each new policy cannot be
more than 50% of the Policy's specified amount, excluding
the face amount of any riders.
o The new policies will be subject to our minimum and
maximum specified amounts and issue ages for the plan of
insurance you select.
o You must obtain our approval before you can exercise the
Split Option if one of the joint insureds is older than the
new policy's maximum issue age when you request the
Split Option.
</TABLE>
Cash value and indebtedness under the Policy will be allocated equally to
each of the new policies. If one joint insured does not meet our insurability
requirements, we will pay you half of the Policy's net surrender value and
issue only one new policy covering the joint insured that meets our
insurability requirements; or you may cancel the Split Option and keep the
Policy in force on both joint insureds.
We will base the premiums for the new policies on each joint insured's
attained age and premium rate class which we determine based on the current
evidence of insurability submitted for each joint insured. Premiums will be
payable as of the Policy date for each new policy. The Policy date for each new
policy will be the monthly anniversary after we receive your written request to
exercise the Split Option. The owner and beneficiary for the new policies will
be those named in the Policy, unless you specify otherwise. Any new premium you
pay to the new policies will be subject to the normal charges, if any, of the
new policies at the time you pay the premium.
Exercising the Split Option may result in a taxable event. Moreover, the
new life insurance policies received if you exercise the Split Option may not
be treated as life insurance policies for federal income tax purposes, or, if
so treated, may be treated as MECs, even if the original Policy was not. (See
Federal Income Tax Considerations, p. 47.) You should consult a tax advisor
before exercising the Split Option.
CANCELING A POLICY
You may cancel a Policy during the "free-look period" by returning it to
our office, to one of our branch offices or to the agent who sold you the
Policy. The free-look period expires 10 days after you receive the Policy. In
some states you may have more than 10 days. If you decide to cancel the Policy
during the free-look period, we will treat the Policy as if it had never been
issued. We will pay the refund, without interest, within seven days after we
receive the returned Policy. The amount of the refund will be:
o any monthly deductions or other charges we deducted from amounts
allocated to the subaccounts and the fixed account options; PLUS
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<PAGE>
o your cash value in the subaccounts and the fixed account options
on the date we (or our agent) receive the returned Policy, except
that the amount allocated to the fixed DCA account will be treated as
if it had been allocated to the standard fixed account.
If any state law prohibits the calculation above, we will refund, without
interest, the total of all premiums paid for the Policy. See Allocating
Premiums, p. 27.
PREMIUMS
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INITIAL PREMIUM
The initial premium for a given specified amount depends on a number of
factors including the age, gender, and rate class of the proposed insured(s).
FOR A GIVEN INITIAL PREMIUM, WE WILL SPECIFY THE EXACT SPECIFIED AMOUNT THAT
YOU MUST PURCHASE. For a Joint Policy, we will provide the specified amount at
the time of application based upon the specific ages, gender, and rate classes
of the proposed joint insureds.
We will accept initial premium payments by wire transfer and Policy
applications by fax under the following conditions.
o If you wish to make payments by wire transfer, you should instruct
your bank to wire federal funds to us. Please contact us at
1-800-851-9777 for complete wire instructions.
o If you send your initial premium by wire transfer, you must, at the
same time, send us your completed application by telephone facsimile
transmission ("faxed application") to 727-299-1667, and send the
original signed application to our administrative office.
o If we accept your initial premium payment by wire transfer accompanied
by your faxed application, we will allocate your premium on the Policy
date (or reallocation date if you reside in a state that requires full
refund of premium during the free look period) according to your
instructions once we have received your application. See Reallocation
Account, p. 28.
o If you send your initial premium by wire transfer but do not send us
your faxed application simultaneously, or if the application is
incomplete, we will keep the initial premium for up to five business
days. If we cannot obtain the faxed application or necessary
information within five business days, we will return your initial
premium to you, unless you allow us to keep it until we receive your
faxed application or necessary information.
o When we receive your original signed application and if the allocation
instructions are different from those in the faxed application, then
we will reallocate your cash value in accordance with the instructions
on your original signed application on the first valuation date after
we receive the original signed application.
We currently require a minimum initial premium of $20,000. If you want to
qualify for simplified underwriting, the maximum premium you can pay at the
time of your
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<PAGE>
application is $50,000 (for ages 35-49) and $100,000 (for ages 50-80). Other
limits apply for Joint Policies and Policies with full underwriting. We reserve
the right to modify these requirements and premium amounts at any time.
TAX-FREE EXCHANGES ("1035 EXCHANGES"). We will accept as part of your
initial premium money from one contract that qualified for a tax-free exchange
under Section 1035 of the Internal Revenue Code. If you contemplate such an
exchange, you should consult a competent tax advisor to learn the potential tax
effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 Exchange before we determine your Policy's specified
amount.
ADDITIONAL PREMIUMS
You will have LIMITED FLEXIBILITY TO ADD ADDITIONAL PREMIUMS to the Policy
since we require that the initial premium equal the maximum amount that can be
applied to the Policy at issue. In general, you may not pay any additional
premiums on the Policy for several years in order for the Policy to continue to
qualify as a life insurance Policy as defined in federal tax laws and
regulations. At the time the Policy allows for the payment of additional
premiums, we reserve the right to limit or refund any premium if:
o the amount is below our current minimum additional premium
requirement;
o the premium would increase the death benefit by more than the amount
of the premium; or
o accepting the premium would disqualify the Policy as a life insurance
Policy as defined in federal tax laws and regulations.
You may pay premiums by any method we deem acceptable. We will treat any
payment you make as a loan repayment unless you clearly mark it as a premium
payment.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your premium
to one or more subaccounts of the separate account and to the fixed account
options according to the following rules:
o allocation percentages must be in whole numbers;
o if you select the fixed DCA account, you must put your entire
initial premium into the fixed DCA account at the time of your
application; and
o if you select standard dollar cost averaging, you must put at
least $5,000 into the WRL J.P. Morgan Money Market subaccount.
Generally, we will not allow you to pay additional premiums except in
certain limited circumstances. If we do allow you to pay additional premiums,
you may change the allocation instructions for such additional premium payments
without charge by writing us or calling us at 1-800-851-9777. Upon instructions
from you, the registered representative/agent of record for your Policy may
also change your allocation instructions for you. In the future,
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<PAGE>
we may decide that the minimum amount you can allocate to a particular
subaccount is 1.0% of each premium payment (currently not required).
Whenever you direct money into a subaccount, we will credit your Policy
with the number of units for that subaccount that can be bought for the dollar
payment. We price each subaccount unit using the unit value determined at the
end of the day after the closing of the NYSE (usually at 4:00 p.m. Eastern
time). We will credit amounts to the subaccounts only on a valuation date, that
is, on a date the NYSE is open for trading. See Policy Values, p. 29. Your cash
value will vary with the investment experience of the subaccounts in which you
invest. YOU BEAR THE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS.
You should review periodically how your cash value is allocated among the
subaccounts and the fixed account options because market conditions and your
overall financial objectives may change.
REALLOCATION ACCOUNT. If your state requires us to return your initial
premium in the event you exercise your free-look right, we will allocate the
initial premium on the Policy date to the reallocation account. While held in
the reallocation account, your premium will earn interest at the current rates
for the standard fixed account. The premium will remain in the reallocation
account for the number of days in your state's free look period plus five days.
This is the reallocation date. Please contact your agent for details concerning
the free look period for your state.
On the first valuation date on or after the reallocation date, we will
reallocate all cash value from the reallocation account to the subaccounts and
fixed account options you selected on the application. If you requested either
fixed DCA or standard dollar cost averaging, we will reallocate the cash value
to either the fixed DCA account or the WRL J.P. Morgan Money Market subaccount
respectively, on the reallocation date.
For states which do not require full refund of the initial premium, the
reallocation date is the same as the Policy date and we will allocate your
initial premium on the Policy date to the subaccounts and the fixed account
options in accordance with the instructions you gave us on your application.
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<PAGE>
POLICY VALUES
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<TABLE>
<S> <C>
CASH VALUE o serves as the starting point for calculating values under a
Policy.
o equals the sum of all values in each subaccount and the
fixed account options.
o is determined on the Policy date and on each valuation
date.
o has no guaranteed minimum amount and may be more or
less than premiums paid.
</TABLE>
NET SURRENDER VALUE
The net surrender value is the amount we pay when you surrender your
Policy. We determine the net surrender value at the end of the valuation period
when we receive your written surrender request.
<TABLE>
<S> <C>
NET SURRENDER o the cash value as of such date; MINUS
VALUE ON ANY o any surrender charge as of such date; MINUS
VALUATION DATE o any outstanding Policy loan(s); MINUS
EQUALS: o any interest you owe on any Policy loan(s).
</TABLE>
SUBACCOUNT VALUE
Each subaccount's value is the cash value in that subaccount. At the end
of any valuation period, the subaccount's value is equal to the number of units
that the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
<TABLE>
<S> <C>
THE NUMBER OF o the initial units purchased at unit value on the Policy date;
UNITS IN ANY PLUS
SUBACCOUNT ON o units purchased with additional premium(s); PLUS
ANY VALUATION o units purchased via transfers from another subaccount or
DATE EQUALS: the fixed account; MINUS
o units redeemed to pay for monthly deductions; MINUS
o units redeemed to pay for partial withdrawals; MINUS
o units redeemed as part of a transfer to another subaccount
or the fixed account.
</TABLE>
Every time you allocate, transfer or withdraw money to or from a
subaccount, we convert that dollar amount into units. We determine the number
of units we credit to, or subtract from, your Policy by dividing the dollar
amount of the allocation, transfer or partial withdrawal by the unit value for
that subaccount at the end of the valuation period.
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<PAGE>
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value may increase or decrease from one
valuation period to the next.
<TABLE>
<S> <C>
THE UNIT VALUE o the total value of the portfolio shares held in the
OF ANY subaccount, determined by multiplying the number of
SUBACCOUNT AT portfolio shares owned by the subaccount by the
THE END OF A portfolio's net asset value per share determined at the end
VALUATION of the valuation period; MINUS
PERIOD o a charge equal to the daily net assets of the subaccount
IS CALCULATED AS: multiplied by the daily equivalent of the daily charge;
MINUS
o the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
AND THE RESULT DIVIDED BY
o the number of outstanding units in the subaccount.
</TABLE>
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
FIXED ACCOUNT VALUE
On the Policy date, the fixed account value is equal to the premiums
allocated to the fixed account, minus the portion of the first monthly
deduction taken from the fixed account.
<TABLE>
<S> <C>
THE FIXED ACCOUNT o the premium(s) allocated to the fixed account; PLUS
VALUE AT THE END OF o any amounts transferred from a subaccount to the fixed
ANY VALUATION account; PLUS
PERIOD IS EQUAL TO: o total interest credited to the fixed account; MINUS
o amounts charged to pay for monthly deductions; MINUS
o amounts withdrawn from the fixed account to pay for
partial withdrawals; MINUS
o amounts transferred from the fixed account to a
subaccount.
</TABLE>
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TRANSFERS
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GENERAL
You or your agent/registered representative of record may make transfers
among the subaccounts or from the subaccounts to the fixed account. We
determine the amount you have available for transfers at the end of the
valuation period when we receive your transfer request. WE MAY MODIFY OR REVOKE
THE TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers
under the Policy:
/check mark/ You may make an unlimited number of transfers in a Policy
year.
/check mark/ You may make one transfer from the fixed account per Policy
year.
/check mark/ You may request transfers in writing (in a form we accept),
by fax or by telephone.
/check mark/ There is no minimum amount that must be transferred.
/check mark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/check mark/ We deduct a $10 charge from the amount transferred for the
13th and each additional transfer in a Policy year.
/check mark/ We consider all transfers made in any one day to be a single
transfer.
/check mark/ Transfers resulting from loans, conversion rights, standard
and fixed dollar cost averaging, asset rebalancing, and
transfers from the fixed account are NOT treated as
transfers for the purpose of the transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from the WRL
J.P. Morgan Money Market portfolio, during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations or a series of movements between portfolios.
We will not limit non-substantive transfers.
Your Policy as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-851-9777 or fax your instructions to
727-299-1667.
Please note the following regarding telephone or fax transfers:
-> We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to be
authentic. You bear the risk of any such loss.
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-> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
-> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
-> Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to owners, and/or
tape recording telephone instructions received from owners.
-> We may also require written confirmation of your request.
-> If you do not want the ability to make telephone transfers, you
should notify us in writing.
-> Telephone or fax requests must be received before 4:00 p.m. Eastern
time to assure same-day pricing of the transaction.
-> We will not be responsible for any transmittal problems when you fax
us your request unless you report it to us within five business days
and send us proof of your fax transmittal.
-> We may discontinue this option at any time.
We will process any transfer request we receive before the NYSE closes
(usually 4:00 p.m. Eastern time) using the subaccount unit value determined at
the end of that session of the NYSE. If we receive the transfer request after
the NYSE closes, we will process the request using the subaccount unit value
determined at the close of the next regular business session of the NYSE.
STANDARD FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the standard fixed account
unless you select standard dollar cost averaging from the standard fixed
account. We reserve the right to require that you make the transfer request in
writing. We must receive the transfer request no later than 30 days after a
Policy anniversary. We will make the transfer on the date we receive the
written request. The maximum amount you may transfer is the greater of:
-> 25% of the amount in the standard fixed account; or
-> the amount you transferred from the standard fixed account in the
immediately prior Policy year (excluding transfers from the fixed
DCA account).
CONVERSION RIGHTS
If within two years of your Policy date, you transfer all of your
subaccount values to the standard fixed account, then we will not charge you a
transfer fee, even if applicable. You must make your request in writing.
STANDARD DOLLAR COST AVERAGING
Standard dollar cost averaging is an investment strategy designed to
reduce the investment risks associated with market fluctuations. The strategy
spreads the allocation of your premium into the subaccounts over a period of
time. This potentially allows you to
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reduce the risk of investing most of your premium into the subaccounts at a
time when prices are high. The success of this strategy is not assured and
depends on market trends. You should consider carefully your financial ability
to continue the program over a long enough period of time to purchase units
when their value is low as well as when they are high. We make no guarantee
that dollar cost averaging will result in a profit or protect you against a
loss.
Under standard dollar cost averaging, we automatically transfer a set
dollar amount from the WRL J.P. Morgan Money Market subaccount to one or more
subaccounts that you choose. At the beginning of dollar cost averaging, you
must choose the time period (12, 24 or 36 months) over which the entire amount
will be transferred in equal monthly installments. We will make the transfers
monthly as of the end of the valuation date starting on the first Monthiversary
after the Policy date or reallocation date. We will make the first transfer in
the month after we receive your request, provided that we receive the form by
the 25th day of the month.
<TABLE>
<S> <C>
TO START STANDARD DOLLAR -> you must submit a completed form to us requesting
COST AVERAGING: standard dollar cost averaging;
-> you must have at least $5,000 in the WRL J.P. Morgan
Money Market subaccount;
-> the monthly amount transferred will be determined by
dividing the total amount to be transferred by the number
of months in the period chosen (12, 24 or 36 months);
and
-> interest accrued on the cash value in the WRL J.P.
Morgan Money Market subaccount during the term of
dollar cost averaging will be tranferred in the last month
of the standard dollar cost averaging term.
</TABLE>
You may request standard dollar cost averaging to begin at any time, except
that you cannot begin standard dollar cost averaging if you have an active
fixed DCA account. There is no charge for standard dollar cost averaging.
Transfers under standard dollar cost averaging do NOT count as transfers for
purposes of the transfer charge.
<TABLE>
<S> <C>
STANDARD DOLLAR COST -> we receive your request to cancel your participation;
AVERAGING WILL -> the value in the WRL J.P. Morgan Money Market
TERMINATE IF: subaccount is depleted;
-> you elect to participate in the asset rebalancing program;
OR
-> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
We may modify, suspend, or discontinue standard dollar cost averaging at
any time.
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FIXED DCA ACCOUNT
To be eligible for fixed dollar cost averaging, you must elect the fixed
DCA account on your application and put your entire initial premium into the
fixed DCA account. Money you place in the fixed DCA account will earn interest
at rates we declare from time to time. Money will be transferred out of the
fixed DCA account in six equal monthly installments with the first transfer
starting on the first Monthiversary after the Policy date or reallocation date.
Interest accrued on the initial premium will be transferred in the last month
of the fixed DCA account term. Money in the fixed DCA account may be
transferred entirely to other subaccounts or the standard fixed account after
one month.
There is no charge for participating in the fixed DCA account. Transfers
from the fixed DCA account do NOT count as transfers for purposes of the
transfer charge.
We reserve the right to stop offering the fixed DCA account at any time
for any reason. We may offer a higher 30-day interest rate guaranteed for one
month. If you exercise your free look right and you reside in a state which
requires us to return your premium, then we will return your full initial
premium, but without any interest. But if you reside in a state which requires
us to return cash value, then we will treat your initial premium as if it had
been allocated to the standard fixed account.
<TABLE>
<S> <C>
FIXED DOLLAR COST o we receive written notice from you instructing us to cancel
AVERAGING WILL END IF: the program;
o you elect to participate in the asset rebalancing program;
or
o you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts. Cash value allocated to each subaccount will grow or decline in
value at different rates. The asset rebalancing program automatically
reallocates the cash value in the subaccounts at the end of each period to
match your Policy's currently effective premium allocation schedule. Cash value
in the standard fixed account, the standard dollar cost averaging program and
the fixed DCA account are not available for this program. This program does not
guarantee gains. A subaccount may still have losses.
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. You may modify your allocations
quarterly. Once we receive the asset rebalancing request form, we will effect
the initial rebalancing of cash value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. We will
credit the amounts transferred at the unit value next determined on the dates
the transfers are made. If a day on which rebalancing would ordinarily occur
falls on a day on which the NYSE is closed, rebalancing will occur on the next
day the NYSE is open.
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<PAGE>
To start asset rebalancing, you must submit a completed asset rebalancing
request form to us before the maturity date. There is no charge for the asset
rebalancing program. Reallocations under the asset rebalancing program do NOT
count as transfers for purposes of the transfer charge.
<TABLE>
<S> <C>
ASSET REBALANCING -> you elect to participate in the fixed DCA account;
WILL CEASE IF: -> you elect to participate in the standard dollar cost
averaging program;
-> we receive your request to discontinue participation;
-> you make ANY transfer to or from any subaccount other
than under a scheduled rebalancing; or
-> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
You may start and stop participating in the asset rebalancing program at
any time; but we may restrict your right to re-enter the program to once each
Policy year. If you wish to resume the asset rebalancing program, you must
complete a new request form. We may modify, suspend, or discontinue the asset
rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES
NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY
TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM
ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF
POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT
ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR
ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve
does not currently charge you any additional fees for providing these support
services. Western Reserve reserves the right to discontinue providing
administrative and support services to owners utilizing independent third
parties who provide investment allocation and transfer recommendations.
CHARGES AND DEDUCTIONS
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This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the service and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
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<PAGE>
<TABLE>
<S> <C>
SERVICES AND o the death benefit, cash and loan benefits;
BENEFITS WE o investment options, including premium allocations;
PROVIDE: o administration of elective options;
o the distribution of reports to owners.
</TABLE>
<TABLE>
<S> <C>
COSTS AND o costs associated with processing and underwriting
EXPENSES WE INCUR: applications;
o expenses of issuing and administering the Policy
(including any Policy riders);
o overhead and other expenses for providing services and
benefits, sales and marketing expenses; and
o other costs of doing business, such as collecting premiums,
maintaining records, processing claims, effecting
transactions, and paying federal, state and local premium
and other taxes and fees.
</TABLE>
<TABLE>
<S> <C>
RISKS WE ASSUME: o that the charges we deduct may be insufficient to meet our
actual claims because insureds die sooner than we
estimate; and
o that the costs of providing the services and benefits under
the Policies may exceed the charges we are allowed to
deduct.
</TABLE>
PREMIUM DEDUCTIONS
We deduct no charges from premiums before allocating the premiums to the
separate account and the fixed account options according to your instructions.
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We subtract any outstanding loan amount from the cash value
before calculating the charge. We deduct this charge from your Policy's value
in each subaccount and the fixed account in accordance with the current premium
allocation instructions. If the value of any account is insufficient to pay
that account's portion of the monthly deduction, we will take the monthly
deduction on a pro rata basis from all accounts (I.E., in the same proportion
that the value in each subaccount and the fixed account bears to the total cash
value on the Monthiversary). Because portions of the monthly deduction can vary
monthly, the monthly deduction will also vary.
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<PAGE>
<TABLE>
<S> <C>
THE MONTHLY DEDUCTION IS o the monthly Policy charge based on your Policy's separate
EQUAL TO: account assets; PLUS
o the monthly Policy charge based on your Policy's fixed
account assets; PLUS
o the monthly cost of insurance charge for the Policy, if any;
PLUS
o the monthly charge for any benefits provided by riders
attached to the Policy (currently, only the Guaranteed
Minimum Death Benefit rider).
Monthly Policy Charge:
o Based on your POLICY'S SEPARATE ACCOUNT assets, this
charge is equal to:
-> the separate account monthly deduction charge
(see table below) divided by 12; MULTIPLIED BY
-> the sum of the Policy's subaccount values on
the Monthiversary.
o Based on your POLICY'S FIXED ACCOUNT assets, this
charge is equal to:
-> the fixed account monthly deduction charge
(see table below) divided by 12; MULTIPLIED BY
-> the fixed account value on the Monthiversary,
minus any outstanding Policy loan(s).
o This charge compensates us for administrative
expenses such as recordkeeping, processing death
benefit claims and Policy changes, mortality
expenses and overhead costs.
o This charge varies for each Policy based on the
Policy year, gender, and whether the Policy is issued
on a single life or a joint and last survivor basis.
</TABLE>
<TABLE>
<S> <C>
DAILY CHARGE o On each valuation date, we deduct a daily charge at the
annual rate of 0.50% from your Policy's assets in the
subaccounts as part of the calculation of the unit value for
each subaccount.
o This charge compensates us for certain mortality and
expense risks we assume.
</TABLE>
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<PAGE>
The monthly Policy charge and the daily charge for single life and Joint
Policies are as follows:
<TABLE>
<CAPTION>
SINGLE LIFE POLICY MALE/UNISEX FEMALE
POLICY YEARS POLICY YEARS POLICY YEARS POLICY YEARS
1-10 11+ 1-10 11+
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT DAILY CHARGE
CHARGES (from unit value) .50% .50% .50% .50%
(annual rate)
MONTHLY
POLICY CHARGE
(as a % of separate
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.50% 1.50% 2.35% 1.35%
FIXED ACCOUNT MONTHLY
CHARGES POLICY CHARGE
(annual rate) (as a % of fixed
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.00% 1.00% 1.85% .85%
</TABLE>
<TABLE>
<CAPTION>
JOINT POLICY POLICY YEARS 1-10 POLICY YEARS 11+
<S> <C> <C> <C>
SEPARATE ACCOUNT CHARGES DAILY CHARGE (from unit value) .50% .50%
(annual rate)
MONTHLY POLICY CHARGE (as 1.50% .50%
a % of separate account assets)
TOTAL 2.00% 1.00%
FIXED ACCOUNT CHARGES MONTHLY POLICY CHARGE (as 1.50% .50%
(annual rate) a % of fixed account assets)
TOTAL 1.50% .50%
</TABLE>
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly cost of
insurance charge based on the amount of risk for this Policy. The charge would
depend on a number of variables (age, gender, rate class, specified amount,
cash value) that would cause it to vary from Policy to Policy and from
Monthiversary to Monthiversary. Currently, we do not assess this charge and we
do not intend to assess this charge in the future, although we reserve the
right to do so. Should we begin to assess this charge in the future, we will
waive any surrender charge upon the surrender of this Policy. See Surrender
Charge, p. 39.
The GUARANTEED maximum monthly cost of insurance rates are based on the
gender, age, plan of insurance, and risk class of the insured(s). These rates
will not exceed those shown in your Policy's Table of Guaranteed Maximum Life
Insurance Rates.
We currently place insureds into standard (tobacco use) and select
(non-tobacco use) rate classes. The GUARANTEED rates are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or
Non-Tobacco Mortality Rates ("1980 CSO
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<PAGE>
Tables"). Cost of insurance rates for an insured in a non-tobacco use class are
less than or equal to rates for an insured of the same age and gender in a
tobacco use class.
The Policies are based on mortality tables that distinguish between men
and women. As a result, the Policy may pay different benefits to men and women
of the same age and rate class. We also offer Policies based on unisex
mortality tables if required by state law.
SURRENDER CHARGE
If you surrender your Policy during the first nine years, we deduct a
surrender charge from your cash value and pay the remaining cash value (less
any outstanding loan amounts) to you. The payment you receive is called the net
surrender value. The surrender charge is 9.75% of the initial premium if you
surrender your Policy before the end of the first Policy year and then declines
gradually to 0% after the ninth Policy year. The rate at which the surrender
charge declines depends on the insured's (or joint insureds') age, gender and
whether you have purchased a single life or a Joint Policy. See Appendix C,
Surrender Charge Table, for a schedule of the surrender charges by age, year,
gender and Policy type.
If we begin to assess a cost of insurance charge on Policies as noted
above, we will waive all future surrender charges.
<TABLE>
<S> <C>
TRANSFER CHARGE o We currently allow you to make 12 transfers each year
free from charge.
o We charge $10 for each additional transfer.
o For purposes of assessing the transfer charge, all transfers
made in one day, regardless of the number of subaccounts
affected by the transfer, is considered a single transfer.
o We deduct the transfer charge from the amount being
transferred.
o Transfers due to loans, exercise of conversion rights, dollar
cost averaging, asset rebalancing and transfers from the
fixed account do NOT count as transfers for purposes of
assessing this charge.
o We will not increase this charge.
</TABLE>
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. These charges currently range from 0.46% to
1.50%. See the Portfolio Annual Expense Table in this prospectus, and the fund
prospectus.
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<PAGE>
<TABLE>
<S> <C>
GUARANTEED MINIMUM If you select the Guaranteed Minimum Death Benefit rider at
DEATH BENEFIT RIDER application, then we will deduct from your Policy's cash value
CHARGE (less any outstanding loan) a monthly charge on the Policy date
and each Monthiversary thereafter. The monthly charge will be
equal to:
o 0.02% MULTIPLIED BY the sum of your Policy's subaccount
values, if any, on the valuation date of each
Monthiversary; PLUS
o 0.02% MULTIPLIED BY your Policy's fixed account value on
the valuation date of each monthly deduction.
</TABLE>
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on a Policy once we receive satisfactory proof of the insured's (or surviving
insured's) death. We may require return of the Policy. We will pay the death
benefit proceeds to the primary beneficiary(ies), if living, or to a contingent
beneficiary. If each beneficiary dies before the insured (or surviving insured)
and there is no contingent beneficiary, we will pay the death benefit proceeds
to the owner or the owner's estate. We will pay the death benefit proceeds in a
lump sum or under a payment option. See Payment Options, p. 42.
<TABLE>
<S> <C>
DEATH BENEFIT o the death benefit (described below); MINUS
PROCEEDS EQUAL: o any past due monthly deductions if the insured (or
surviving insured) dies during the grace period (see Policy
Lapse and Reinstatement, p. 46); MINUS
o any outstanding Policy loan on the date of death; MINUS
o any interest you owe on Policy loan(s).
</TABLE>
If all or part of the death benefit proceeds are paid in one sum, we will
pay interest on this sum as required by applicable state law from the date we
receive due proof of the insured's (or surviving insured's) death to the date
we make payment.
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's (or joint insured's) age or
gender. See Our Right to Contest the Policy; and Misstatement of Age or Gender,
p. 50.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured (or surviving insured)
dies.
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<PAGE>
<TABLE>
<S> <C>
THE DEATH BENEFIT o the current specified amount; or
IS THE GREATER OF: o the product of: the Policy's cash value on the date of the
insured's (or surviving insured's) death MULTIPLIED BY the
specified percentage, called the "limitation percentage,"
shown below.
</TABLE>
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the age
of the insured (or younger joint insured) at the beginning of each Policy year.
The following table indicates the limitation percentages for different ages:
AGE
(YOUNGER INSURED,
IF JOINT POLICY) LIMITATION PERCENTAGE
40 and under 250%
41 to 45 250% minus 7% for each age over age 40
46 to 50 215% minus 6% for each age over age 45
51 to 55 185% minus 7% for each age over age 50
56 to 60 150% minus 4% for each age over age 55
61 to 65 130% minus 2% for each age over age 60
66 to 70 120% minus 1% for each age over age 65
71 to 75 115% minus 2% for each age over age 70
76 to 90 105%
91 to 94 105% minus 1% for each age over age 90
95 and above 100%
EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT
A partial withdrawal will reduce the specified amount by an amount equal
to the amount of the partial withdrawal multiplied by the ratio of the initial
specified amount to the initial premium. For an example, see Partial
Withdrawals, p. 42.
GUARANTEED MINIMUM DEATH BENEFIT RIDER
If you purchase the Guaranteed Minimum Death Benefit rider at the time you
apply for the Policy and the rider is in effect upon the insured's (or
surviving insured's) date of death, we guarantee to provide a death benefit as
follows:
-> If the net surrender value on any Monthiversary is not sufficient to
cover the monthly Policy charge on such day, then coverage will be
provided as indicated below, and no grace period will begin, so long
as no Policy loans have been taken under the Policy;
-> If a death benefit is payable under the provisions of this rider,
then Western Reserve guarantees to provide a death benefit as
follows:
o During the first 15 Policy years, or before the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if sooner, the minimum death benefit we will pay
is the amount described under Death Benefit above;
o After the first 15 Policy years, or on or after the Policy
anniversary following the insured's (or younger joint insured's)
75th birthday, if
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<PAGE>
sooner, the minimum death benefit we will pay is the initial
premium, reduced, on a dollar-for-dollar basis, by any partial
withdrawals.
o However, in no event will the minimum death benefit ever be less
than $1,000.
<TABLE>
<S> <C>
THE GUARANTEED o the date the Policy terminates;
MINIMUM DEATH BENEFIT o the date any Policy loan is taken; or
RIDER WILL TERMINATE ON o the Monthiversary on which this rider is terminated by
THE EARLIEST OF: written request from the owner.
</TABLE>
This rider may only be purchased at the time you purchase the Policy.
There is also a charge for this rider. See Guaranteed Minimum Death Benefit
Rider Charge, p. 40.
CHANGING THE SPECIFIED AMOUNT
You may not increase or decrease the specified amount on your Policy.
However, a partial withdrawal will reduce the specified amount. If you need a
higher specified amount, you must apply for a second policy.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. Information
concerning these settlement options is available on request. None of these
options vary with the investment performance of a separate account.
SURRENDERS AND PARTIAL WITHDRAWALS
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SURRENDERS
You may make a written request to surrender your Policy for its net
surrender value as calculated at the end of the valuation date on which we
receive your request. The insured (or surviving insured) must be alive and the
Policy must be in force when you make your written request. A surrender is
effective as of the date when we receive your written request. You will incur a
surrender charge if you surrender the Policy during the first nine Policy
years. See Surrender Charge, p. 39. Once you surrender your Policy, all
coverage and other benefits under it cease and cannot be reinstated. We will
normally pay you the net surrender value in a lump sum within seven days unless
you request other arrangements. A surrender may have tax consequences. See
Federal Income Tax Considerations, p. 47.
PARTIAL WITHDRAWALS
After the first Policy year, you may request a partial withdrawal of a
portion of your cash value subject to certain conditions.
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<PAGE>
PARTIAL -> You must make your partial withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: -> We will only allow one partial withdrawal during a
12-month period.
-> The most you can request is the Policy's earnings. We
calculate earnings as the cash value MINUS total
outstanding loans, MINUS any interest you owe on the Policy
loans, and MINUS total premiums paid.
-> You may not take a partial withdrawal if it will reduce
the specified amount below $1,000.
-> You can specify the subaccount(s) and the standard fixed
account from which to make the withdrawal. Otherwise
we will deduct the amount from the Policy's value in the
subaccounts and the standard fixed account in accordance
with the current allocation instructions.
-> We generally will pay a partial withdrawal request within
seven days following the valuation date we receive the
request.
-> There is no charge for taking a partial withdrawal.
-> A partial withdrawal may have tax consequences. See
Federal Income Tax Considerations, p. 47.
A partial withdrawal will reduce the cash value (and the initial premium
payable under the Guaranteed Minimum Death Benefit rider) by the amount of the
partial withdrawal and will reduce the specified amount by an amount equal to
the amount of the partial withdrawal multiplied by the ratio of the initial
specified amount to the initial premium. A partial withdrawal will also reduce
the specified amount payable under the Guaranteed Minimum Death Benefit rider
by an amount equal to the amount of the partial withdrawal multiplied by the
ratio of the initial specified amount to the initial premium.
An example of a partial withdrawal's effect on the specified amount is
shown below.
EXAMPLE: A Policy with a specified amount of $200,000 on a male standard
(age 35) has a guideline single premium of $48,920. The ratio of the initial
specified amount to the initial premium is 4.09 (I.E., 200,000 divided by
48,920). If a $19,000 partial withdrawal is taken after the first Policy year,
the specified amount will be reduced by $77,710 (I.E., 4.09 multiplied by
$19,000).
LOANS
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GENERAL
After the Policy date (as long as the Policy is in force) you may borrow
money from us using the Policy as the only security for the loan. Taking a loan
will terminate the
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Guaranteed Minimum Death Benefit rider, if any. See Guaranteed Minimum Death
Benefit Rider, p. 41. A loan that is taken from, or secured by, a Policy may
have tax consequences. See Federal Income Tax Considerations, p. 47.
<TABLE>
<S> <C>
POLICY LOANS ARE o you must borrow at least $500; and
SUBJECT TO CERTAIN o the maximum amount you may borrow is 90% of the cash
CONDITIONS: value, less any surrender charge and any outstanding loan
amount.
</TABLE>
When you take a loan, we will withdraw an amount equal to the requested
loan from each of the subaccounts and the fixed account based on your current
premium allocation instructions (unless you specify otherwise). We will
transfer that amount to the loan reserve. The loan reserve is the portion of
the fixed account used as collateral for a Policy loan.
We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make, p. 51.
You may request a loan by telephone by calling us at 1-800-851-9777. If
the loan amount you request exceeds $50,000 or if the address of record has
been changed within the past 10 days, we may reject your request. If you do not
want the ability to request a loan by telephone, you should notify us in
writing. You will be required to provide certain information for identification
purposes when you request a loan by telephone. We may ask you to provide us
with written confirmation of your request. We will not be liable for processing
a loan request if we believe the request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY AS LOAN REPAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUM PAYMENTS.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. We will also make this comparison any
time you repay all or part of the loan, or make a request to borrow an
additional amount. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, we will withdraw the difference from
the subaccounts and the standard fixed account and transfer it to the loan
reserve, in the same manner as when a loan is made. If the amount in the loan
reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the subaccounts and the
standard fixed account in the same manner as current premiums are allocated. No
charge will be imposed for these transfers, and these transfers are NOT treated
as transfers in calculating the transfer charge. We reserve the right to
require the transfer to the fixed account if the loans were originally
transferred from the fixed account.
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INTEREST RATE CHARGED
The annual interest rate you may pay on a Policy loan is 6.0% and is
payable in arrears on each Policy anniversary. Loan interest that is unpaid
when due will be added to the amount of the loan on each Policy anniversary and
will bear interest at the same rate.
LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of 3.0%. We may credit a higher rate, but we are not
obligated to do so.
PREFERRED LOANS
At any time after the Policy date, you may borrow against the Policy up to
an amount that is equal to the cash value MINUS total premiums paid, LESS any
outstanding loan amounts (including any interest owed on the Policy loan(s)).
Such a loan is called a preferred loan. We will charge interest on a preferred
loan at an annual rate of 3.0%, payable in arrears. THIS RATE IS NOT
GUARANTEED. Any existing loan, other than a preferred loan, is not eligible for
a preferred loan rate. Amounts in the loan reserve securing preferred loans
accrue interest at the same 3.0% annual rate as other loans. Consult a tax
advisor before taking a preferred loan because such a loan may have adverse tax
consequences. We reserve the right to modify or discontinue the preferred loan
feature.
EFFECT OF POLICY LOANS
A Policy loan affects the Policy because we reduce the death benefit
proceeds and net surrender value under the Policy by the amount of any
outstanding loan plus interest you owe on the loans. Repaying the loan causes
the death benefit proceeds and net surrender value to increase by the amount of
the repayment. As long as a loan is outstanding, we hold an amount equal to the
loan in the loan reserve. This amount is not affected by the separate account's
investment performance and may not be credited with the interest rates accruing
on the fixed account options. Amounts transferred from the separate account to
the loan reserve will affect the value in the separate account because we
credit such amounts with an interest rate declared by us rather than a rate of
return reflecting the investment results of the separate account. Taking a
Policy loan will cause a Guaranteed Minimum Death Benefit rider to terminate.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding (see Federal Income Tax Considerations, p. 47). You should consult
a tax advisor before taking out a Policy loan.
We will notify you (and any assignee of record) if the sum of your loans
plus any interest you owe on the loans is more than the net surrender value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
We will accept 1035 Exchanges where the policy from another company has an
outstanding policy loan of no more than 40% of the policy's cash value
transferred to our Policy. We intend to treat these as preferred loan amounts.
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<PAGE>
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may lapse (terminate without value) if the net surrender value
on any Monthiversary is less than the monthly deductions due on that day. A
lapse might also occur if poor investment results cause a decrease in the net
surrender value.
The monthly deductions may exceed the net surrender value if:
o we begin to impose monthly cost of insurance charges; or
o the sum of all outstanding Policy loans plus accrued loan interest
exceeds the net surrender value.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and to any assignee of record.
The notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the GRACE PERIOD. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
Generally, you may not reinstate this Policy after it has lapsed. See
Reinstatement below.
If you purchase the Guaranteed Minimum Death Benefit rider, then no grace
period will begin (and the Policy will not lapse) provided that there have been
no Policy loans. See Guaranteed Minimum Death Benefit Rider, p. 41.
REINSTATEMENT
You may not reinstate your Policy if it lapses unless you completed the
Policy application and had your Policy delivered to you in a state which
permits reinstatement. If so, then we will reinstate a lapsed Policy within
five years from the date of lapse (and prior to the maturity date). To
reinstate the Policy you must:
o submit a written application for reinstatement;
o provide evidence of insurability satisfactory to us;
o make a payment that is large enough to cover:
-> any monthly deductions due at the time of termination and upon
reinstatement; plus
-> one monthly deduction in advance; plus
-> repayment of outstanding loans plus unpaid interest.
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. The reinstatement date for your Policy
will be the monthly anniversary on or following the day we approve your
application for reinstatement. We may decline a request for reinstatement.
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FEDERAL INCOME TAX CONSIDERATIONS
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The following summary provides a general description of the federal income
tax considerations associated with a Policy and does not purport to be complete
or to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE.
Please consult counsel or other qualified tax advisors for more complete
information. We base this discussion on our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "IRS"). Federal income tax laws and the current
interpretations by the IRS may change.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance policies under federal tax law. Guidance as to how these
requirements are to be applied is limited. Nevertheless, it is reasonable to
conclude that the Policy should satisfy the applicable Code requirements.
Because of certain innovative features of the Policies and the absence of
pertinent interpretations of the Code requirements, there is, however, some
uncertainty about the application of such requirements to the Policy. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as flexibility to allocate premiums and cash
values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance Policy for federal income tax purposes.
48
<PAGE>
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludable from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by (E.G., by assignment), a
Policy, the tax consequences depend on whether the Policy is classified as a
"Modified Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as "Modified Endowment Contracts" ("MECs") and receive
less favorable tax treatment than other life insurance policies. IN MOST
SITUATIONS, THE POLICIES WILL BE CLASSIFIED AS MECS. There are, however,
certain limited situations where a Policy may not be classified as a MEC. If
you do not want your Policy to be classified as a MEC, you should consult a tax
advisor to determine the circumstances, if any, under which your Policy would
not be classified as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, then you will also be notified of the maximum
amount of additional premiums you can pay annually without causing your Policy
to be classified as a MEC. If a payment would cause your Policy to become a
MEC, you and your agent will be notified. At that time, you will need to notify
us if you want to continue your Policy as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as
MECs are subject to the following tax rules:
o All distributions other than death benefits from a MEC, including
distributions upon surrender and partial withdrawals, will be treated
first as distributions of gain taxable as ordinary income. They will
be treated as tax-free recovery of the owner's investment in the
Policy only after all gain has been distributed. Your investment in
the Policy is generally your total premium payments. When a
distribution is taken from the Policy, your investment in the Policy
is reduced by the amount of the distribution that is tax-free.
o Loans taken from or secured by (E.G., by assignment) such a Policy are
treated as distributions and taxed accordingly.
o A 10% additional federal income tax is imposed on the amount included
in income except where the distribution or loan is made when you have
attained age 59 1/2 or are disabled, or where the distribution is part
of a series of substantially equal periodic payments for your life (or
life expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment
49
<PAGE>
in the Policy, and as taxable income after the recovery of all investment in
the Policy. However, certain distributions which must be made in order to
enable the Policy to continue to qualify as a life insurance policy for federal
income tax purposes if Policy benefits are reduced during the first 15 Policy
years may be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not
treated as distributions. Instead, such loans are treated as indebtedness.
However, the tax consequences associated with preferred loans are less clear
and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
MULTIPLE POLICIES. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includable in the owner's income when a taxable
distribution occurs.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such plans and
business uses of the Policy may vary depending on the particular facts and
circumstances of each individual arrangement and business uses of the Policy.
Therefore, if you are contemplating using the Policy in any arrangement the
value of which depends in part on its tax consequences, you should be sure to
consult a tax advisor as to tax attributes of the arrangement. In recent years,
moreover, Congress has adopted new rules relating to life insurance owned by
businesses. Any business contemplating the purchase of a new Policy or a change
in an existing Policy should consult a tax advisor.
TAX TREATMENT OF POLICY SPLIT. If you purchase a Joint Policy, the Policy
Split Option permits you to split the Policy into two new individual life
insurance policies upon the occurrence of a divorce of the joint insureds,
certain changes in federal estate tax law, or a dissolution of a business
partnership of which the joint insureds were partners. (See Policy Split
Option, p. 25.) A Policy split could have adverse tax consequences. For
example, it is not clear whether a Policy split will be treated as a nontaxable
exchange under Sections 1031 through 1043 of the Code. If a Policy split is not
treated as a nontaxable exchange, a split could result in the recognition of
taxable income in an amount up to any gain in the Policy at the time of the
split. It is also not clear whether the individual policies that result from a
Policy split would in all circumstances be treated as life insurance policies
50
<PAGE>
for federal income tax purposes and, if so treated, whether the individual
policies would be classified as MECs. Before you exercise your rights under the
Policy Split Option, you should consult a competent tax advisor regarding the
possible consequences of a Policy split.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legislative developments and their effect on the
Policy.
OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured (or joint insureds) in the application or in a supplemental
application. Therefore, if you make any material misrepresentation of a fact in
the application (or any supplemental application), then we may contest the
Policy's validity or may resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime (or while both joint insureds are still alive) for two years from the
Policy date, or if reinstated (if permitted by state law), for two years from
the date of reinstatement. If you purchased a Joint Policy, at the end of the
second Policy year, we will send you a notice asking you whether either joint
insured has died. We can still contest the Policy's validity even if you do not
notify us that a joint insured has died and even if the Policy is still in
force.
SUICIDE EXCLUSION
If the insured (or either joint insured) commits suicide, while sane or
insane, within two years of the Policy date, then the Policy will terminate and
our total liability, including the Guaranteed Minimum Death Benefit rider, is
limited to an amount equal to the total premiums paid, less any loans and less
any partial withdrawals. We will pay this amount to the beneficiary in one sum.
If the Policy lapsed, we will measure the suicide period from the reinstatement
date (if permitted by state law).
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured (or either joint insured) was stated
incorrectly in the application or any supplemental application, then the death
benefit will be adjusted based on what the initial premium would have purchased
based on the insured(s) correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary may modify this Policy or waive any of our
rights or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind us by making any promise not contained in this
Policy.
51
<PAGE>
If we modify the Policy, we will provide you with notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If the insured (or either joint insured) is living and the Policy is in
force, the Policy will mature on the Policy anniversary nearest the insured's
(or a joint insured's) 100th birthday. This is the maturity date. On the
maturity date we will pay you the net surrender value of your Policy.
We will extend the maturity date if your Policy is still in force on the
maturity date. Any riders in force on the scheduled maturity date will
terminate on that date and will not be extended. Interest on any outstanding
Policy loans will continue to accrue during the period for which the maturity
date is extended. You must submit a written request for the extension between
90 and 180 days prior to the maturity date. We will automatically extend the
maturity date until the next Policy anniversary. You must submit a written
request, between 90 and 180 days before each subsequent Policy anniversary,
stating that you wish to extend the maturity date for another Policy year.
If you extend the maturity date on each valuation date, we will adjust the
specified amount to equal the cash value, and the limitation percentage will be
100%. We will not permit you to make additional premium payments unless it is
required to prevent the Policy from lapsing. We will waive all future monthly
deductions.
The tax consequences of extending the maturity date beyond the 100th
birthday of the insured (or a joint insured) are uncertain. You should consult
a tax advisor as to those consequences.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written notices and/or due proofs of death. However, we
can postpone such payments if:
o the NYSE is closed, other than customary weekend and holiday closing,
or trading on the NYSE is restricted as determined by the SEC; OR
o the SEC permits, by an order, the postponement for the protection of
policyowners; OR
o the SEC determines that an emergency exists that would make the
disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, partial withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, partial withdrawals, or
surrenders from the fixed account for up to six months.
52
<PAGE>
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C> <C> <C>
/check mark/ the current cash value /check mark/ any activity since the last report
/check mark/ the current net surrender value /check mark/ investment experience of each subaccount
/check mark/ the current death benefit /check mark/ any other information required by law
/check mark/ any outstanding loans
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
<TABLE>
<S> <C> <C> <C>
o the maturity date; o the end of the grace period; or
o the date the insured (or surviving o the date the Policy is
insured) dies; surrendered.
</TABLE>
IMSA
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We are a charter member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
PERFORMANCE DATA
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- --------------------------------------------------------------------------------
RATES OF RETURN
This section shows the historical investment experience of the portfolios
based on the portfolios' historical investment experience. This information
does not represent or project future investment performance.
We base the rates of return that we show below on each portfolio's actual
investment performance. We deduct investment management fees and direct fund
expenses. The rates are actual average annual compounded rates of return for
the periods ended on December 31, 1998.
53
<PAGE>
These rates of return do not reflect any charges that are deducted under
the Policy or from the separate account (such as the daily charge, the monthly
deduction or the surrender charge). IF THESE CHARGES WERE DEDUCTED, PERFORMANCE
WOULD BE LOWER. These rates of return are not estimates, projections or
guarantees of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1998
<TABLE>
<CAPTION>
INCEPTION
FUND PORTFOLIO INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR DATE
- ------------------------------------------------ ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Alger Aggressive Growth .................... 23.54% N/A N/A 26.83% 48.69% 3/1/94
WRL VKAM Emerging Growth ....................... 23.09% N/A 21.95% 25.63% 37.33% 3/1/93
WRL Janus Growth ............................... 20.91% 22.61% 25.20% 31.63% 64.47% 10/2/86
WRL Janus Global ............................... 21.94% N/A 19.46% 25.40% 30.01% 12/3/92
WRL AEGON Bond ................................. 7.89% 9.14% 6.46% 6.12% 9.32% 10/2/86
WRL LKCM Strategic Total Return ................ 14.12% N/A 13.76% 15.39% 9.64% 3/1/93
WRL Federated Growth & Income .................. 11.78% N/A N/A 12.77% 3.05% 3/1/94
WRL J.P. Morgan Money Market ................... 5.03% 5.01% 4.87% 5.18% 5.26% 10/2/86
WRL Dean Asset Allocation ...................... 14.80% N/A N/A 13.06% 8.33% 1/3/95
WRL GE U.S. Equity ............................. 25.00% N/A N/A N/A 22.87% 1/2/97
WRL Third Avenue Value ......................... -6.84% N/A N/A N/A -6.84% 1/2/98
WRL J.P. Morgan Real Estate Securities ......... -14.93% N/A N/A N/A N/A 5/1/98
WRL AEGON Balanced ............................. 9.71% N/A N/A 11.51% 6.93% 3/1/94
WRL NWQ Value Equity ........................... 11.83% N/A N/A N/A -4.78% 5/1/96
WRL C.A.S.E. Growth ............................ 15.01% N/A N/A 11.47% 2.47% 5/1/95
WRL GE/Scottish Equitable
International Equity ......................... 10.17% N/A N/A N/A 12.85% 1/2/97
S&P 500 ........................................ 17.86% 19.21% 24.06% 28.23% 28.58% 10/2/86
</TABLE>
Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL
Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap had not commenced
operations as of December 31, 1998, the above chart does not reflect rates of
return for these portfolios.
Additional information regarding the investment performance of the
portfolios appears in the attached fund prospectus.
HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED PORTFOLIO PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the adjusted historical experience of the portfolios. We started selling the
Policies in 1999. The separate account and the fund commenced operations on
October 2, 1986. The rates of return below
54
<PAGE>
show the adjusted actual investment experience of each portfolio for the
periods shown. The illustrations of cash values and net surrender values below
depict these Policy values as if you had purchased the Policy without the
Guaranteed Minimum Death Benefit rider on the last valuation date prior to
January 1, 1987. The illustrations are based on the historical investment
experience of the portfolio indicated as of the last valuation date prior to
January 1 of the year after the portfolio began operations. WE ASSUMED THE RATE
OF RETURN FOR EACH PORTFOLIO IN EACH CALENDAR YEAR TO BE UNIFORMLY EARNED
THROUGHOUT THE YEAR; HOWEVER, THE PORTFOLIO'S ACTUAL PERFORMANCE DID AND WILL
VARY THROUGHOUT THE YEAR.
In order to demonstrate how the actual investment experience of the
portfolios could have affected the cash value and net surrender value of the
Policy, we provide hypothetical illustrations for a hypothetical insured. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE HYPOTHETICAL INSURED COULD HAVE HELD THE POLICY DURING THE
PERIOD ILLUSTRATED. These illustrations do not represent what may happen in the
future.
The amounts we show for cash values and net surrender values take into
account all charges and deductions from the Policy, the separate account, and
the portfolios. For each portfolio, we base one illustration on the guaranteed
cost of insurance rates and one on the current cost of insurance rates for a
single life Policy for a hypothetical male insured age 35. The insured's age,
gender and rate class, amount and timing of premium payments, withdrawals, and
loans would affect individual Policy benefits.
For each portfolio, the illustrations below assume the Policy was
purchased without the Guaranteed Minimum Death Benefit rider based on an
initial premium of $30,000 and a specified amount of $147,487 for a male age
35, select, non-tobacco use, rate class.
The following example shows how the hypothetical net return of the WRL
Alger Aggressive Growth portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that the premium and cash values were in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL ALGER AGGRESSIVE GROWTH
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .................................... $40,383 $40,157 $37,458 $37,232
1997* ................................... 43,501 43,063 40,651 40,213
1998* ................................... 52,714 51,973 49,939 49,198
1999* ................................... 76,445 75,134 73,745 72,434
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
55
<PAGE>
The following example shows how the hypothetical net return of the WRL
VKAM Emerging Growth portfolio would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1994. This example assumes that
the premium and cash values were in the portfolio for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL VKAM EMERGING GROWTH
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 .................................... $27,106 $26,916 $24,181 $23,991
1996* ................................... 38,806 38,284 35,956 35,434
1997* ................................... 44,994 44,171 42,219 41,396
1998* ................................... 53,294 52,099 50,594 49,399
1999* ................................... 71,377 69,542 68,977 67,142
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Janus Growth portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1987. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL JANUS GROWTH
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------- ------------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1988 .................................... $ 32,449 $ 32,244 $ 29,524 $ 29,319
1989* ................................... 37,540 37,086 34,690 34,236
1990* ................................... 53,833 52,943 51,058 50,168
1991* ................................... 52,386 51,333 49,686 48,633
1992* ................................... 81,639 79,728 79,239 77,328
1993* ................................... 81,493 79,313 79,393 77,213
1994* ................................... 82,634 80,140 80,834 78,340
1995* ................................... 73,893 71,405 72,693 70,205
1996* ................................... 106,021 102,074 105,421 101,474
1997* ................................... 121,971 116,991 121,971 116,991
1998* ................................... 141,225 134,943 141,225 134,943
1999* ................................... 228,814 217,783 228,814 217,783
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
56
<PAGE>
The following example shows how the hypothetical net return of the WRL
Janus Global portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1993. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL JANUS GLOBAL
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1994 .................................... $39,512 $39,289 $36,587 $36,364
1995* ................................... 38,632 38,224 35,782 35,374
1996* ................................... 46,364 45,654 43,589 42,879
1997* ................................... 57,761 56,657 55,061 53,957
1998* ................................... 66,898 65,406 64,498 63,006
1999* ................................... 84,824 82,648 82,724 80,548
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
AEGON Bond portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1987. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL AEGON BOND
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .................................... $27,603 $27,411 $24,678 $24,486
1989* ................................... 29,001 28,583 26,151 25,733
1990* ................................... 32,429 31,726 29,654 28,951
1991* ................................... 33,592 32,629 30,892 29,929
1992* ................................... 38,938 37,561 36,538 35,161
1993* ................................... 40,556 38,866 38,456 36,766
1994* ................................... 44,844 42,697 43,044 40,897
1995* ................................... 40,699 38,481 39,499 37,281
1996* ................................... 48,820 45,826 48,220 45,226
1997* ................................... 47,680 44,446 47,680 44,446
1998* ................................... 51,270 47,442 51,270 47,442
1999* ................................... 55,211 50,722 55,211 50,722
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
57
<PAGE>
The following example shows how the hypothetical net return of the WRL
LKCM Strategic Total Return portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that the premium and cash values were in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL LKCM STRATEGIC TOTAL RETURN
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 .................................... $29,103 $28,907 $26,178 $25,982
1996* ................................... 35,383 34,917 32,533 32,067
1997* ................................... 39,687 38,942 36,912 36,167
1998* ................................... 47,163 46,046 44,463 43,346
1999* ................................... 50,430 49,014 48,030 46,614
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Federated Growth & Income portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that the premium and cash values were in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL FEDERATED GROWTH & INCOME
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .................................... $36,645 $36,429 $33,720 $33,504
1997* ................................... 39,899 39,460 37,049 36,610
1998* ................................... 48,506 47,754 45,731 44,979
1999* ................................... 48,747 47,792 46,047 45,092
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
58
<PAGE>
The following example shows how the hypothetical net return of the WRL
J.P. Morgan Money Market portfolio would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1987. This example assumes
that the premium and cash values were in the portfolio for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL J.P. MORGAN MONEY MARKET
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 .................................... $30,593 $30,393 $27,668 $27,468
1989* ................................... 31,558 31,142 28,708 28,292
1990* ................................... 33,269 32,606 30,494 29,831
1991* ................................... 34,745 33,819 32,045 31,119
1992* ................................... 35,664 34,468 33,264 32,068
1993* ................................... 35,835 34,373 33,735 32,273
1994* ................................... 35,806 34,067 34,006 32,267
1995* ................................... 36,121 34,065 34,921 32,865
1996* ................................... 37,130 34,688 36,530 34,088
1997* ................................... 38,031 35,180 38,031 35,180
1998* ................................... 39,426 36,093 39,426 36,093
1999* ................................... 40,880 37,018 40,880 37,018
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Dean Asset Allocation portfolio would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1995. This example assumes that
the premium and cash values were in the portfolio for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .................................... $35,137 $34,924 $32,212 $31,999
1997* ................................... 39,210 38,765 36,360 35,915
1998* ................................... 44,586 43,866 41,811 41,091
1999* ................................... 47,107 46,135 44,407 43,435
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
59
<PAGE>
The following example shows how the hypothetical net return of the WRL GE
U.S. Equity portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL GE U.S. EQUITY
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 .................................... $37,160 $36,942 $34,235 $34,017
1999* ................................... 44,531 44,060 41,681 41,210
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Third Avenue Value portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1998. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL THIRD AVENUE VALUE
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1999 .................................... $27,256 $27,065 $24,331 $24,140
</TABLE>
60
<PAGE>
The following example shows how the hypothetical net return of the WRL
AEGON Balanced portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1995. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL AEGON BALANCED
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 .................................... $35,051 $34,839 $32,126 $31,914
1997* ................................... 37,851 37,416 35,001 34,566
1998* ................................... 43,226 42,512 40,451 39,737
1999* ................................... 45,081 44,123 42,381 41,423
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL NWQ
Value Equity portfolio would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL NWQ VALUE EQUITY
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 .................................... $36,583 $36,367 $33,658 $33,442
1999* ................................... 33,972 33,581 31,122 30,731
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
61
<PAGE>
The following example shows how the hypothetical net return of the WRL
C.A.S.E. Growth portfolio would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1996. This example assumes that the
premium and cash values were in the portfolio for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL C.A.S.E. GROWTH
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 .................................... $34,378 $34,168 $31,453 $31,243
1998* ................................... 38,566 38,120 35,716 35,270
1999* ................................... 38,542 37,891 35,767 35,116
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
GE/Scottish Equitable International Equity portfolio would have affected
benefits for a Policy dated on the last valuation date prior to January 1,
1997. This example assumes that the premium and cash values were in the
portfolio for the entire period and that the values were determined on each
Policy anniversary thereafter.
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Select, Non-Tobacco Use Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 .................................... $31,452 $31,250 $28,527 $28,325
1999* ................................... 34,618 34,181 31,768 31,331
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
Because the WRL J.P. Morgan Real Estate Securities portfolio did not
commence operations until May 1, 1998 and the WRL Goldman Sachs Small Cap, WRL
T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All
Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap portfolios did
not commence operations until May 1, 1999, there are no hypothetical
illustrations for these portfolios.
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
o other variable life issuers in general;
o variable life insurance policies which invest in mutual funds with
similar investment objectives and policies, as reported by Lipper
Analytical Services, Inc. ("Lipper") and Morningstar, Inc.
("Morningstar"); and other services, companies, individuals, or
industry or financial publications (E.G. FORBES, MONEY, THE WALL
STREET JOURNAL, BUSINESS WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE,
and FORTUNE);
62
<PAGE>
-> Lipper and Morningstar rank variable annuity contracts and
variable life policies. Their performance analysis ranks such
policies and contracts on the basis of total return, and assumes
reinvestment of distributions; but it does not show sales
charges, redemption fees or certain expense deductions at the
separate account level.
o the Standard & Poor's Index of 500 Common Stocks, or other widely
recognized indices;
-> unmanaged indices may assume the reinvestment of dividends, but
usually do not reflect deductions for the expenses of operating
or managing an investment portfolio; or
o other types of investments, such as:
-> certificates of deposit;
-> savings accounts and U.S. Treasuries;
-> certain interest rate and inflation indices (E.G. the Consumer
Price Index); or
-> indices measuring the performance of a defined group of
securities recognized by investors as representing a particular
segment of the securities markets (E.G. Donoghue Money Market
Institutional Average, Lehman Brothers Corporate Bond Index, or
Lehman Brothers Government Bond Index).
WESTERN RESERVE'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the fund or its portfolios, or to their
performance.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road NE, Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. The maximum sales
commission payable to Western Reserve agents or other registered
representatives will be approximately 7.65% of the initial premium. In
addition, certain production, persistency and managerial bonuses may be paid.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. All matters of Ohio
law pertaining to the
63
<PAGE>
Policy have been passed upon by Thomas E. Pierpan, Vice President, Assistant
Secretary and Associate General Counsel of Western Reserve.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. We are
not aware of any class action lawsuits naming us as a defendant or involving
the separate account. In some lawsuits involving other insurers, substantial
damages have been sought and/or material settlement payments have been made.
Although the outcome of any litigation cannot be predicted with certainty, we
believe that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on us, or AFSG, or
the separate account.
VARIATIONS IN POLICY PROVISIONS
Certain provisions of the Policy may vary from the descriptions in this
prospectus in order to comply with different state laws. These variations may
include restrictions on Policy reinstatement, use of the fixed account and
different interest rates charged and credited on Policy loans. Please refer to
your Policy, since any variations will be included in your Policy or in riders
or endorsements attached to your Policy.
YEAR 2000 READINESS DISCLOSURE
We have in place a Year 2000 Project Plan (the "Plan") to review and
analyze existing hardware and software systems, as well as voice and data
communications systems, to determine if they are Year 2000 compliant. As of the
date of this prospectus, all of our mission-critical systems are Year 2000
compliant and ready. The Plan is continuing as scheduled, as we continue with
the validation of our mission-critical and non-mission-critical systems,
including revalidation testing in 1999. In addition, Western Reserve has
undertaken aggressive initiatives to test all systems that interface with any
third parties and other business partners. All of these steps are aimed at
allowing current operations to remain unaffected by the Year 2000 date change.
As of the date of this prospectus, we have identified and made available
what we believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
Our actions under the Plan are intended to reduce significantly Western
Reserve's risk of a material business interruption based on the Year 2000
issues. Resolving the Year 2000 computer problem is complex and multifaceted.
We cannot know conclusively whether a response plan is successful until the
Year 2000 arrives (or an earlier date if the systems or equipment address Year
2000 data prior to the Year 2000). In spite of its efforts or results, Western
Reserve's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions, or failure to act, of third parties beyond our
knowledge or control. See the fund prospectus for information on its
preparation for Year 2000.
This statement is a Year 2000 Readiness Disclosure pursuant to Section
3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C.
Section 1 (1998).
64
<PAGE>
EXPERTS
The financial statements of WRL Series Life Account as of December 31,
1998 and for the year then ended have been included herein in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, and upon the
authority of that firm as experts in accounting and auditing.
The statutory-basis financial statements and schedules of Western Reserve
at December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, appearing in this prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein which is based in part
on the report of PricewaterhouseCoopers LLP, independent accountants. The
financial statements and schedules referred to above are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
Actuarial matters included in this prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
FINANCIAL STATEMENTS
Our financial statements appear on the following pages. Our financial
statements should be distinguished from the separate account's financial
statements and you should consider our financial statements only as bearing
upon our ability to meet our obligations under the Policies.
Our financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, have been prepared on
the basis of statutory accounting principles rather than generally accepted
accounting principles.
ADDITIONAL INFORMATION ABOUT WESTERN RESERVE
Western Reserve is a stock life insurance company that is wholly-owned by
First AUSA Life Insurance Company, which, in turn, is wholly-owned by AEGON
USA, Inc. Western Reserve's office is located at 570 Carillon Parkway, St.
Petersburg, Florida 33716-1202 and the mailing address is P.O. Box 5068,
Clearwater, Florida 33758-5068.
Western Reserve was incorporated in 1957 under the laws of Ohio and is
subject to regulation by the Insurance Department of the State of Ohio, as well
as by the insurance departments of all other states and jurisdictions in which
it does business. Western Reserve is licensed to sell insurance in all states
(except New York), Puerto Rico, Guam, and in the District of Columbia. Western
Reserve submits annual statements on its operations and finances to insurance
officials in all states and jurisdictions in which it does business. The Policy
described in this prospectus has been filed with, and where required, approved
by, insurance officials in those jurisdictions in which it is sold.
65
<PAGE>
WESTERN RESERVE'S DIRECTORS AND OFFICERS
We are governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of our directors.
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
<S> <C> <C>
John R. Kenney Chairman of the Board, Chairman of the Board, and
570 Carillon Parkway Chief Executive Officer President of WRL Series Fund,
St. Petersburg, Florida 33716 and President Inc. (1993 - present); Chairman
of the Board of IDEX Mutual
Funds (1990 - present); Chair-
man of the Board of WRL
Investment Management, Inc.
(1996 - present); and Chairman
of the Board of WRL Investment
Services, Inc. (1996 - present).
Patrick S. Baird Director Executive Vice President (1995 -
4333 Edgewood Road, NE present), Chief Operating Officer
Cedar Rapids, Iowa 52499 (1996 - present), Chief Financial
Officer (1992 - 1995), Vice
President and Chief Tax Officer
(1984 - 1995) of AEGON USA,
Inc.
Jack E. Zimmerman Director Trustee, IDEX Mutual Funds
507 St. Michel Circle (1987 - present); retired from
Kettering, Ohio 45429 Martin Marietta (1993).
Lyman H. Treadway Director Retired Consultant.
30195 Chagrin Blvd., Ste. 210N
Cleveland, Ohio 44124
James R. Walker Director Self-employed, Public
3320 Office Park Dr. Accountant (1996 - present);
Dayton, Ohio 45439 Partner, Walker-Davis C.P.A.'s,
Dayton, Ohio (1990 - 1995).
</TABLE>
66
<PAGE>
The following table gives the name, address and principal occupation during the
past five years of the principal officers of Western Reserve (other than
officers listed above as directors).
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
<S> <C> <C>
Alan M. Yaeger* Executive Vice President, Executive Vice President, WRL
Actuary and Chief Series Fund, Inc. (1993 -
Financial Officer present); Director of WRL
Investment Management, Inc.
(1996 - present); Director of
WRL Investment Services, Inc.
(1996 - present).
William H. Geiger* Senior Vice President, Secretary Senior Vice President, Secretary,
and Corporate Counsel Corporate Counsel, and Group
Vice President-Compliance (1998
- present); Senior Vice President,
Secretary, General Counsel and
Group Vice President-
Compliance (1996 - 1998),
Senior Vice President, Secretary,
and General Counsel (1990 -
1996) of Western Reserve;
Group Vice President-
Compliance and Corporate
Counsel (1996 - present) of
AUSA Life Insurance Company,
Bankers United Life Assurance
Company, Life Investors
Insurance Company of America,
Monumental Life Insurance
Company and Western Reserve
Life Insurance Company,
subsidiaries of AEGON USA,
Inc.; Assistant Secretary (1990 -
present), Vice President and
Assistant Secretary (1990 -
1997) of IDEX Mutual Funds;
and Assistant Secretary (1994 -
present) and Vice President and
Assistant Secretary (1994 -
1997) of WRL Series Fund, Inc.
Allan J. Hamilton* Vice President, Treasurer Vice President and Controller
and Controller (1987 - present), Treasurer (1997
- present) of Western Reserve;
Treasurer and Chief Financial
Officer of WRL Series Fund, Inc.
(1997 - present).
</TABLE>
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
Western Reserve holds the assets of the separate account physically
segregated and apart from the general account. Western Reserve maintains
records of all purchases and sales of portfolio shares by each of the
subaccounts. A blanket bond was issued to AEGON U.S. Holding Corporation
("AEGON U.S.") in the amount of $10 million covering all of the employees of
67
<PAGE>
AEGON U.S. and its affiliates, including Western Reserve. A Stockbrokers
Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing fidelity
coverage, covers the activities of registered representatives of AFSG
Securities Corporation to a limit of $10 million.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
Western Reserve established the separate account as a separate investment
account under Ohio law in 1985. We own the assets in the separate account and
are obligated to pay all benefits under the Policies. The separate account is
used to support other life insurance policies of Western Reserve and its
affiliates, AUSA Life Insurance Company, Inc. and PFL Life Insurance Company,
as well as for other purposes permitted by law. The separate account is
registered with the SEC as an unit investment trust under the 1940 Act and
qualifies as a "separate account" within the meaning of the federal securities
laws.
68
<PAGE>
APPENDIX A -- ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age, would change over time if the single premium was paid
and the return on the assets in the subaccounts was a uniform gross annual rate
(before any expenses) of 0%, 6% or 12%. The tables illustrate Policy values
that would result based on assumptions that you pay the initial premium
indicated and you do not take any partial withdrawals or Policy loans. The
values under the Policy will be different from those shown even if the returns
averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout
the years shown.
We based the illustration on page 70 on a Policy for an insured who is a
35 year old male in the select, non-tobacco use rate class, initial premium of
$30,000 and a $147,487 initial specified amount and the Policy's death benefit
without the Guaranteed Minimum Death Benefit rider. The illustration on that
page also assumes cost of insurance charges based on our CURRENT cost of
insurance rates. The illustration on page 71 is based on the same factors as
those on page 70, except that cost of insurance rates are based on the
GUARANTEED cost of insurance rates.
We based the illustration on page 72 on a Policy for joint insureds who
are a 55 year old male and a 55 year old female in the select, non-tobacco use
rate class, initial premium of $30,000, a $109,579 initial specified amount and
the Policy's death benefit without the Guaranteed Minimum Death Benefit rider.
The illustration on that page also assumes cost of insurance charges based on
our CURRENT cost of insurance rates. The illustration on page 73 is based on
the same factors as those on page 72, except that cost of insurance rates are
based on the GUARANTEED cost of insurance rates.
For the CURRENT cost of insurance illustrations, we do not currently
assess any additional cost of insurance charge and we do not intend to assess
this charge in the future, although we reserve the right to do so. For the
GUARANTEED cost of insurance illustrations, this cost of insurance charge
deduction is based on the 1980 Commissioners Standard Ordinary Mortality Table
of rates.
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.50% of the average net assets of the subaccounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.94% of the portfolios' average daily net assets; and (3) all
applicable cash value charges using the current monthly Policy charge. The
0.94% average portfolio expense level assumes an equal allocation of amounts
among the 23 subaccounts. It is based on an average 0.80% investment advisory
fee and estimated 1999 average normal operating expenses of 0.14% for each of
the portfolios in operation during 1998. We used actual annual audited expenses
incurred during 1998 for the following portfolios to calculate the average
annual expense level: WRL J.P. Morgan Money Market (0.46%), WRL AEGON Bond
(0.54%), WRL Janus Growth (0.83%), WRL LKCM Strategic Total Return (0.86%), WRL
VKAM Emerging Growth (0.89%), WRL Janus Global (0.95%), WRL Alger Aggressive
Growth (0.91%), WRL AEGON Balanced (0.91%), WRL Federated Growth & Income
(0.90%), WRL C.A.S.E. Growth (1.00%), WRL Dean Asset Allocation (0.86%), WRL
69
<PAGE>
NWQ Value Equity (0.89%), WRL GE/Scottish Equitable International Equity
(1.50%), WRL GE U.S. Equity (1.05%), WRL Third Avenue Value (1.00%), and WRL
J.P. Morgan Real Estate Securities (1.00%). Because the portfolios of WRL
Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend
Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter
Mid Cap Growth and WRL Dreyfus Mid Cap had not commenced operations as of
December 31, 1998, the estimated average annual portfolio expense level
reflects estimated expenses for each of these portfolios at 1.00% for 1999.
During 1998, WRL Management undertook to pay normal operating expenses of
certain portfolios that exceeded a certain stated percentage of those
portfolios' average daily net assets. See the Portfolio Annual Expense Table on
page 13 for each portfolio's expense limitation. In 1998, WRL Management
reimbursed WRL J.P. Morgan Real Estate Securities in the amount of $28,275, WRL
Third Avenue Value in the amount of $14,229 and WRL GE/Scottish Equitable
International Equity in the amount of $127,763. Without such reimbursements,
the total annual expenses during 1998 for WRL J.P. Morgan Real Estate
Securities, WRL Third Avenue Value and WRL GE/Scottish Equitable International
Equity would have been 3.34%, 1.13% and 1.96%, respectively. WRL Management has
undertaken until at least April 30, 2000 to pay expenses to the extent normal
total operating expenses of certain portfolios of the fund exceed a stated
percentage of the portfolio's average daily net assets.
Taking into account the monthly Policy charge, the daily charge and the
assumed average portfolio expense levels, the gross annual investment return
rates of 0%, 6% and 12% are equivalent to net annual investment return rates as
described in the chart below for a Policy assuming CURRENT cost of insurance
charges. For a Policy assuming GUARANTEED cost of insurance charges, the net
annual investment return rates will be further reduced.
<TABLE>
<CAPTION>
GROSS RATES OF RETURN 0% 6% 12%
- ------------------------- ------------------- ----------------- --------------------
EQUIVALENT NET ANNUAL INVESTMENT RETURN RATES
--------------------------------------------------------------
1-10 11+ 1-10 11+ 1-10 11+
For Years: -------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
SINGLE LIFE:
- Male/Unisex ..... .... -3.39% -2.42% 2.49% 3.52% 8.37% 9.46%
- Female .......... .... -3.25% -2.27% 2.64% 3.67% 8.53% 9.62%
----- ----- ---- ---- ---- ----
JOINT LIFE .............. -2.91% -1.93% 3.00% 4.04% 8.91% 10.01%
----- ----- ---- ---- ---- -----
</TABLE>
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the separate account, because we are not currently
making such charges. In order to produce after tax returns of 0%, 6% or 12% if
such charges are made in the future, the separate account would have to earn a
sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if you invested an amount equal to the premium to earn
interest at 5% per year, compounded annually.
We will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, gender, risk classification and desired plan features.
70
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Initial Specified Amount $147,487 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Current Cost of Insurance Rates
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS*
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 148,773
15 62,368 147,487 147,487 201,127
20 79,599 147,487 147,487 259,778
25 101,591 147,487 147,487 348,397
30 129,658 147,487 147,487 498,421
35 165,480 147,487 147,487 744,664
40 211,200 147,487 147,487 1,079,326
45 269,550 147,487 147,487 1,664,273
50 344,022 147,487 160,646 2,615,116
55 439,069 147,487 190,974 4,109,200
60 560,376 147,487 218,378 6,210,918
65 715,197 147,487 257,035 9,662,751
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS* ASSUMING HYPOTHETICAL GROSS*
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
1 28,982 30,746 32,511 26,057 27,821 29,586
2 27,999 31,511 35,231 25,149 28,661 32,381
3 27,049 32,295 38,180 24,274 29,520 35,405
4 26,131 33,099 41,375 23,431 30,399 38,675
5 25,244 33,922 44,838 22,844 31,522 42,438
6 24,388 34,766 48,590 22,288 32,666 46,490
7 23,560 35,631 52,657 21,760 33,831 50,857
8 22,761 36,518 57,064 21,561 35,318 55,864
9 21,988 37,426 61,839 21,388 36,826 61,239
10 21,242 38,357 67,015 21,242 38,357 67,015
15 18,792 45,599 105,302 18,792 45,599 105,302
20 16,625 54,207 165,464 16,625 54,207 165,464
25 14,708 64,441 259,998 14,708 64,441 259,998
30 13,011 76,606 408,541 13,011 76,606 408,541
35 11,511 91,068 641,952 11,511 91,068 641,952
40 10,183 108,261 1,008,716 10,183 108,261 1,008,716
45 9,009 128,699 1,585,022 9,009 128,699 1,585,022
50 7,970 152,996 2,490,587 7,970 152,996 2,490,587
55 7,050 181,880 3,913,524 7,050 181,880 3,913,524
60 6,237 216,216 6,149,423 6,237 216,216 6,149,423
65 5,518 257,035 9,662,751 5,518 257,035 9,662,751
*For the equivalent net annual investment return rates, see p. 69.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Western Reserve or the fund that these hypothetical investment rates of
return can be achieved for any one year or sustained over any period of time.
This illustration must be preceded or accompanied by a current fund prospectus.
71
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<CAPTION>
Initial Specified Amount $147,487 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS**
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 147,487
15 62,368 147,487 147,487 186,395
20 79,599 147,487 147,487 235,585
25 101,591 147,487 147,487 309,462
30 129,658 * 147,487 433,466
35 165,480 * 147,487 631,974
40 211,200 * 147,487 894,098
45 269,550 * * 1,352,671
50 344,022 * * 2,062,772
55 439,069 * * 3,095,757
60 560,376 * * 4,504,749
65 715,197 * * 6,990,489
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS** ASSUMING HYPOTHETICAL GROSS**
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
1 28,782 30,541 32,300 25,857/dagger/ 27,616/dagger/ 29,375/dagger/
2 27,592 31,086 34,787 24,742/dagger/ 28,236/dagger/ 31,937/dagger/
3 26,427 31,631 37,472 23,652/dagger/ 28,856/dagger/ 34,697/dagger/
4 25,283 32,176 40,374 22,583/dagger/ 29,476/dagger/ 37,674/dagger/
5 24,159 32,719 43,509 21,759/dagger/ 30,319/dagger/ 41,109/dagger/
6 23,051 33,257 46,895 20,951/dagger/ 31,157/dagger/ 44,795/dagger/
7 21,955 33,798 50,556 20,155/dagger/ 31,989/dagger/ 48,756/dagger/
8 20,870 34,313 54,513 19,670/dagger/ 33,113/dagger/ 53,313/dagger/
9 19,793 34,829 58,794 19,193/dagger/ 34,229/dagger/ 58,194/dagger/
10 18,720 35,332 63,426 18,720 35,332 63,426
15 14,053 39,581 97,589 14,053 39,581 97,589
20 8,437 43,489 150,054 8,437 43,489 150,054
25 692 46,121 230,942 692 46,121 230,942
30 * 45,806 355,300 * 45,806 355,300
35 * 38,955 544,805 * 38,955 544,805
40 * 17,223 835,606 * 17,223 835,606
45 * * 1,288,258 * * 1,288,258
50 * * 1,964,545 * * 1,964,545
55 * * 2,948,340 * * 2,948,340
60 * * 4,460,148 * * 4,460,148
65 * * 6,990,489 * * 6,990,489
</TABLE>
/dagger/The net surrender value shown would in fact be equal to the cash value
since, under the terms of the Policy, the surrender charge will be waived if a
cost of insurance charge were to be deducted.
*In the absence of an additional payment, the Policy would lapse.
**For the equivalent net annual investment return rates, see p. 69.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Western Reserve or the fund that these hypothetical investment rates of
return can be achieved for any one year or sustained over any period of time.
This illustration must be preceded or accompanied by a current fund prospectus.
72
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
Initial Specified Amount $109,579 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Current Cost of Insurance Rates
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS*
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
1 31,500 109,579 109,579 109,579
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 131,676
20 79,599 109,579 109,579 195,687
25 101,591 109,579 109,579 309,384
30 129,658 109,579 109,579 498,457
35 165,480 109,579 113,926 803,079
40 211,200 109,579 133,574 1,244,575
45 269,550 109,579 161,202 1,985,318
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS* ASSUMING HYPOTHETICAL GROSS*
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
1 29,128 30,901 32,674 26,203 27,976 29,749
2 28,280 31,828 35,586 25,430 28,978 32,736
3 27,458 32,784 38,758 24,683 30,009 35,983
4 26,659 33,768 42,212 23,959 31,068 39,512
5 25,884 34,782 45,975 23,484 32,382 43,575
6 25,131 35,826 50,072 23,031 33,726 47,972
7 24,400 36,902 54,535 22,600 35,102 52,735
8 23,691 38,010 59,396 22,491 36,810 58,196
9 23,002 39,151 64,690 22,402 38,551 64,090
10 22,333 40,327 70,456 22,333 40,327 70,456
15 20,258 49,154 113,513 20,258 49,154 113,513
20 18,375 59,914 182,885 18,375 59,914 182,885
25 16,668 73,029 294,651 16,668 73,029 294,651
30 15,119 89,015 474,721 15,119 89,015 474,721
35 13,714 108,501 764,837 13,714 108,501 764,837
40 12,440 132,252 1,232,252 12,440 132,252 1,232,252
45 11,284 161,202 1,985,318 11,284 161,202 1,985,318
*For the equivalent net annual investment return rates, see p. 69.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Western Reserve or the fund that these hypothetical investment rates of
return can be achieved for any one year or sustained over any period of time.
This illustration must be preceded or accompanied by a current fund prospectus.
73
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
<TABLE>
<CAPTION>
Initial Specified Amount $109,579 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS**
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 109,579 109,579 109,579
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 129,286
20 79,599 109,579 109,579 190,662
25 101,591 * 109,579 289,689
30 129,658 * 109,579 471,977
35 165,480 * * 733,089
40 211,200 * * 1,098,188
45 269,550 * * 1,749,590
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS** ASSUMING HYPOTHETICAL GROSS**
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
1 29,123 30,897 32,670 26,198/dagger/ 27,972/dagger/ 29,745/dagger/
2 28,263 31,810 35,568 25,413/dagger/ 28,960/dagger/ 32,718/dagger/
3 27,415 32,740 38,713 24,640/dagger/ 29,965/dagger/ 35,938/dagger/
4 26,577 33,684 42,128 23,877/dagger/ 30,984/dagger/ 39,428/dagger/
5 25,745 34,641 45,833 23,345/dagger/ 32,241/dagger/ 43,433/dagger/
6 24,915 35,606 49,854 22,815/dagger/ 33,506/dagger/ 47,754/dagger/
7 24,081 36,578 54,219 22,281/dagger/ 34,778/dagger/ 52,419/dagger/
8 23,237 37,550 58,596 22,037/dagger/ 36,350/dagger/ 57,756/dagger/
9 22,372 38,516 64,099 21,772/dagger/ 37,916/dagger/ 63,499/dagger/
10 21,476 39,469 69,684 21,476 39,469 69,684
15 17,010 46,050 111,453 17,010 46,050 111,453
20 8,481 51,207 178,188 8,481 51,207 178,188
25 * 50,929 284,465 * 50,929 284,465
30 * 34,540 449,502 * 34,540 449,502
35 * * 698,180 * * 698,180
40 * * 1,087,315 * * 1,087,315
45 * * 1,749,590 * * 1,749,590
</TABLE>
/dagger/The net surrender value shown would in fact be equal to the cash value
since, under the terms of the Policy, the surrender charge will be waived if a
cost of insurance charge were to be deducted.
*In the absence of an additional payment, the Policy would lapse.
**For the equivalent net annual investment return rates, see p. 69.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by Western Reserve or the fund that these hypothetical investment rates of
return can be achieved for any one year or sustained over any period of time.
This illustration must be preceded or accompanied by a current fund prospectus.
74
<PAGE>
APPENDIX B -- WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information below graphically depicts the growth of $1.00 invested in
large company stocks, small company stocks, long-term government bonds,
Treasury bills, and hypothetical asset returning the inflation rate over the
period from the end of 1925 to the end of 1998. All results assume reinvestment
of dividends on stocks or coupons on bonds and no taxes. Transaction costs are
not included, except in the small stock index starting in 1982.
Each of the cumulative index values is initialized at $1.00 at year-end
1925. The graph illustrates that large company stocks and small company stocks
have the best performance over the entire 73-year period: investments of $1.00
in these assets would have grown to $2,350.89 and $5,116.65, respectively, by
year-end 1998. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$44.18.
The lowest-risk strategy over the past 73 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1926 - 1998 period.
75
<PAGE>
[GRAPH OMITTED]
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1989-98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 17.9% 19.2%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 13.6 13.2
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 10.3 10.9
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 11.0 11.7
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.3 8.7
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 5.0 5.3
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.0 3.1
</TABLE>
- ----------------
* Based on the period 1926-1929.
** Based on the period 1990-1998.
Used with permission. /copyright/1999 Ibbotson Associates, Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted works of
Roger G. Ibbotson and Rex Sinquefield.]
76
<PAGE>
APPENDIX C
SURRENDER CHARGE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MALE (SINGLE LIFE)
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.84% 4.00% 2.00% 0.00%
76 9.75% 9.50% 9.25% 9.00% 8.00% 6.69% 5.49% 4.00% 2.00% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.89% 6.30% 5.18% 4.00% 2.00% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.44% 5.95% 4.89% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.03% 5.61% 4.62% 3.87% 2.00% 0.00%
80 9.75% 9.50% 9.25% 8.65% 6.64% 5.31% 4.36% 3.66% 2.00% 0.00%
81 9.75% 9.50% 9.25% 8.18% 6.28% 5.02% 4.12% 3.46% 2.00% 0.00%
82 9.75% 9.50% 9.25% 7.74% 6.94% 4.75% 3.90% 3.26% 2.00% 0.00%
83 9.75% 9.50% 9.25% 7.33% 5.62% 4.49% 3.68% 3.07% 2.00% 0.00%
84 9.75% 9.50% 9.25% 6.94% 5.32% 4.24% 3.47% 2.88% 2.00% 0.00%
85 9.75% 9.50% 9.15% 6.58% 5.03% 4.00% 3.25% 2.67% 2.00% 0.00%
86 9.75% 9.50% 8.68% 6.22% 4.75% 3.75% 3.02% 2.46% 1.99% 0.00%
87 9.75% 9.50% 8.21% 5.87% 4.46% 3.49% 2.78% 2.22% 1.76% 0.00%
88 9.75% 9.50% 7.75% 5.52% 4.15% 3.21% 2.51% 1.96% 1.51% 0.00%
89 9.75% 9.50% 7.28% 5.14% 3.82% 2.90% 2.22% 1.68% 1.25% 0.00%
90 9.75% 9.50% 6.78% 4.72% 3.45% 2.56% 1.90% 1.39% 0.99% 0.00%
</TABLE>
FEMALE (SINGLE LIFE)
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-78 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.75% 4.00% 2.00% 0.00%
80 9.75% 9.50% 9.25% 9.00% 8.00% 6.56% 5.32% 4.00% 2.00% 0.00%
81 9.75% 9.50% 9.25% 9.00% 7.70% 6.08% 4.93% 4.00% 2.00% 0.00%
82 9.75% 9.50% 9.25% 9.00% 7.14% 5.63% 4.56% 3.77% 2.00% 0.00%
83 9.75% 9.50% 9.25% 8.75% 6.62% 5.22% 4.22% 3.47% 2.00% 0.00%
84 9.75% 9.50% 9.25% 8.13% 6.15% 4.83% 3.89% 3.18% 2.00% 0.00%
85 9.75% 9.50% 9.25% 7.55% 5.69% 4.46% 3.57% 2.90% 2.00% 0.00%
86 9.75% 9.50% 9.25% 7.00% 5.26% 4.10% 3.26% 2.62% 2.00% 0.00%
87 9.75% 9.50% 9.19% 6.48% 4.84% 3.75% 2.95% 2.33% 1.84% 0.00%
88 9.75% 9.50% 8.51% 5.97% 4.43% 3.39% 2.63% 2.03% 1.55% 0.00%
89 9.75% 9.50% 7.84% 5.46% 4.01% 3.02% 2.29% 1.72% 1.27% 0.00%
90 9.75% 9.50% 7.18% 4.95% 3.58% 2.64% 1.94% 1.41% 1.01% 0.00%
</TABLE>
77
<PAGE>
JOINT AND LAST SURVIVOR PLAN: AGE IS BASED ON THE OLDER OF THE INSUREDS
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
76 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
80 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
81 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
82 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
83 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
84 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
85 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
86 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
87 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
88 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
89 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
90 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
</TABLE>
We will apply the full amount of the surrender charge percentage listed in the
Surrender Charge Table to surrenders that occur during the Policy year.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRL SERIES LIFE ACCOUNT:
Statement of Assets and Liabilities at March 31, 1999 (unaudited).
Statement of Operations for the period ended March 31, 1999 (unaudited).
Statement of Changes in Net Assets for the periods ended March 31, 1999 and
December 31, 1998 (unaudited).
Financial Highlights for the period ended March 31, 1999, and for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 (unaudited).
Notes to the Financial Statements (unaudited).
Report of Independent Accountants dated January 29, 1999.
Statement of Assets and Liabilities at December 31, 1998.
Statement of Operations for the year ended December 31, 1998.
Statement of Changes in Net Assets for the years ended December 31, 1998 and
1997.
Financial Highlights for the years ended December 31, 1998, 1997, 1996, 1995
and 1994.
Notes to the Financial Statements.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Statutory-Basis Balance Sheet as of March 31, 1999 (unaudited).
Statutory-Basis Statement of Operations for the three months ended March 31,
1999 (unaudited).
Statutory-Basis Statement of Changes in Capital and Surplus for the three
months ended March 31, 1999 (unaudited).
Statutory-Basis Statement of Cash Flows for the three months ended March 31,
1999 (unaudited).
Notes to Statutory-Basis Financial Statements for the three months ended March
31, 1999 (unaudited).
Report of Independent Auditors dated February 19, 1999.
Statutory-Basis Balance Sheets at December 31, 1998 and 1997.
Statutory-Basis Statements of Operations for the years ended December 31, 1998,
1997 and 1996.
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1998, 1997 and 1996.
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998,
1997and 1996.
Notes to Statutory-Basis Financial Statements.
Statutory-Basis Financial Statement Schedules.
79
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AT MARCH 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT VALUES) IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 34,643 2,221 13,545
======= ======= ========
Cost ............................................... $34,643 $25,388 $444,200
======= ======= ========
Investment, at net asset value ...................... $34,643 $25,309 $950,951
Transfers receivable from depositor ................. 0 112 81
------- ------- --------
Total assets ....................................... 34,643 25,421 951,032
------- ------- --------
LIABILITIES:
Accrued expenses .................................... 1 1 23
Transfers payable to depositor ...................... 413 0 0
------- ------- --------
Total liabilities .................................. 414 1 23
------- ------- --------
Net assets ......................................... $34,229 $25,420 $951,009
======= ======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $34,229 $25,420 $951,009
Depositor's equity .................................. 0 0 0
------- ------- --------
Net assets applicable to units outstanding ......... $34,229 $25,420 $951,009
======= ======= ========
Policy Owners' units ................................ 2,016 1,128 8,838
Depositor's units ................................... 0 0 0
------- ------- --------
Units outstanding .................................. 2,016 1,128 8,838
======= ======= ========
Accumulation unit value ............................ $ 16.98 $ 22.55 $ 107.60
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 10,137 5,991 9,998
======== ======== ========
Cost ............................................... $197,731 $ 81,847 $186,771
======== ======== ========
Investment, at net asset value ...................... $258,693 $100,586 $307,394
Transfers receivable from depositor ................. 0 0 0
-------- -------- --------
Total assets ....................................... 258,693 100,586 307,394
-------- -------- --------
LIABILITIES:
Accrued expenses .................................... 6 2 8
Transfers payable to depositor ...................... 25 67 631
-------- -------- --------
Total liabilities .................................. 31 69 639
-------- -------- --------
Net assets ......................................... $258,662 $100,517 $306,755
======== ======== ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $258,662 $100,517 $306,755
Depositor's equity .................................. 0 0 0
-------- -------- --------
Net assets applicable to units outstanding ......... $258,662 $100,517 $306,755
======== ======== ========
Policy Owners' units ................................ 10,498 4,790 8,423
Depositor's units ................................... 0 0 0
-------- -------- --------
Units outstanding .................................. 10,498 4,790 8,423
======== ======== ========
Accumulation unit value ............................ $ 24.64 $ 20.98 $ 36.42
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 8,258 1,246 1,331
======== ======= =======
Cost ............................................... $136,560 $14,735 $16,536
======== ======= =======
Investment, at net asset value ...................... $210,085 $16,019 $15,034
Transfers receivable from depositor ................. 1,101 0 3
-------- ------- -------
Total assets ....................................... 211,186 16,019 15,037
-------- ------- -------
LIABILITIES:
Accrued expenses .................................... 5 0 0
Transfers payable to depositor ...................... 0 3 0
-------- ------- -------
Total liabilities .................................. 5 3 0
-------- ------- -------
Net assets ......................................... $211,181 $16,016 $15,037
======== ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $211,181 $16,016 $15,037
Depositor's equity .................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $211,181 $16,016 $15,037
======== ======= =======
Policy Owners' units ................................ 7,000 1,043 996
Depositor's units ................................... 0 0 0
-------- ------- -------
Units outstanding .................................. 7,000 1,043 996
======== ======= =======
Accumulation unit value ............................ $ 30.17 $ 15.36 $ 15.09
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION
SUB-ACCOUNT
<S> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2,998
=======
Cost ............................................... $39,233
=======
Investment, at net asset value ...................... $39,380
Transfers receivable from depositor ................. 0
-------
Total assets ....................................... 39,380
-------
LIABILITIES:
Accrued expenses .................................... 1
Transfers payable to depositor ...................... 40
-------
Total liabilities .................................. 41
-------
Net assets ......................................... $39,339
=======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $39,339
Depositor's equity .................................. 0
-------
Net assets applicable to units outstanding ......... $39,339
=======
Policy Owners' units ................................ 2,394
Depositor's units ................................... 0
-------
Units outstanding .................................. 2,394
=======
Accumulation unit value ............................ $ 16.43
=======
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
80
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AT MARCH 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT VALUES) IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
C.A.S.E. INTERNATIONAL U.S. THIRD AVENUE
GROWTH VALUE EQUITY EQUITY EQUITY VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 1,423 1,990 533 1,170 312
======= ======= ====== ======= ======
Cost ............................................... $20,167 $26,936 $6,257 $16,011 $2,980
======= ======= ====== ======= ======
Investment, at net asset value ...................... $21,093 $24,577 $6,450 $17,747 $2,628
Transfers receivable from depositor ................. 0 0 0 45 0
------- ------- ------ ------- ------
Total assets ....................................... 21,093 24,577 6,450 17,792 2,628
------- ------- ------ ------- ------
LIABILITIES:
Accrued expenses .................................... 1 1 0 0 0
Transfers payable to depositor ...................... 0 17 230 0 2
------- ------- ------ ------- ------
Total liabilities .................................. 1 18 230 0 2
------- ------- ------ ------- ------
Net assets ......................................... $21,092 $24,559 $6,220 $17,792 $2,626
======= ======= ====== ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $21,092 $24,559 $6,220 $17,792 $2,459
Depositor's equity .................................. 0 0 0 0 167
------- ------- ------ ------- ------
Net assets applicable to units outstanding ......... $21,092 $24,559 $6,220 $17,792 $2,626
======= ======= ====== ======= ======
Policy Owners' units ................................ 1,481 1,835 522 1,105 294
Depositor's units ................................... 0 0 0 0 20
------- ------- ------ ------- ------
Units outstanding .................................. 1,481 1,835 522 1,105 314
======= ======= ====== ======= ======
Accumulation unit value ............................ $ 14.25 $ 13.38 $11.92 $ 16.09 $ 8.35
======= ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
<S> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 66
=====
Cost ............................................... $ 603
=====
Investment, at net asset value ...................... $ 541
Transfers receivable from depositor ................. 0
-----
Total assets ....................................... 541
-----
LIABILITIES:
Accrued expenses .................................... 0
Transfers payable to depositor ...................... 0
-----
Total liabilities .................................. 0
-----
Net assets ......................................... $ 541
=====
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 216
Depositor's equity .................................. 325
-----
Net assets applicable to units outstanding ......... $ 541
=====
Policy Owners' units ................................ 27
Depositor's units ................................... 40
-----
Units outstanding .................................. 67
=====
Accumulation unit value ............................ $8.12
=====
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
81
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1999
ALL AMOUNTS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 337 $ 0 $ 0
Capital gain distributions .............................................. 0 0 0
------ ------ --------
Total investment income ................................................ 337 0 0
EXPENSES:
Mortality and expense risk .............................................. 66 56 1,895
------ ------ --------
Net investment income (loss) ........................................... 271 (56) (1,895)
------ ------ --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... 0 167 5,428
Change in unrealized appreciation (depreciation) ....................... 0 (481) 132,715
------ ------ --------
Net gain (loss) on investment securities ............................... 0 (314) 138,143
------ ------ --------
Net increase (decrease) in net assets resulting from operations ....... $ 271 $ (370) $136,248
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0 $ 0 $ 0
Capital gain distributions .............................................. 0 0 0
------- ------ --------
Total investment income ................................................ 0 0 0
EXPENSES:
Mortality and expense risk .............................................. 544 220 614
------- ------ --------
Net investment income (loss) ........................................... (544) (220) (614)
------- ------ --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... 1,018 609 2,964
Change in unrealized appreciation (depreciation) ....................... 17,080 1,719 34,927
------- ------ --------
Net gain (loss) on investment securities ............................... 18,098 2,328 37,891
------- ------ --------
Net increase (decrease) in net assets resulting from operations ....... $17,554 $2,108 $ 37,277
======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0 $ 0 $ 0
Capital gain distributions .............................................. 0 0 0
------- ------ --------
Total investment income ................................................ 0 0 0
EXPENSES:
Mortality and expense risk .............................................. 424 34 35
------- ------ --------
Net investment income (loss) ........................................... (424) (34) (35)
------- ------ --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... 1,797 90 18
Change in unrealized appreciation (depreciation) ....................... 22,540 293 (1,325)
------- ------ --------
Net gain (loss) on investment securities ............................... 24,337 383 (1,307)
------- ------ --------
Net increase (decrease) in net assets resulting from operations ....... $23,913 $ 349 $ (1,342)
======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION
SUB-ACCOUNT
<S> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0
Capital gain distributions .............................................. 0
-------
Total investment income ................................................ 0
EXPENSES:
Mortality and expense risk .............................................. 88
-------
Net investment income (loss) ........................................... (88)
-------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... 172
Change in unrealized appreciation (depreciation) ....................... (826)
-------
Net gain (loss) on investment securities ............................... (654)
-------
Net increase (decrease) in net assets resulting from operations ....... $ (742)
=======
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
82
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1999
ALL AMOUNTS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
C.A.S.E.
GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0 $ 0
Capital gain distributions .............................................. 0 0
------ --------
Total investment income ................................................ 0 0
EXPENSES:
Mortality and expense risk .............................................. 44 55
------ --------
Net investment income (loss) ........................................... (44) (55)
------ --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... 72 71
Change in unrealized appreciation (depreciation) ....................... 2,450 400
------ --------
Net gain (loss) on investment securities ............................... 2,522 471
------ --------
Net increase (decrease) in net assets resulting from operations ....... $2,478 $ 416
====== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL U.S. THIRD AVENUE
EQUITY EQUITY VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0 $ 0 $ 0
Capital gain distributions .............................................. 0 0 0
------- ------ --------
Total investment income ................................................ 0 0 0
EXPENSES:
Mortality and expense risk .............................................. 14 35 6
------- ------ --------
Net investment income (loss) ........................................... (14) (35) (6)
------- ------ --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... (64) 130 (35)
Change in unrealized appreciation (depreciation) ....................... 74 668 (249)
------- ------ --------
Net gain (loss) on investment securities ............................... 10 798 (284)
------- ------ --------
Net increase (decrease) in net assets resulting from operations ....... $ (4) $ 763 $ (290)
======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
<S> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 0
Capital gain distributions .............................................. 0
-------
Total investment income ................................................ 0
EXPENSES:
Mortality and expense risk .............................................. 1
-------
Net investment income (loss) ........................................... (1)
-------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities....................... (38)
Change in unrealized appreciation (depreciation) ....................... 14
-------
Net gain (loss) on investment securities ............................... (24)
-------
Net increase (decrease) in net assets resulting from operations ....... $ (25)
=======
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
83
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED
ALL AMOUNTS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
March 31, December 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 271 $ 919
Net gain (loss) on investment securities .............................. 0 0
---------- --------
Net increase (decrease) in net assets resulting from operations ....... 271 919
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 11,897 12,763
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 731 3,123
Policy loans ......................................................... 120 1,163
Surrender benefits ................................................... 1,656 1,250
Death benefits ....................................................... 8 10
---------- --------
2,515 5,546
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 9,382 7,217
---------- --------
Net increase (decrease) in net assets ................................ 9,653 8,136
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of period.................................................... 24,576 16,440
---------- --------
End of period.......................................................... $ 34,229 $ 24,576
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 1,460 1,020
Units issued .......................................................... 3,551 11,339
Units redeemed ........................................................ (2,995) (10,899)
---------- --------
Units outstanding - end of period...................................... 2,016 1,460
========== ========
</TABLE>
<TABLE>
<CAPTION>
BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (56) $ 1,002 $ (1,895) $ 1,103
Net gain (loss) on investment securities .............................. (314) 713 138,143 295,459
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... (370) 1,715 136,248 296,562
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 1,920 9,472 45,286 140,684
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 631 2,292 12,813 44,910
Policy loans ......................................................... 178 594 7,169 18,083
Surrender benefits ................................................... 251 865 8,147 22,312
Death benefits ....................................................... 4 159 423 4,185
---------- -------- ----------- ----------
1,064 3,910 28,552 89,490
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... 856 5,562 16,734 51,194
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ 486 7,277 512,982 347,756
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of period.................................................... 24,934 17,657 798,027 450,271
---------- -------- ---------- ----------
End of period.......................................................... $ 25,420 $ 24,934 $ 951,009 $ 798,027
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 1,090 836 8,668 7,972
Units issued .......................................................... 270 1,030 722 2,967
Units redeemed ........................................................ (232) (776) (552) (2,271)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 1,128 1,090 8,838 8,668
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
SUB-ACCOUNT
March 31, December 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (544) $ 7,425
Net gain (loss) on investment securities .............................. 18,098 38,427
---------- --------
Net increase (decrease) in net assets resulting from operations ....... 17,554 45,852
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 17,388 72,962
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 5,761 19,369
Policy loans ......................................................... 1,619 4,953
Surrender benefits ................................................... 2,120 5,662
Death benefits ....................................................... 36 591
---------- --------
9,536 30,575
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 7,852 42,387
---------- --------
Net increase (decrease) in net assets ................................ 25,406 88,239
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of period.................................................... 233,256 145,017
---------- --------
End of period.......................................................... $ 258,662 $233,256
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 10,167 8,145
Units issued .......................................................... 1,242 5,610
Units redeemed ........................................................ (911) (3,588)
---------- --------
Units outstanding - end of period...................................... 10,498 10,167
========== ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (220) $ 3,284 $ (614) $ 6,894
Net gain (loss) on investment securities .............................. 2,328 4,347 37,891 59,514
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... 2,108 7,631 37,277 66,408
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 2,910 24,191 17,341 64,824
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 2,110 7,696 5,708 19,612
Policy loans ......................................................... 597 2,319 2,093 5,601
Surrender benefits ................................................... 700 2,587 2,670 7,688
Death benefits ....................................................... 20 1,047 57 368
---------- -------- ----------- ----------
3,427 13,649 10,528 33,269
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... (517) 10,542 6,813 31,555
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ 1,591 18,173 44,090 97,963
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of period.................................................... 98,926 80,753 262,665 164,702
---------- -------- ---------- ----------
End of period.......................................................... $ 100,517 $ 98,926 $ 306,755 $ 262,665
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 4,814 4,270 8,218 7,013
Units issued .......................................................... 405 1,946 972 4,099
Units redeemed ........................................................ (429) (1,402) (767) (2,894)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 4,790 4,814 8,423 8,218
========== ======== ========== ==========
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
84
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED
ALL AMOUNTS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
March 31, December 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (424) $ 7,851
Net gain (loss) on investment securities .............................. 24,337 44,348
---------- --------
Net increase (decrease) in net assets resulting from operations ....... 23,913 52,199
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 17,157 53,159
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 4,213 13,960
Policy loans ......................................................... 1,272 3,522
Surrender benefits ................................................... 2,238 4,423
Death benefits ....................................................... 23 248
---------- --------
7,746 22,153
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 9,411 31,006
---------- --------
Net increase (decrease) in net assets ................................ 33,324 83,205
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of period.................................................... 177,857 94,652
---------- --------
End of period.......................................................... $ 211,181 $177,857
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 6,669 5,230
Units issued .......................................................... 968 3,797
Units redeemed ........................................................ (637) (2,358)
---------- --------
Units outstanding - end of period...................................... 7,000 6,669
========== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (34) $ 227 $ (35) $ 644
Net gain (loss) on investment securities .............................. 383 576 (1,307) (269)
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... 349 803 (1,342) 375
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 1,451 5,658 1,101 8,963
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 442 1,423 559 1,633
Policy loans ......................................................... 94 279 94 218
Surrender benefits ................................................... 111 596 116 431
Death benefits ....................................................... 1 15 0 72
---------- -------- ----------- ----------
648 2,313 769 2,354
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... 803 3,345 332 6,609
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ 1,152 4,148 (1,010) 6,984
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of period.................................................... 14,864 10,716 16,047 9,063
---------- -------- ---------- ----------
End of period.......................................................... $ 16,016 $ 14,864 $ 15,037 $ 16,047
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 990 756 976 563
Units issued .......................................................... 170 578 187 966
Units redeemed ........................................................ (117) (344) (167) (553)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 1,043 990 996 976
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION
SUB-ACCOUNT
March 31, December 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (88) $ 3,419
Net gain (loss) on investment securities .............................. (654) (1,087)
---------- --------
Net increase (decrease) in net assets resulting from operations ....... (742) 2,332
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 1,577 13,703
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 981 3,421
Policy loans ......................................................... 210 748
Surrender benefits ................................................... 195 925
Death benefits ....................................................... 14 160
---------- --------
1,400 5,254
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 177 8,449
---------- --------
Net increase (decrease) in net assets ................................ (565) 10,781
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of period.................................................... 39,904 29,123
---------- --------
End of period.......................................................... $ 39,339 $ 39,904
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 2,383 1,867
Units issued .......................................................... 293 1,377
Units redeemed ........................................................ (282) (861)
---------- --------
Units outstanding - end of period...................................... 2,394 2,383
========== ========
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (44) $ 1,475 $ (55) $ 2,021
Net gain (loss) on investment securities .............................. 2,522 (1,114) 471 (4,683)
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... 2,478 361 416 (2,662)
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 1,869 8,731 (907) 6,086
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 728 2,433 740 2,846
Policy loans ......................................................... 92 520 157 643
Surrender benefits ................................................... 163 295 136 401
Death benefits ....................................................... 2 60 0 165
---------- -------- ----------- ----------
985 3,308 1,033 4,055
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... 884 5,423 (1,940) 2,031
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ 3,362 5,784 (1,524) (631)
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of period.................................................... 17,730 11,946 26,083 26,714
---------- -------- ---------- ----------
End of period.......................................................... $ 21,092 $ 17,730 $ 24,559 $ 26,083
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 1,417 969 1,982 1,916
Units issued .......................................................... 351 1,317 303 1,748
Units redeemed ........................................................ (287) (869) (450) (1,682)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 1,481 1,417 1,835 1,982
========== ======== ========== ==========
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
85
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED
ALL AMOUNTS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (14) $ (32) $ (35) $ 434
Net gain (loss) on investment securities .............................. 10 369 798 1,411
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... (4) 337 763 1,845
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 659 3,972 3,561 10,178
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 159 433 439 862
Policy loans ......................................................... 48 196 117 159
Surrender benefits ................................................... 55 35 60 113
Death benefits ....................................................... 0 107 0 63
---------- -------- ----------- ----------
262 771 616 1,197
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... 397 3,201 2,945 8,981
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ 393 3,538 3,708 10,826
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of period.................................................... 5,827 2,289 14,084 3,258
---------- -------- ---------- ----------
End of period.......................................................... $ 6,220 $ 5,827 $ 17,792 $ 14,084
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 489 215 919 259
Units issued .......................................................... 254 767 374 1,266
Units redeemed ........................................................ (221) (493) (188) (606)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 522 489 1,105 919
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THIRD AVENUE VALUE REAL ESTATE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
------------------------- -------------------------
1999 1998(a) 1999 1998(b)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ (6) $ (11) $ (1) $ (4)
Net gain (loss) on investment securities .............................. (284) (142) (24) (112)
---------- -------- ----------- ----------
Net increase (decrease) in net assets resulting from operations ....... (290) (153) (25) (116)
---------- -------- ----------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 191 2,932 (139) 472
---------- -------- ----------- ----------
Less cost of units redeemed:
Administrative charges ............................................... 53 138 4 4
Policy loans ......................................................... 5 8 0 43
Surrender benefits ................................................... 24 26 0 0
Death benefits ....................................................... 0 0 0 0
---------- -------- ----------- ----------
82 172 4 47
---------- -------- ----------- ----------
Increase (decrease) in net assets from capital unit transactions ..... 109 2,760 (143) 425
---------- -------- ----------- ----------
Net increase (decrease) in net assets ................................ (181) 2,607 (168) 309
Depositor's equity contribution (redemption) .......................... 0 200 0 400
NET ASSETS:
Beginning of period.................................................... 2,807 0 709 0
---------- -------- ---------- ----------
End of period.......................................................... $ 2,626 $ 2,807 $ 541 $ 709
========== ======== ========== ==========
UNIT ACTIVITY:
Units outstanding - beginning of period................................ 304 0 84 0
Units issued .......................................................... 74 495 10 113
Units redeemed ........................................................ (64) (191) (27) (29)
---------- -------- ---------- ----------
Units outstanding - end of period...................................... 314 304 67 84
========== ======== ========== ==========
</TABLE>
See notes to the financial statements.
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
WRL SERIES LIFE ACCOUNT
86
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE PERIOD ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
March 31, December 31,
----------- ----------------------------------------------- --------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ................ $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19 13.84
Income from operations:
Net investment income (loss) .............................. 0.15 0.70 0.68 0.62 0.64 0.35
Net realized and unrealized gain (loss) on investment ..... 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- -----
Net income (loss) from operations ........................ 0.15 0.70 0.68 0.62 0.64 0.35
------- ------- ------- ------- ------- -----
Accumulation unit value, end of period ...................... $ 16.98 $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19
======= ======= ======= ======= ======= =======
Total return (a) ............................................ 0.92% 4.36% 4.37% 4.17% 4.49% 2.58%
Ratios and supplemental data:
Net assets at end of period (in thousands) ................. $34,229 $24,576 $16,440 $12,740 $10,759 $ 9,706
Ratios of net investment income (loss) to average net
assets (b) ............................................... 3.72% 4.24% 4.28% 4.07% 4.37% 2.66%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
March 31, December 31,
1999 1998 1997 1996 1995 1994
----------- ----------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ............... $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14 17.50
Income from operations:
Net investment income (loss) ............................. (0.05) 1.01 1.01 0.99 1.05 0.89
Net realized and unrealized gain (loss) on investment .... (0.29) 0.76 0.58 (1.13) 2.48 (2.25)
------- ------- -------- -------- ------- ---------
Net income (loss) from operations ....................... (0.34) 1.77 1.59 (0.14) 3.53 (1.36)
------- ------- -------- -------- ------- ---------
Accumulation unit value, end of period ..................... $ 22.55 $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14
======= ======= ======== ======== ======= =========
Total return (a) ........................................... (1.49)% 8.34% 8.18% (0.75)% 21.89% (7.77)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ................ $25,420 $24,934 $ 17,657 $ 11,585 $10,066 $ 6,259
Ratios of net investment income (loss) to average net
assets (b) .............................................. (0.90)% 4.58% 5.06% 5.34% 5.80% 5.57%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
March 31, December 31,
----------- --------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ............... $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44 31.30
Income from operations:
Net investment income (loss) ............................. (0.22) 0.13 5.83 2.88 3.89 0.04
Net realized and unrealized gain (loss) on investment .... 15.75 35.46 2.17 4.13 9.14 (2.90)
-------- -------- -------- -------- -------- -------
Net income (loss) from operations ....................... 15.53 35.59 8.00 7.01 13.03 (2.86)
-------- -------- -------- -------- -------- -------
Accumulation unit value, end of period ..................... $ 107.60 $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44
======== ======== ======== ======== ======== =======
Total return (a) ........................................... 16.87% 63.01% 16.50% 16.91% 45.81% (9.13)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ................ $951,009 $798,027 $450,271 $349,491 $262,467 $161,490
Ratios of net investment income (loss) to average net
assets (b) .............................................. (0.90)% 0.19% 10.84% 6.41% 11.05% 0.16%
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
87
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE PERIOD ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
March 31, December 31,
----------- ----------------------------------------------- ---------
1999 1998 1997 1996 1995 1994(c)
----------- ---------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ................ $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80 10.00
Income from operations:
Net investment income (loss) .............................. (0.05) 0.82 2.30 1.50 0.45 0.71
Net realized and unrealized gain (loss) on investment ..... 1.75 4.32 0.37 1.68 1.70 (0.91)
-------- -------- -------- ------- ------- -------
Net income (loss) from operations ........................ 1.70 5.14 2.67 3.18 2.15 (0.20)
-------- -------- -------- ------- ------- -------
Accumulation unit value, end of period ...................... $ 24.64 $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80
======== ======== ======== ======= ======= =======
Total return (a) ............................................ 7.40% 28.86% 17.69% 26.60% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ................. $258,662 $233,256 $145,017 $83,159 $37,049 $21,672
Ratios of net investment income (loss) to average net
assets (b) ............................................... (0.90)% 3.92% 13.39% 11.09% 4.25% 8.86%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT
March 31, December 31,
----------------------------------------------------- ----------
1999 1998 1997 1996 1995 1994
----------- ------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ................. $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12 $ 11.28
Income from operations:
Net investment income (loss) ............................... (0.05) 0.71 1.56 0.82 0.68 0.18
Net realized and unrealized gain (loss) on investment ...... 0.48 0.93 1.69 1.10 1.94 (0.34)
-------- ------- ------- ------- ------- --------
Net income (loss) from operations ......................... 0.43 1.64 3.25 1.92 2.62 (0.16)
-------- ------- ------- ------- ------- --------
Accumulation unit value, end of period ....................... $ 20.98 $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12
======== ======= ======= ======= ======= ========
Total return (a) ............................................. 2.12% 8.66% 20.77% 13.97% 23.55% (1.42)%
Ratios and supplemental data:
Net assets at end of period (in thousands) .................. $100,517 $98,926 $80,753 $55,900 $39,648 $ 23,649
Ratios of net investment income (loss) to average net
assets (b) ................................................. (0.90)% 3.67% 8.89% 5.76% 5.47% 1.93%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
March 31, December 31,
----------- ------------------------------------------------ ---------
1999 1998 1997 1996 1995 1994
----------- ------------ ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ................ $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38 $ 12.40
Income from operations:
Net investment income (loss) .............................. (0.07) 0.91 2.20 0.82 0.65 (0.09)
Net realized and unrealized gain (loss) on investment ..... 4.53 7.57 1.77 2.13 4.53 (0.93)
-------- -------- -------- -------- ------- -------
Net income (loss) from operations ........................ 4.46 8.48 3.97 2.95 5.18 (1.02)
-------- -------- -------- -------- ------- -------
Accumulation unit value, end of period ...................... $ 36.42 $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38
======== ======== ======== ======== ======= =======
Total return (a) ............................................ 13.94% 36.11% 20.37% 17.82% 45.49% (8.18)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ................. $306,755 $262,665 $164,702 $107,925 $67,905 $36,687
Ratios of net investment income (loss) to average net
assets (b) ............................................... (0.90)% 3.44% 10.18% 4.51% 4.66% (0.86)%
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
88
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE PERIOD ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
March 31, December 31,
---------- ---------------------------------------------------------
1999 1998 1997 1996 1995 1994(c)
---------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period .............. $ 26.67 $ 18.10 $ 14.70 $ 13.43 $ 9.82 $10.00
Income from operations:
Net investment income (loss) ............................ (0.06) 1.33 1.75 0.36 0.37 (0.06)
Net realized and unrealized gain (loss) on investment ... 3.56 7.24 1.65 0.91 3.24 (0.12)
-------- -------- ------- ------- ------- ------
Net income (loss) from operations ...................... 3.50 8.57 3.40 1.27 3.61 (0.18)
-------- -------- ------- ------- ------- ------
Accumulation unit value, end of period .................... $ 30.17 $ 26.67 $ 18.10 $ 14.70 $ 13.43 9.82
======== ======== ======= ======= ======= ======
Total return (a) .......................................... 13.13% 47.36% 23.14% 9.46% 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ............... $211,181 $177,857 $94,652 $54,408 $32,904 $8,909
Ratios of net investment income (loss) to average net
assets (b) .............................................. (0.90)% 6.20% 10.26% 2.65% 2.93% (0.72)%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
March 31, December 31,
----------- ----------------------------------------------------------
1999 1998 1997 1996 1995 1994(c)
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ............. $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss) ........................... (0.03) 0.25 1.55 0.36 0.37 0.22
Net realized and unrealized gain (loss) on investment .. 0.37 0.60 0.41 0.72 1.39 (0.85)
------- ------- ------- ------- -------- ---------
Net income (loss) from operations ..................... 0.34 0.85 1.96 1.08 1.76 (0.63)
------- ------- ------- ------- -------- ---------
Accumulation unit value, end of period ................... $ 15.36 $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37
======= ======= ======= ======= ======== =========
Total return (a) ......................................... 2.26% 5.98% 16.06% 9.73% 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of period (in thousands) .............. $16,016 $14,864 $10,716 $ 6,418 $ 3,795 $ 2,145
Ratios of net investment income (loss) to average net
assets (b) ............................................ (0.90)% 1.76% 11.62% 3.18% 3.59% 3.06%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT
March 31, December 31,
----------- ---------------------------------------------------------
1999 1998 1997 1996 1995 1994(c)
----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period ................. $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss) ............................... (0.03) 0.77 2.61 0.76 0.49 0.29
Net realized and unrealized gain (loss) on investment ...... (1.32) (0.42) 0.45 0.50 1.79 (0.80)
------- ------- -------- -------- -------- --------
Net income (loss) from operations ......................... (1.35) 0.35 3.06 1.26 2.28 (0.51)
------- ------- -------- -------- -------- --------
Accumulation unit value, end of period ....................... $ 15.09 $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49
======= ======= ======== ======== ======== ========
Total return (a) ............................................. (8.19)% 2.13% 23.54% 10.64% 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of period (in thousands) .................. $15,037 $16,047 $ 9,063 $ 5,501 $ 2,631 $ 1,215
Ratios of net investment income (loss) to average net
assets (b) ................................................. (0.90)% 4.83% 18.50% 6.38% 4.57% 3.71%
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
89
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
March 31, December 31,
----------- ----------------------------------------------
1999 1998 1997 1996 1995(d)
----------- ---------- ----------- ----------- -----------
<S> <C> C> <C> <C> <C>
Accumulation unit value, beginning of period ................. $ 16.74 $ 15.60 $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss) ............................... (0.04) 1.58 1.20 0.53 0.61
Net realized and unrealized gain (loss) on investment ...... (0.27) (0.44) 0.90 1.07 1.29
------- ------- ------- ------- --------
Net income (loss) from operations ......................... (0.31) 1.14 2.10 1.60 1.90
------- ------- ------- ------- --------
Accumulation unit value, end of period ....................... $ 16.43 $ 16.74 $ 15.60 $ 13.50 $ 11.90
======= ======= ======= ======= ========
Total return (a) ............................................. (1.85)% 7.36% 15.55% 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands) .................. $39,339 $39,904 $29,123 $17,946 $ 9,446
Ratios of net investment income (loss) to average net
assets (b) ................................................. (0.90)% 9.69% 8.14% 4.35% 5.47%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH SUB-ACCOUNT
March 31, December 31,
----------- ---------------------------------------
1999 1998 1997 1996(e)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 12.51 $ 12.32 $ 10.81 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.03) 1.24 1.51 0.37
Net realized and unrealized gain (loss) on investment ............... 1.77 (1.05) 0.00 0.44
------- ------- ------- -------
Net income (loss) from operations .................................. 1.74 0.19 1.51 0.81
------- ------- ------- -------
Accumulation unit value, end of period ................................ $ 14.25 $ 12.51 $ 12.32 $ 10.81
======= ======= ======= =======
Total return (a) ...................................................... 13.83% 1.56% 14.00% 8.09%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $21,092 $17,730 $11,946 $ 4,466
Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 10.21% 12.65% 6.11%
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
March 31, December 31,
----------- ---------------------------------------
1999 1998 1997 1996(e)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 13.16 $ 13.94 $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.03) 0.95 0.14 0.05
Net realized and unrealized gain (loss) on investment ............... 0.25 (1.73) 2.55 1.20
------- -------- ------- --------
Net income (loss) from operations .................................. 0.22 (0.78) 2.69 1.25
------- -------- ------- --------
Accumulation unit value, end of period ................................ 13.38 $ 13.16 $ 13.94 $ 11.25
======= ======== ======= ========
Total return (a) ...................................................... 1.70% (5.63)% 23.93% 12.51%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $24,559 $ 26,083 $26,714 $ 8,887
Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 6.84% 1.05% 0.77%
</TABLE>
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
90
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
SUB-ACCOUNT
March 31, December 31,
----------- -----------------------
1999 1998 1997(f)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 11.92 $10.65 $10.00
Income from operations:
Net investment income (loss) ........................................ (0.03) (0.09) (0.03)
Net realized and unrealized gain (loss) on investment ............... 0.03 1.36 0.68
------- ------- -------
Net income (loss) from operations .................................. 0.00 1.27 0.65
------- ------- -------
Accumulation unit value, end of period ................................ $11.92 $11.92 $10.65
======= ======= =======
Total return (a) ...................................................... (0.01)% 11.84% 6.54%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $6,220 $5,827 $2,289
Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% (0.81)% (0.28)%
</TABLE>
<TABLE>
<CAPTION>
U.S. EQUITY
SUB-ACCOUNT
March 31, December 31,
----------- -----------------------
1999 1998 1997(f)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 15.33 $ 12.59 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.03) 0.73 0.99
Net realized and unrealized gain (loss) on investment ............... 0.79 2.01 1.60
------- ------- --------
Net income (loss) from operations .................................. 0.76 2.74 2.59
------- ------- --------
Accumulation unit value, end of period ................................ $ 16.09 $ 15.33 $ 12.59
======= ======= ========
Total return (a) ...................................................... 4.99% 21.78% 25.89%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $17,792 $14,084 $ 3,258
Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 5.30% 8.28%
</TABLE>
<TABLE>
<CAPTION>
THIRD AVENUE VALUE REAL ESTATE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
March 31, December 31, March 31, December 31,
----------- -------------- ----------- -------------
1999 1998(g) 1999 1998(h)
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period .......................... $ 9.23 $ 10.00 $ 8.46 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.02) (0.05) (0.02) (0.05)
Net realized and unrealized gain (loss) on investment ............... (0.86) (0.72) (0.32) (1.49)
------- -------- ------- -------
Net income (loss) from operations .................................. (0.88) (0.77) (0.34) (1.54)
------- -------- ------- -------
Accumulation unit value, end of period ................................ $ 8.35 $ 9.23 $ 8.12 $ 8.46
======= ======== ======= =======
Total return (a) ...................................................... (9.55)% (7.67)% (3.96)% (15.44)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $2,626 $ 2,807 $ 541 $ 709
Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% (0.52)% (0.90)% (0.90)%
</TABLE>
* Per unit information has been computed using average units outstanding
throughout each period.
NOTES TO FINANCIAL HIGHLIGHTS:
(a) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) The inception date of this Sub-Account was March 1, 1994.
(d) The inception date of this Sub-Account was January 3, 1995.
(e) The inception date of this Sub-Account was May 1, 1996.
(f) The inception date of this Sub-Account was January 2, 1997.
(g) The inception date of this Sub-Account was January 2, 1998.
(h) The inception date of this Sub-Account was May 1, 1998.
See notes to the financial statements.
WRL SERIES LIFE ACCOUNT
91
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account"), was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under
the Investment Company Act of 1940, as amended. The Life Account contains
sixteen investment options referred to as sub-accounts. Each sub-account
invests in the corresponding Portfolio of the WRL Series Fund, Inc.
(collectively referred to as the "Fund" and individually as a "Portfolio"), a
registered management investment company under the Investment Company Act of
1940, as amended.
The Fund has entered into annually renewable investment advisory
agreements for each Portfolio with WRL Investment Management, Inc. ("WRL
Management") as investment adviser. Costs incurred in connection with the
advisory services rendered by WRL Management are paid by each Portfolio. WRL
Management has entered into sub-advisory agreements with various management
companies, some of which are affiliates of WRL. Each sub-adviser is compensated
directly by WRL Management.
The Life Account holds assets to support the benefits under certain
flexible premium variable universal life insurance policies (the "Policies")
issued by WRL. The Life Account's equity transactions are accounted for using
the appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles, have been consistently applied
in the preparation of the Trust's financial statements. The preparation of
financial statements required management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset value
("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt
of sale or redemption orders without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2. CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and
administration of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are
deducted by WRL prior to allocation of policy owner payments to the
sub-accounts. Thereafter, monthly administrative and cost of insurance charges
are deducted from the policies. Contingent surrender charges also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial premium
payment but may be subject to contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of .90% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks and
administrative services in connection with issuance and administration of the
Policies. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3. DIVIDENDS AND DISTRIBUTIONS
Dividends are not declared by the Life Account, since the increase in the
value of the underlying investment in the Fund is reflected daily in the
accumulation unit value used to calculate the equity value within the Life
Account. Consequently, a dividend distribution by the underlying Fund does not
change either the accumulation unit value or equity values within the Life
Account.
WRL SERIES LIFE ACCOUNT
92
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 4. SECURITIES TRANSACTIONS
Securities transactions for the period ended March 31, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
PURCHASE PROCEEDS
SUB-ACCOUNT: OF SECURITIES OF SECURITIES
- --------------------------------------- --------------- --------------
<S> <C> <C>
Money Market ...................... $22,453 $12,282
Bond .............................. 2,961 2,263
Growth ............................ 22,396 7,383
Global ............................ 9,743 2,279
Strategic Total Return ............ 1,215 1,842
Emerging Growth ................... 12,221 5,266
Aggressive Growth ................. 11,297 3,336
Balanced .......................... 1,152 379
Growth & Income ................... 1,019 714
Tactical Asset Allocation ......... 1,172 1,027
C.A.S.E. Growth ................... 1,952 1,099
Value Equity ...................... 510 2,470
International Equity .............. 2,023 1,407
U.S. Equity ....................... 3,758 887
Third Avenue Value ................ 397 286
Real Estate Securities ............ 61 204
</TABLE>
NOTE 5. SUBSEQUENT EVENT
Effective May 1, 1999, the names of the Life Account sub-accounts will be
changed as follows:
<TABLE>
<CAPTION>
<S> <C>
WRL J.P. Morgan Money Market (formerly Money Market)
WRL AEGON Bond (formerly Bond)
WRL Janus Growth (formerly Growth)
WRL Janus Global (formerly Global)
WRL LKCM Strategic Total Return (formerly Strategic Total Return)
WRL VKAM Emerging Growth (formerly Emerging Growth)
WRL Alger Aggressive Growth (formerly Aggressive Growth)
WRL AEGON Balanced (formerly Balanced)
WRL Federated Growth & Income (formerly Growth & Income)
WRL Dean Asset Allocation (formerly Tactical Asset Allocation)
WRL C.A.S.E. Growth (formerly C.A.S.E. Growth)
WRL NWQ Value Equity (formerly Value Equity)
WRL GE/Scottish Equitable
International Equity (formerly International Equity)
WRL GE U.S. Equity (formerly U.S. Equity)
WRL Third Avenue Value (formerly Third Avenue Value)
WRL J.P. Morgan Real Estate Securities (formerly Real Estate Securities)
</TABLE>
93
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life
Assurance Co. of Ohio and Policy Owners of the
WRL Series Life Account.
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of each of the Sub-Accounts constituting the WRL Series Life Account
(a separate account of Western Reserve Life Assurance Co. of Ohio, hereafter
referred to as the "Life Account") at December 31, 1998, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Life Account's management, our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999
94
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 24,472 2,150 13,310
======= ======= ========
Cost ............................................... $24,472 $24,523 $423,759
======= ======= ========
Investment, at net asset value ...................... $24,472 $24,925 $797,795
Transfers receivable from depositor ................. 104 9 232
------- ------- --------
Total assets ....................................... 24,576 24,934 798,027
------- ------- --------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------- --------
Total liabilities .................................. 0 0 0
------- ------- --------
Net assets ......................................... $24,576 $24,934 $798,027
======= ======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $24,576 $24,934 $798,027
Depositor's equity .................................. 0 0 0
------- ------- --------
Net assets applicable to units outstanding ......... $24,576 $24,934 $798,027
======= ======= ========
Policy Owners' units ................................ 1,460 1,090 8,668
Depositor's units ................................... 0 0 0
------- ------- --------
Units outstanding .................................. 1,460 1,090 8,668
======= ======= ========
Accumulation unit value ............................ $ 16.83 $ 22.89 $ 92.07
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 9,833 6,028 9,752
======== ======= ========
Cost ............................................... $189,249 $81,865 $176,852
======== ======= ========
Investment, at net asset value ...................... $233,131 $98,885 $262,548
Transfers receivable from depositor ................. 125 41 117
-------- ------- --------
Total assets ....................................... 233,256 98,926 262,665
-------- ------- --------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
-------- ------- --------
Total liabilities .................................. 0 0 0
-------- ------- --------
Net assets ......................................... $233,256 $98,926 $262,665
======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $233,256 $98,926 $262,665
Depositor's equity .................................. 0 0 0
-------- ------- --------
Net assets applicable to units outstanding ......... $233,256 $98,926 $262,665
======== ======= ========
Policy Owners' units ................................ 10,167 4,814 8,218
Depositor's units ................................... 0 0 0
-------- ------- --------
Units outstanding .................................. 10,167 4,814 8,218
======== ======= ========
Accumulation unit value ............................ $ 22.94 $ 20.55 $ 31.96
======== ======= ========
</TABLE>
The notes to the financial statements are an integral part of this report.
95
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 7,923 1,185 1,306
======== ======= =======
Cost ............................................... $126,802 $13,872 $16,213
======== ======= =======
Investment, at net asset value ...................... $177,787 $14,863 $16,036
Transfers receivable from depositor ................. 70 1 11
-------- ------- -------
Total assets ....................................... 177,857 14,864 16,047
-------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
-------- ------- -------
Total liabilities .................................. 0 0 0
-------- ------- -------
Net assets ......................................... $177,857 $14,864 $16,047
======== ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $177,857 $14,864 $16,047
Depositor's equity .................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $177,857 $14,864 $16,047
======== ======= =======
Policy Owners' units ................................ 6,669 990 976
Depositor's units ................................... 0 0 0
-------- ------- -------
Units outstanding .................................. 6,669 990 976
======== ======= =======
Accumulation unit value ............................ $ 26.67 $ 15.02 $ 16.44
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET C.A.S.E.
ALLOCATION GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2,988 1,364 2,152
======= ======= =======
Cost ............................................... $38,916 $19,242 $28,825
======= ======= =======
Investment, at net asset value ...................... $39,889 $17,718 $26,066
Transfers receivable from depositor ................. 15 12 17
------- ------- -------
Total assets ....................................... 39,904 17,730 26,083
------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------- -------
Total liabilities .................................. 0 0 0
------- ------- -------
Net assets ......................................... $39,904 $17,730 $26,083
======= ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $39,904 $17,730 $26,083
Depositor's equity .................................. 0 0 0
------- ------- -------
Net assets applicable to units outstanding ......... $39,904 $17,730 $26,083
======= ======= =======
Policy Owners' units ................................ 2,383 1,417 1,982
Depositor's units ................................... 0 0 0
------- ------- -------
Units outstanding .................................. 2,383 1,417 1,982
======= ======= =======
Accumulation unit value ............................ $ 16.74 $ 12.51 $ 13.16
======= ======= =======
</TABLE>
The notes to the financial statements are an integral part of this report.
96
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL U.S. THIRD AVENUE
EQUITY EQUITY VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 483 976 302
====== ======= ======
Cost ............................................... $5,705 $13,010 $2,904
====== ======= ======
Investment, at net asset value ...................... $5,824 $14,078 $2,801
Transfers receivable from depositor ................. 3 6 6
------ ------- ------
Total assets ....................................... 5,827 14,084 2,807
------ ------- ------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------ ------- ------
Total liabilities .................................. 0 0 0
------ ------- ------
Net assets ......................................... $5,827 $14,084 $2,807
====== ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $5,827 $14,084 $2,622
Depositor's equity .................................. 0 0 185
------ ------- ------
Net assets applicable to units outstanding ......... $5,827 $14,084 $2,807
====== ======= ======
Policy Owners' units ................................ 489 919 284
Depositor's units ................................... 0 0 20
------ ------- ------
Units outstanding .................................. 489 919 304
====== ======= ======
Accumulation unit value ............................ $11.92 $ 15.33 $ 9.23
====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
<S> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 83
=====
Cost ............................................... $ 784
=====
Investment, at net asset value ...................... $ 708
Transfers receivable from depositor ................. 1
-----
Total assets ....................................... 709
-----
LIABILITIES:
Accrued expenses .................................... 0
Transfers payable to depositor ...................... 0
-----
Total liabilities .................................. 0
-----
Net assets ......................................... $ 709
=====
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 371
Depositor's equity .................................. 338
-----
Net assets applicable to units outstanding ......... $ 709
=====
Policy Owners' units ................................ 44
Depositor's units ................................... 40
-----
Units outstanding .................................. 84
=====
Accumulation unit value ............................ $8.46
=====
</TABLE>
The notes to the financial statements are an integral part of this report
.
97
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $1,113 $1,196 $ 1,180
Capital gain distributions .............................................. 0 0 5,200
------ ------ --------
Total investment income ................................................ 1,113 1,196 6,380
EXPENSES:
Mortality and expense risk .............................................. 194 194 5,277
------ ------ --------
Net investment income (loss) ........................................... 919 1,002 1,103
------ ------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 0 642 12,232
Change in unrealized appreciation (depreciation) ....................... 0 71 283,227
------ ------ --------
Net gain (loss) on investment securities ............................... 0 713 295,459
------ ------ --------
Net increase (decrease) in net assets resulting from operations ....... $ 919 $1,715 $296,562
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 1,092 $2,240 $ 0
Capital gain distributions .............................................. 8,026 1,844 8,683
------- ------ -------
Total investment income ................................................ 9,118 4,084 8,683
EXPENSES:
Mortality and expense risk .............................................. 1,693 800 1,789
------- ------ -------
Net investment income (loss) ........................................... 7,425 3,284 6,894
------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 3,529 1,097 4,995
Change in unrealized appreciation (depreciation) ....................... 34,898 3,250 54,519
------- ------ -------
Net gain (loss) on investment securities ............................... 38,427 4,347 59,514
------- ------ -------
Net increase (decrease) in net assets resulting from operations ....... $45,852 $7,631 $66,408
======= ====== =======
</TABLE>
The notes to the financial statements are an integral part of this report.
98
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 356 $329 $ 651
Capital gain distributions .............................................. 8,627 13 112
------- ---- ------
Total investment income ................................................ 8,983 342 763
EXPENSES:
Mortality and expense risk .............................................. 1,132 115 119
------- ---- ------
Net investment income (loss) ........................................... 7,851 227 644
------- ---- ------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 2,395 262 390
Change in unrealized appreciation (depreciation) ....................... 41,953 314 (659)
------- ---- ------
Net gain (loss) on investment securities ............................... 44,348 576 (269)
------- ---- ------
Net increase (decrease) in net assets resulting from operations ....... $52,199 $803 $ 375
======= ==== ======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET C.A.S.E.
ALLOCATION GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $ 1,115 $ 1,514 $ 530
Capital gain distributions ............................................ 2,619 90 1,755
-------- -------- --------
Total investment income .............................................. 3,734 1,604 2,285
EXPENSES:
Mortality and expense risk ............................................ 315 129 264
-------- -------- --------
Net investment income (loss) ......................................... 3,419 1,475 2,021
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................ 429 175 1,254
Change in unrealized appreciation (depreciation) ..................... (1,516) (1,289) (5,937)
-------- -------- --------
Net gain (loss) on investment securities ............................. (1,087) (1,114) (4,683)
-------- -------- --------
Net increase (decrease) in net assets resulting from operations ..... $ 2,332 $ 361 $ (2,662)
======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
99
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL U.S. THIRD AVENUE
EQUITY EQUITY BOND VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT(A)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 3 $ 413 $ 8
Capital gain distributions .............................................. 0 94 0
----- ------ ------
Total investment income ................................................ 3 507 8
EXPENSES:
Mortality and expense risk .............................................. 35 73 19
----- ------ ------
Net investment income (loss) ........................................... (32) 434 (11)
----- ------ ------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 147 358 (39)
Change in unrealized appreciation (depreciation) ....................... 222 1,053 (103)
----- ------ ------
Net gain (loss) on investment securities ............................... 369 1,411 (142)
----- ------ ------
Net increase (decrease) in net assets resulting from operations ....... $ 337 $1,845 $ (153)
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT(B)
<S> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $ 0
Capital gain distributions ............................................ 0
------
Total investment income .............................................. 0
EXPENSES:
Mortality and expense risk ............................................ 4
------
Net investment income (loss) ......................................... (4)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................ (36)
Change in unrealized appreciation (depreciation) ..................... (76)
------
Net gain (loss) on investment securities ............................. (112)
------
Net increase (decrease) in net assets resulting from operations ..... $ (116)
======
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
100
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
------------ ----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 919 $ 639
Net gain (loss) on investment securities .............................. 0 0
---------- --------
Net increase (decrease) in net assets resulting from operations ....... 919 639
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 12,763 7,719
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 3,123 3,108
Policy loans ......................................................... 1,163 687
Surrender benefits ................................................... 1,250 854
Death benefits ....................................................... 10 9
---------- --------
5,546 4,658
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 7,217 3,061
---------- --------
Net increase (decrease) in net assets ................................ 8,136 3,700
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 16,440 12,740
---------- --------
End of year ........................................................... $ 24,576 $ 16,440
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 1,020 825
Units issued .......................................................... 11,339 9,509
Units redeemed ........................................................ (10,899) (9,314)
---------- --------
Units outstanding - end of year ....................................... 1,460 1,020
========== ========
<CAPTION>
BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
---------------------- ------------------------
1998 1997 1998 1997
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 1,002 $ 661 $ 1,103 $ 44,206
Net gain (loss) on investment securities .............................. 713 418 295,459 15,238
------- ------- -------- --------
Net increase (decrease) in net assets resulting from operations ....... 1,715 1,079 296,562 59,444
------- ------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 9,472 7,506 140,684 106,236
------- ------- -------- --------
Less cost of units redeemed:
Administrative charges ............................................... 2,292 1,633 44,910 37,231
Policy loans ......................................................... 594 428 18,083 11,212
Surrender benefits ................................................... 865 437 22,312 15,746
Death benefits ....................................................... 159 15 4,185 711
------- ------- -------- --------
3,910 2,513 89,490 64,900
------- ------- -------- --------
Increase (decrease) in net assets from capital unit transactions ..... 5,562 4,993 51,194 41,336
------- ------- -------- --------
Net increase (decrease) in net assets ................................ 7,277 6,072 347,756 100,780
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 17,657 11,585 450,271 349,491
------- ------- -------- --------
End of year ........................................................... $24,934 $17,657 $798,027 $450,271
======= ======= ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 836 593 7,972 7,208
Units issued .......................................................... 1,030 568 2,967 2,877
Units redeemed ........................................................ (776) (325) (2,271) (2,113)
------- ------- -------- --------
Units outstanding - end of year ....................................... 1,090 836 8,668 7,972
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
SUB-ACCOUNT
December 31,
------------------------
1998 1997
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 7,425 $ 15,859
Net gain (loss) on investment securities .............................. 38,427 805
-------- --------
Net increase (decrease) in net assets resulting from operations ....... 45,852 16,664
-------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 72,962 64,272
-------- --------
Less cost of units redeemed:
Administrative charges ............................................... 19,369 12,590
Policy loans ......................................................... 4,953 2,948
Surrender benefits ................................................... 5,662 3,391
Death benefits ....................................................... 591 149
-------- --------
30,575 19,078
-------- --------
Increase (decrease) in net assets from capital unit transactions ..... 42,387 45,194
-------- --------
Net increase (decrease) in net assets ................................ 88,239 61,858
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 145,017 83,159
-------- --------
End of year ........................................................... $233,256 $145,017
======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 8,145 5,497
Units issued .......................................................... 5,610 5,205
Units redeemed ........................................................ (3,588) (2,557)
-------- --------
Units outstanding - end of year ....................................... 10,167 8,145
======== ========
<CAPTION>
STRATEGIC
TOTAL RETURN EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
----------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 3,284 $ 6,101 $ 6,894 $ 13,841
Net gain (loss) on investment securities .............................. 4,347 6,521 59,514 10,932
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from operations ....... 7,631 12,622 66,408 24,773
-------- -------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 24,191 22,072 64,824 54,392
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges ............................................... 7,696 6,025 19,612 14,518
Policy loans ......................................................... 2,319 1,624 5,601 3,692
Surrender benefits ................................................... 2,587 2,044 7,688 3,986
Death benefits ....................................................... 1,047 148 368 192
-------- -------- -------- --------
13,649 9,841 33,269 22,388
-------- -------- -------- --------
Increase (decrease) in net assets from capital unit transactions ..... 10,542 12,231 31,555 32,004
-------- -------- -------- --------
Net increase (decrease) in net assets ................................ 18,173 24,853 97,963 56,777
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 80,753 55,900 164,702 107,925
-------- -------- -------- --------
End of year ........................................................... $ 98,926 $ 80,753 $262,665 $164,702
======== ======== ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 4,270 3,570 7,013 5,532
Units issued .......................................................... 1,946 1,809 4,099 4,085
Units redeemed ........................................................ (1,402) (1,109) (2,894) (2,604)
-------- -------- -------- --------
Units outstanding - end of year ....................................... 4,814 4,270 8,218 7,013
======== ======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
101
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 7,851 $ 7,795
Net gain (loss) on investment securities .............................. 44,348 6,524
-------- --------
Net increase (decrease) in net assets resulting from operations ....... 52,199 14,319
-------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 53,159 40,282
-------- --------
Less cost of units redeemed:
Administrative charges ............................................... 13,960 9,888
Policy loans ......................................................... 3,522 1,926
Surrender benefits ................................................... 4,423 2,485
Death benefits ....................................................... 248 58
-------- --------
22,153 14,357
-------- --------
Increase (decrease) in net assets from capital unit transactions ..... 31,006 25,925
-------- --------
Net increase (decrease) in net assets ................................ 83,205 40,244
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 94,652 54,408
-------- --------
End of year ........................................................... $177,857 $ 94,652
======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 5,230 3,702
Units issued .......................................................... 3,797 3,540
Units redeemed ........................................................ (2,358) (2,012)
-------- --------
Units outstanding - end of year ....................................... 6,669 5,230
======== ========
<CAPTION>
BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 227 $ 992 $ 644 $1,214
Net gain (loss) on investment securities .............................. 576 226 (269) 283
------- ------- ------- ------
Net increase (decrease) in net assets resulting from operations ....... 803 1,218 375 1,497
------- ------- ------- ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 5,658 4,373 8,963 3,232
------- ------- ------- ------
Less cost of units redeemed:
Administrative charges ............................................... 1,423 958 1,633 733
Policy loans ......................................................... 279 179 218 163
Surrender benefits ................................................... 596 153 431 260
Death benefits ....................................................... 15 3 72 11
------- ------- ------- ------
2,313 1,293 2,354 1,167
------- ------- ------- ------
Increase (decrease) in net assets from capital unit transactions ..... 3,345 3,080 6,609 2,065
------- ------- ------- ------
Net increase (decrease) in net assets ................................ 4,148 4,298 6,984 3,562
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 10,716 6,418 9,063 5,501
------- ------- ------- ------
End of year ........................................................... $14,864 $10,716 $16,047 $9,063
======= ======= ======= ======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 756 526 563 422
Units issued .......................................................... 578 472 966 352
Units redeemed ........................................................ (344) (242) (553) (211)
------- ------- ------- ------
Units outstanding - end of year ....................................... 990 756 976 563
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 3,419 $ 1,913
Net gain (loss) on investment securities .............................. (1,087) 1,362
-------- -------
Net increase (decrease) in net assets resulting from operations ....... 2,332 3,275
-------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 13,703 11,386
-------- -------
Less cost of units redeemed:
Administrative charges ............................................... 3,421 2,219
Policy loans ......................................................... 748 463
Surrender benefits ................................................... 925 742
Death benefits ....................................................... 160 60
-------- -------
5,254 3,484
-------- -------
Increase (decrease) in net assets from capital unit transactions ..... 8,449 7,902
-------- -------
Net increase (decrease) in net assets ................................ 10,781 11,177
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 29,123 17,946
-------- -------
End of year ........................................................... $ 39,904 $29,123
======== =======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 1,867 1,330
Units issued .......................................................... 1,377 1,163
Units redeemed ........................................................ (861) (626)
-------- -------
Units outstanding - end of year ....................................... 2,383 1,867
======== =======
<CAPTION>
C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 1,475 $ 994 $ 2,021 $ 183
Net gain (loss) on investment securities .............................. (1,114) (252) (4,683) 3,038
-------- ------- -------- -------
Net increase (decrease) in net assets resulting from operations ....... 361 742 (2,662) 3,221
-------- ------- -------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 8,731 8,029 6,086 17,023
-------- ------- -------- -------
Less cost of units redeemed:
Administrative charges ............................................... 2,433 970 2,846 1,257
Policy loans ......................................................... 520 146 643 542
Surrender benefits ................................................... 295 144 401 388
Death benefits ....................................................... 60 6 165 0
-------- ------- -------- -------
3,308 1,266 4,055 2,187
-------- ------- -------- -------
Increase (decrease) in net assets from capital unit transactions ..... 5,423 6,763 2,031 14,836
-------- ------- -------- -------
Net increase (decrease) in net assets ................................ 5,784 7,505 (631) 18,057
Depositor's equity contribution (redemption) .......................... 0 (25) 0 (230)
NET ASSETS:
Beginning of year ..................................................... 11,946 4,466 26,714 8,887
-------- ------- -------- -------
End of year ........................................................... $ 17,730 $11,946 $ 26,083 $26,714
======== ======= ======== =======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 969 413 1,916 790
Units issued .......................................................... 1,317 931 1,748 1,772
Units redeemed ........................................................ (869) (375) (1,682) (646)
-------- ------- -------- -------
Units outstanding - end of year ....................................... 1,417 969 1,982 1,916
======== ======= ======== =======
</TABLE>
The notes to the financial statements are an integral part of this report.
102
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
--------------------- --------------------
1998 1997(a) 1998 1997(a)
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ (32) $ (4) $ 434 $ 107
Net gain (loss) on investment
securities ........................................................ 369 31 1,411 96
------ ------ ------- ------
Net increase (decrease) in net assets resulting from operations..... 337 27 1,845 203
------ ------ ------- ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 3,972 2,458 10,178 3,208
------ ------ ------- ------
Less cost of units redeemed:
Administrative charges ............................................ 433 117 862 91
Policy loans ...................................................... 196 59 159 56
Surrender benefits ................................................ 35 14 113 9
Death benefits .................................................... 107 0 63 0
------ ------ ------- ------
771 190 1,197 156
------ ------ ------- ------
Increase (decrease) in net assets from capital
unit transactions ................................................ 3,201 2,268 8,981 3,052
------ ------ ------- ------
Net increase (decrease) in net assets ............................. 3,538 2,295 10,826 3,255
Depositor's equity contribution (redemption) ....................... 0 (6) 0 3
NET ASSETS:
Beginning of year .................................................. 2,289 0 3,258 0
------ ------ ------- ------
End of year ........................................................ $5,827 $2,289 $14,084 $3,258
====== ====== ======= ======
UNIT ACTIVITY:
Units outstanding - beginning of year .............................. 215 0 259 0
Units issued ....................................................... 767 484 1,266 393
Units redeemed ..................................................... (493) (269) (606) (134)
------ ------ ------- ------
Units outstanding - end of year .................................... 489 215 919 259
====== ====== ======= ======
<CAPTION>
THIRD AVENUE REAL ESTATE
VALUE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
1998(b) 1998(c)
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ (11) $ (4)
Net gain (loss) on investment
securities ........................................................ (142) (112)
------ -------
Net increase (decrease) in net assets resulting from operations..... (153) (116)
------ -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 2,932 472
------ -------
Less cost of units redeemed:
Administrative charges ............................................ 138 4
Policy loans ...................................................... 8 43
Surrender benefits ................................................ 26 0
Death benefits .................................................... 0 0
------ -------
172 47
------ -------
Increase (decrease) in net assets from capital
unit transactions ................................................ 2,760 425
------ -------
Net increase (decrease) in net assets ............................. 2,607 309
Depositor's equity contribution (redemption) ....................... 200 400
NET ASSETS:
Beginning of year .................................................. 0 0
------ -------
End of year ........................................................ $2,807 $ 709
====== =======
UNIT ACTIVITY:
Units outstanding - beginning of year .............................. 0 0
Units issued ....................................................... 495 113
Units redeemed ..................................................... (191) (29)
------ -------
Units outstanding - end of year .................................... 304 84
====== =======
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1997.
(b) The inception date of this Sub-Account was January 2, 1998.
(c) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
103
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................... $ 16.13 $ 15.45
Income from operations:
Net investment income (loss) ........................................... 0.70 0.68
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00
------- -------
Net income (loss) from operations ..................................... 0.70 0.68
------- -------
Accumulation unit value, end of year ..................................... $ 16.83 $ 16.13
======= =======
Total return (a) ......................................................... 4.36% 4.37%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $24,576 $16,440
Ratios of net investment income (loss) to average net assets (b) ........ 4.24% 4.28%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 14.83 $ 14.19 $ 13.84
Income from operations:
Net investment income (loss) ........................................... 0.62 0.64 0.35
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 0.00
------- ------- -------
Net income (loss) from operations ..................................... 0.62 0.64 0.35
------- ------- -------
Accumulation unit value, end of year ..................................... $ 15.45 $ 14.83 $ 14.19
======= ======= =======
Total return (a) ......................................................... 4.17% 4.49% 2.58%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $12,740 $10,759 $ 9,706
Ratios of net investment income (loss) to average net assets (b) ........ 4.07% 4.37% 2.66%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 21.12 $ 19.53
Income from operations:
Net investment income (loss) ........................................ 1.01 1.01
Net realized and unrealized gain (loss) on investment ............... 0.76 0.58
------- -------
Net income (loss) from operations .................................. 1.77 1.59
------- -------
Accumulation unit value, end of year .................................. $ 22.89 $ 21.12
======= =======
Total return (a) ...................................................... 8.34% 8.18%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $24,934 $17,657
Ratios of net investment income (loss) to average net assets (b) ..... 4.58% 5.06%
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 19.67 $ 16.14 $ 17.50
Income from operations:
Net investment income (loss) ........................................ 0.99 1.05 0.89
Net realized and unrealized gain (loss) on investment ............... (1.13) 2.48 (2.25)
-------- ------- ---------
Net income (loss) from operations .................................. (0.14) 3.53 (1.36)
-------- ------- ---------
Accumulation unit value, end of year .................................. $ 19.53 $ 19.67 $ 16.14
======== ======= =========
Total return (a) ...................................................... (0.75)% 21.89% (7.77)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $ 11,585 $10,066 $ 6,259
Ratios of net investment income (loss) to average net assets (b) ..... 5.34% 5.80% 5.57%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 56.48 $ 48.48
Income from operations:
Net investment income (loss) ........................................ 0.13 5.83
Net realized and unrealized gain (loss) on investment ............... 35.46 2.17
-------- --------
Net income (loss) from operations .................................. 35.59 8.00
-------- --------
Accumulation unit value, end of year .................................. $ 92.07 $ 56.48
======== ========
Total return (a) ...................................................... 63.01% 16.50%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $798,027 $450,271
Ratios of net investment income (loss) to average net assets (b) ..... 0.19% 10.84%
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 41.47 $ 28.44 $ 31.30
Income from operations:
Net investment income (loss) ........................................ 2.88 3.89 0.04
Net realized and unrealized gain (loss) on investment ............... 4.13 9.14 (2.90)
-------- -------- --------
Net income (loss) from operations .................................. 7.01 13.03 (2.86)
-------- -------- --------
Accumulation unit value, end of year .................................. $ 48.48 $ 41.47 $ 28.44
======== ======== ========
Total return (a) ...................................................... 16.91% 45.81% (9.13)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $349,491 $262,467 $161,490
Ratios of net investment income (loss) to average net assets (b) ..... 6.41% 11.05% 0.16%
</TABLE>
The notes to the financial statements are an integral part of this report.
104
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994(c)
------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year .......................... $ 17.80 $ 15.13 $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss) ...................................... 0.82 2.30 1.50 0.45 0.71
Net realized and unrealized gain (loss) on investment ............. 4.32 0.37 1.68 1.70 (0.91)
-------- -------- ------- ------- --------
Net income (loss) from operations ................................ 5.14 2.67 3.18 2.15 (0.20)
-------- -------- ------- ------- --------
Accumulation unit value, end of year ................................ $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80
======== ======== ======= ======= ========
Total return (a) .................................................... 28.86% 17.69% 26.60% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........................... $233,256 $145,017 $83,159 $37,049 $ 21,672
Ratios of net investment income (loss) to average net assets (b) ... 3.92% 13.39% 11.09% 4.25% 8.86%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 18.91 $ 15.66
Income from operations:
Net investment income (loss) ........................................ 0.71 1.56
Net realized and unrealized gain (loss) on investment ............... 0.93 1.69
------- -------
Net income (loss) from operations .................................. 1.64 3.25
------- -------
Accumulation unit value, end of year .................................. $ 20.55 $ 18.91
======= =======
Total return (a) ...................................................... 8.66% 20.77%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $98,926 $80,753
Ratios of net investment income (loss) to average net assets (b) ..... 3.67% 8.89%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 13.74 $ 11.12 $ 11.28
Income from operations:
Net investment income (loss) ........................................ 0.82 0.68 0.18
Net realized and unrealized gain (loss) on investment ............... 1.10 1.94 (0.34)
------- ------- --------
Net income (loss) from operations .................................. 1.92 2.62 (0.16)
------- ------- --------
Accumulation unit value, end of year .................................. $ 15.66 $ 13.74 $ 11.12
======= ======= ========
Total return (a) ...................................................... 13.97% 23.55% (1.42)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $55,900 $39,648 $ 23,649
Ratios of net investment income (loss) to average net assets (b) ..... 5.76% 5.47% 1.93%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year .......................... $ 23.48 $ 19.51
Income from operations:
Net investment income (loss) ...................................... 0.91 2.20
Net realized and unrealized gain (loss) on investment ............. 7.57 1.77
-------- --------
Net income (loss) from operations ................................ 8.48 3.97
-------- --------
Accumulation unit value, end of year ................................ $ 31.96 $ 23.48
======== ========
Total return (a) .................................................... 36.11% 20.37%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........................... $262,665 $164,702
Ratios of net investment income (loss) to average net assets (b) ... 3.44% 10.18%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year .......................... $ 16.56 $ 11.38 $ 12.40
Income from operations:
Net investment income (loss) ...................................... 0.82 0.65 (0.09)
Net realized and unrealized gain (loss) on investment ............. 2.13 4.53 (0.93)
-------- ------- -------
Net income (loss) from operations ................................ 2.95 5.18 (1.02)
-------- ------- -------
Accumulation unit value, end of year ................................ $ 19.51 $ 16.56 $ 11.38
======== ======= =======
Total return (a) .................................................... 17.82% 45.49% (8.18)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........................... $107,925 $67,905 $36,687
Ratios of net investment income (loss) to average net assets (b) ... 4.51% 4.66% (0.86)%
</TABLE>
The notes to the financial statements are an integral part of this report.
105
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
December 31,
------------------------
1998 1997
------------ -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 18.10 $ 14.70
Income from operations:
Net investment income (loss) ........................................ 1.33 1.75
Net realized and unrealized gain (loss) on investment ............... 7.24 1.65
-------- -------
Net income (loss) from operations .................................. 8.57 3.40
-------- -------
Accumulation unit value, end of year .................................. $ 26.67 $ 18.10
======== =======
Total return (a) ...................................................... 47.36% 23.14%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $177,857 $94,652
Ratios of net investment income (loss) to average net assets (b) ..... 6.20% 10.26%
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 13.43 $ 9.82 $10.00
Income from operations:
Net investment income (loss) ........................................ 0.36 0.37 (0.06)
Net realized and unrealized gain (loss) on investment ............... 0.91 3.24 (0.12)
------- ------- ------
Net income (loss) from operations .................................. 1.27 3.61 (0.18)
------- ------- ------
Accumulation unit value, end of year .................................. $ 14.70 $ 13.43 $ 9.82
======= ======= ======
Total return (a) ...................................................... 9.46% 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $54,408 $32,904 $8,909
Ratios of net investment income (loss) to average net assets (b) ..... 2.65% 2.93% (0.72)%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 14.17 $ 12.21
Income from operations:
Net investment income (loss) ........................................ 0.25 1.55
Net realized and unrealized gain (loss) on investment ............... 0.60 0.41
------- -------
Net income (loss) from operations .................................. 0.85 1.96
------- -------
Accumulation unit value, end of year .................................. $ 15.02 $ 14.17
======= =======
Total return (a) ...................................................... 5.98% 16.06%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $14,864 $10,716
Ratios of net investment income (loss) to average net assets (b) ..... 1.76% 11.62%
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.36 0.37 0.22
Net realized and unrealized gain (loss) on investment ............... 0.72 1.39 (0.85)
------- -------- ---------
Net income (loss) from operations .................................. 1.08 1.76 (0.63)
------- -------- ---------
Accumulation unit value, end of year .................................. $ 12.21 $ 11.13 $ 9.37
======= ======== =========
Total return (a) ...................................................... 9.73% 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $ 6,418 $ 3,795 $ 2,145
Ratios of net investment income (loss) to average net assets (b) ..... 3.18% 3.59% 3.06%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 16.09 $ 13.03
Income from operations:
Net investment income (loss) ........................................ 0.77 2.61
Net realized and unrealized gain (loss) on investment ............... (0.42) 0.45
------- --------
Net income (loss) from operations .................................. 0.35 3.06
------- --------
Accumulation unit value, end of year .................................. $ 16.44 $ 16.09
======= ========
Total return (a) ...................................................... 2.13% 23.54%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $16,047 $ 9,063
Ratios of net investment income (loss) to average net assets (b) ..... 4.83% 18.50%
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.76 0.49 0.29
Net realized and unrealized gain (loss) on investment ............... 0.50 1.79 (0.80)
-------- -------- ---------
Net income (loss) from operations .................................. 1.26 2.28 (0.51)
-------- -------- ---------
Accumulation unit value, end of year .................................. $ 13.03 $ 11.77 $ 9.49
======== ======== =========
Total return (a) ...................................................... 10.64% 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $ 5,501 $ 2,631 $ 1,215
Ratios of net investment income (loss) to average net assets (b) ..... 6.38% 4.57% 3.71%
</TABLE>
The notes to the financial statements are an integral part of this report.
106
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
December 31,
-----------------------------------------------
1998 1997 1996 1995(d)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 15.60 $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.58 1.20 0.53 0.61
Net realized and unrealized gain (loss) on investment .................. (0.44) 0.90 1.07 1.29
------- ------- ------- --------
Net income (loss) from operations ..................................... 1.14 2.10 1.60 1.90
------- ------- ------- --------
Accumulation unit value, end of year ..................................... $ 16.74 $ 15.60 $ 13.50 $ 11.90
======= ======= ======= ========
Total return (a) ......................................................... 7.36% 15.55% 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $39,904 $29,123 $17,946 $ 9,446
Ratios of net investment income (loss) to average net assets (b) ........ 9.69% 8.14% 4.35% 5.47%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996(e)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 12.32 $ 10.81 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.24 1.51 0.37
Net realized and unrealized gain (loss) on investment .................. (1.05) 0.00 0.44
------- ------- -------
Net income (loss) from operations ..................................... 0.19 1.51 0.81
------- ------- -------
Accumulation unit value, end of year ..................................... $ 12.51 $ 12.32 $ 10.81
======= ======= =======
Total return (a) ......................................................... 1.56% 14.00% 8.09%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $17,730 $11,946 $ 4,466
Ratios of net investment income (loss) to average net assets (b) ........ 10.21% 12.65% 6.11%
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996(e)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 13.94 $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.95 0.14 0.05
Net realized and unrealized gain (loss) on investment .................. (1.73) 2.55 1.20
-------- ------- --------
Net income (loss) from operations ..................................... (0.78) 2.69 1.25
-------- ------- --------
Accumulation unit value, end of year ..................................... $ 13.16 $ 13.94 $ 11.25
======== ======= ========
Total return (a) ......................................................... (5.63)% 23.93% 12.51%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 26,083 $26,714 $ 8,887
Ratios of net investment income (loss) to average net assets (b) ........ 6.84% 1.05% 0.77%
</TABLE>
The notes to the financial statements are an integral part of this report.
107
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
----------------------- -------------------------
1998 1997(f) 1998 1997(f)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 10.65 $ 10.00 $ 12.59 $ 10.00
Income from operations:
Net investment income (loss) ........................................... (0.09) (0.03) 0.73 0.99
Net realized and unrealized gain (loss) on investment .................. 1.36 0.68 2.01 1.60
------- ------- ------- --------
Net income (loss) from operations ..................................... 1.27 0.65 2.74 2.59
------- ------- ------- --------
Accumulation unit value, end of year ..................................... $ 11.92 $ 10.65 $ 15.33 $ 12.59
======= ======= ======= ========
Total return (a) ......................................................... 11.84% 6.54% 21.78% 25.89%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 5,827 $ 2,289 $14,084 $ 3,258
Ratios of net investment income (loss) to average net assets (b) ........ (0.81)% (0.28)% 5.30% 8.28%
</TABLE>
<TABLE>
<CAPTION>
THIRD AVENUE REAL ESTATE
VALUE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
1998(g) 1998(h)
-------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of year ...................... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) .................................. (0.05) (0.05)
Net realized and unrealized gain (loss) on investment ......... (0.72) (1.49)
-------- --------
Net income (loss) from operations ............................ (0.77) (1.54)
-------- --------
Accumulation unit value, end of year ............................ $ 9.23 $ 8.46
======== ========
Total return (a) ................................................ (7.67)% (15.44)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ....................... $ 2,807 $ 709
Ratios of net investment income (loss) to average net assets (b) (0.52)% (0.90)%
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* Per unit information has been computed using average units outstanding
throughout each period.
(a) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) The inception date of this Sub-Account was March 1, 1994.
(d) The inception date of this Sub-Account was January 3, 1995.
(e) The inception date of this Sub-Account was May 1, 1996.
(f) The inception date of this Sub-Account was January 2, 1997.
(g) The inception date of this Sub-Account was January 2, 1998.
(h) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
108
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account"), was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under
the Investment Company Act of 1940, as amended. The Life Account contains
sixteen investment options referred to as sub-accounts. Each sub-account
invests in the corresponding Portfolio of the WRL Series Fund, Inc.
(collectively referred to as the "Fund" and individually as a "Portfolio"), a
registered management investment company under the Investment Company Act of
1940, as amended.
The Fund has entered into annually renewable investment advisory
agreements for each Portfolio with WRL Investment Management, Inc. ("WRL
Management") as investment adviser. Costs incurred in connection with the
advisory services rendered by WRL Management are paid by each Portfolio. WRL
Management has entered into sub-advisory agreements with various management
companies, some of which are affiliates of WRL. Each sub-adviser is compensated
directly by WRL Management.
On January 2, 1998 and May 1, 1998, WRL made initial contributions
totaling $600,000 to the Life Account. The respective amounts of the
contributions and units received are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
----------- -------------- -------
Third Avenue Value ............. $200,000 20,000
Real Estate Securities ......... $400,000 40,000
The Life Account holds assets to support the benefits under certain
flexible premium variable universal life insurance policies (the "Policies")
issued by WRL. The Life Account's equity transactions are accounted for using
the appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles, have been consistently applied
in the preparation of the Trust's financial statements. The preparation of
financial statements required management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset value
("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt
of sale or redemption orders without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
109
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to WRL. Accordingly, no provision for federal income taxes has been
made.
NOTE 2. CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and
administration of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are
deducted by WRL prior to allocation of policy owner payments to the
sub-accounts. Thereafter, monthly administrative and cost of insurance charges
are deducted from the policies. Contingent surrender charges also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial premium
payment but may be subject to contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of .90% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks and
administrative services in connection with issuance and administration of the
Policies. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3. DIVIDENDS AND DISTRIBUTIONS
Dividends are not declared by the Life Account, since the increase in the
value of the underlying investment in the Fund is reflected daily in the
accumulation unit value used to calculate the equity value within the Life
Account. Consequently, a dividend distribution by the underlying Fund does not
change either the accumulation unit value or equity values within the Life
Account.
110
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 4. SECURITIES TRANSACTIONS
Securities transactions for the year ended December 31, 1998 are as
follows (in thousands):
PURCHASE PROCEEDS
SUB-ACCOUNT: OF SECURITIES OF SECURITIES
------------ --------------- --------------
Money Market ....................... $54,231 $46,140
Bond ............................... 14,451 7,857
Growth ............................. 72,758 20,484
Global ............................. 59,238 9,357
Strategic Total Return ............. 17,619 3,754
Emerging Growth .................... 49,088 10,679
Aggressive Growth .................. 44,611 5,689
Balanced ........................... 4,604 1,017
Growth & Income .................... 10,694 3,411
Tactical Asset Allocation .......... 14,060 2,009
C.A.S.E. Growth .................... 9,433 2,525
Value Equity ....................... 13,179 9,081
International Equity ............... 6,220 3,048
U.S. Equity ........................ 12,496 3,076
Third Avenue Value (a) ............. 3,849 906
Real Estate Securities (b) ......... 1,047 226
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
111
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5. OTHER MATTERS
At December 31, 1998 net unrealized appreciation (depreciation) on
investments was as follows (in thousands):
SUB-ACCOUNT
-----------
Money Market ...................... $ 0
Bond .............................. 402
Growth ............................ 374,036
Global ............................ 43,882
Strategic Total Return ............ 17,020
Emerging Growth ................... 85,696
Aggressive Growth ................. 50,985
Balanced .......................... 991
Growth & Income ................... (177)
Tactical Asset Allocation ......... 973
C.A.S.E. Growth ................... (1,524)
Value Equity ...................... (2,759)
International Equity .............. 119
U.S. Equity ....................... 1,068
Third Avenue Value ................ (103)
Real Estate Securities ............ (76)
112
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEET - STATUTORY BASIS
AS OF MARCH 31, 1999
(IN THOUSANDS)(UNAUDITED)
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 28,797
Bonds 169,409
Common stock, at market 4,317
Mortgage loans on real estate 9,864
Home office properties, at cost less accumulated
Depreciation 34,866
Investment real estate 11,276
Policy loans 126,519
----------
Total cash and invested assets 385,048
Premiums deferred and uncollected 972
Accrued investment income 2,778
Transfers from separate accounts 379,070
Cash surrender value of life insurance policies 45,972
Other assets 15,817
Separate account assets 7,868,017
----------
Total admitted assets $8,697,674
==========
113
<PAGE>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 244,711
Annuity 264,042
Policy and contract claim reserves 9,077
Other policyholders' funds 30,682
Remittances and items not allocated 20,913
Federal income taxes payable 4,326
Asset valuation reserve 5,951
Interest maintenance reserve 9,669
Payable to affiliate 42,704
Other liabilities 47,736
Separate account liabilities 7,866,790
----------
Total liabilities 8,546,601
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
Authorized, issued and outstanding 1,500
Paid-in surplus 120,107
Unassigned surplus 29,466
----------
Total capital and surplus 151,073
----------
Total liabilities and capital and surplus $8,697,674
==========
114
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF OPERATIONS - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)(UNAUDITED)
Revenues:
Premiums and other considerations, net of reinsurance
Life $ 127,436
Annuity 229,954
Net investment income 10,546
Amortization of interest maintenance reserve 479
Commissions and expense allowances on
Reinsurance ceded 7,053
Other income 33,428
---------
408,896
Benefits and expenses:
Benefits paid or provided for:
Life 8,134
Surrender benefits 168,890
Other benefits 7,374
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 13,115
Annuity (1,376)
Other (1,851)
---------
194,286
Insurance expenses:
Commissions 56,843
General insurance expenses 27,550
Taxes, licenses and fees 4,577
Transfer to separate accounts 114,019
Other expenses (29)
---------
202,960
---------
397,246
---------
Gain from operations before federal income
tax expense and realized capital losses on
investments 11,650
Federal income tax expense 4,078
---------
Gain from operations before realized
capital losses on investments 7,572
Net realized capital losses on investments
(net of related federal income tax
and amounts transferred to interest
maintenance reserve) (57)
---------
Net gain $ 7,515
=========
115
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(IN THOUSANDS)(UNAUDITED)
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1,1999 $1,500 $120,107 $21,973 $143,580
Net gain 0 0 7,515 7,515
Net unrealized gains 0 0 3,229 3,229
Change in non-admitted assets 0 0 (148) (148)
Change in asset valuation reserve 0 0 (3,102) (3,102)
Change in surplus in separate
accounts 0 0 510 510
Other adjustments 0 0 (511) (511)
------ -------- ------- --------
Balance at March 31, 1999 $1,500 $120,107 $29,466 $151,073
====== ======== ======= ========
</TABLE>
116
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENT OF CASH FLOW - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31,1999
(IN THOUSANDS)(UNAUDITED)
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $ 398,349
Net investment income 10,276
Life and accident and health claims (8,137)
Surrender benefits to policyholders (168,890)
Other benefits to policyholders (7,859)
Commissions, other expenses and other taxes (86,407)
Federal income taxes, excluding tax on capital gains (5,716)
Other, net (663)
Net transfers to separate accounts (133,940)
---------
Net cash used in operating activities (2,987)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 23,658
Mortgage loans on real estate 51
---------
23,709
Cost of investments acquired:
Bonds and preferred stocks 7,677
Real estate 283
Policy loans 13,573
---------
21,533
---------
Net cash provided by investing activities 2,176
---------
FINANCING ACTIVITIES
Borrowed money (44,200)
---------
Net cash used in financing activities (44,200)
Decrease in cash and short-term investments (45,011)
Cash and short-term investments at beginning of year 73,808
---------
Cash and short-term investments at end of year $ 28,797
=========
117
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the accompanying statutory
basis financial statements and notes thereto for the year ended December 31,
1998.
118
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1998 and 1997, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the statutory-basis financial
statement schedules required by Regulation S-X, Article 7. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the balance sheets of the Company. The Separate Account
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the data included
for the Separate Account, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1998 and 1997, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1998.
However, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
119
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .............................. $ 73,808 $ 13,896
Bonds ........................................................ 184,697 255,919
Common stocks:
Affiliated entities (cost: 1998 - $243; 1997 - $150)......... 704 319
Other (cost: 1998 and 1997 - $302)........................... 384 428
Mortgage loans on real estate ................................ 9,916 4,824
Home office properties ...................................... 34,583 19,964
Investment properties ....................................... 11,594 --
Policy loans ................................................ 112,982 76,741
Other invested assets ....................................... 396 --
---------- ----------
Total cash and invested assets ................................ 429,064 372,091
Premiums deferred and uncollected ............................. 900 1,928
Accrued investment income ..................................... 2,867 4,088
Transfers from separate accounts .............................. 350,633 279,958
Cash surrender value of life insurance policies ............... 45,445 --
Other assets .................................................. 9,239 5,221
Separate account assets ....................................... 6,999,290 4,814,594
---------- ----------
Total admitted assets ......................................... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
120
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ............................................ $ 231,596 $ 186,523
Annuity ......................................... 265,418 296,290
Policy and contract claim reserves ............... 9,233 10,929
Other policyholders' funds ....................... 38,080 3,877
Remittances and items not allocated .............. 20,569 9,184
Federal income taxes payable ..................... 5,716 2,283
Asset valuation reserve .......................... 2,848 2,436
Interest maintenance reserve ..................... 9,684 9,134
Short-term note payable to affiliate ............. 44,200 8,200
Payable to affiliate ............................. 37,907 1,925
Other liabilities ................................ 31,151 19,257
Separate account liabilities ..................... 6,997,456 4,812,979
---------- ----------
Total liabilities ................................. 7,693,858 5,363,017
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding ............. 1,500 1,500
Paid-in surplus .................................. 120,107 88,015
Unassigned surplus ............................... 21,973 25,348
---------- ----------
Total capital and surplus ......................... 143,580 114,863
---------- ----------
Total liabilities and capital and surplus ......... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
121
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ................................................................. $ 476,053 $ 394,370 $ 293,590
Annuity .............................................................. 794,841 822,149 740,125
Net investment income ................................................. 36,315 40,013 36,067
Amortization of interest maintenance reserve .......................... 744 1,576 1,335
Commissions and expense allowances on reinsurance ceded ............... 15,333 11 11
Other income .......................................................... 67,751 3,016 13,398
---------- ---------- ----------
1,391,037 1,261,135 1,084,526
Benefits and expenses:
Benefits paid or provided for:
Life ................................................................. 42,982 28,060 21,256
Surrender benefits ................................................... 551,528 431,939 286,406
Other benefits ....................................................... 31,280 28,112 23,270
Increase (decrease) in aggregate reserves for policies
and contracts:
Life ................................................................ 42,940 29,485 80,139
Annuity ............................................................. (30,872) (35,940) 12,877
Other ............................................................... 32,178 794 422
---------- ---------- ----------
670,036 482,450 424,370
Insurance expenses:
Commissions .......................................................... 205,939 179,106 140,261
General insurance expenses ........................................... 102,611 70,546 47,406
Taxes, licenses and fees ............................................. 15,545 13,101 10,848
Net transfer to separate accounts .................................... 402,618 519,214 452,471
Other expenses ....................................................... 59 21 60
---------- ---------- ----------
726,772 781,988 651,046
---------- ---------- ----------
1,396,808 1,264,438 1,075,416
---------- ---------- ----------
Gain (loss) from operations before federal income taxes (benefit) and
realized capital gains (losses) on investments ........................ (5,771) (3,303) 9,110
Federal income tax expense (benefit) ................................... (347) 469 9,297
---------- ---------- ----------
Loss from operations before realized capital gains
(losses) on investments ............................................... (5,424) (3,772) (187)
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to interest
maintenance reserve) .................................................. 1,494 747 (811)
---------- ---------- ----------
Net loss ............................................................... $ (3,930) $ (3,025) $ (998)
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
122
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 .............................. $1,500 $ 68,015 $ 28,424 $ 97,939
Net loss for 1996 ...................................... -- -- (998) (998)
Net unrealized capital gains ........................... -- -- 1,294 1,294
Change in non-admitted assets .......................... -- -- 199 199
Change in asset valuation reserve ...................... -- -- (120) (120)
Change in surplus in separate accounts ................. -- -- 237 237
Change in reserve valuation ............................ -- -- (2,995) (2,995)
------ -------- -------- --------
Balance at December 31, 1996 ............................ 1,500 68,015 26,041 95,556
Net loss for 1997 ...................................... -- -- (3,025) (3,025)
Change in non-admitted assets .......................... -- -- (702) (702)
Change in asset valuation reserve ...................... -- -- 3,274 3,274
Change in surplus in separate accounts ................. -- -- (2,115) (2,115)
Change in reserve valuation ............................ -- -- (1,872) (1,872)
Capital contribution ................................... -- 20,000 -- 20,000
Tax effect of capital loss carry-forward utilized by
affiliates ........................................... -- -- 3,747 3,747
------ -------- -------- --------
Balance at December 31, 1997 ............................ 1,500 88,015 25,348 114,863
Net loss for 1998 ...................................... -- -- (3,930) (3,930)
Net unrealized capital gains ........................... -- -- 248 248
Change in non-admitted assets .......................... -- -- (1,815) (1,815)
Change in asset valuation reserve ...................... -- -- (412) (412)
Change in surplus in separate accounts ................. -- -- (341) (341)
Change in reserve valuation ............................ -- -- (2,132) (2,132)
Capital contribution ................................... -- 32,092 -- 32,092
Settlement of prior period tax returns ................. -- -- 353 353
Tax benefits on stock options exercised ................ -- -- 4,654 4,654
------ -------- -------- --------
Balance at December 31, 1998 ............................ $1,500 $120,107 $ 21,973 $143,580
====== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
123
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ...... $1,356,732 $1,223,898 $1,046,548
Net investment income ...................................... 38,294 43,802 38,666
Life and accident and health claims ........................ (44,426) (26,005) (20,655)
Surrender benefits and other fund withdrawals .............. (551,528) (431,939) (286,406)
Other benefits to policyholders ............................ (31,231) (28,147) (22,129)
Commissions, other expenses and other taxes ................ (326,080) (262,901) (196,373)
Net transfers to separate accounts ......................... (461,982) (596,347) (658,326)
Federal income taxes received (paid) ....................... 11,956 5,006 (9,449)
Interest paid .............................................. -- (731) --
Other, net ................................................. (7,109) (14,901) 28,325
---------- ---------- ----------
Net cash used in operating activities ...................... (15,374) (88,265) (79,799)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks ................................ 143,449 146,963 122,820
Mortgage loans on real estate ............................. 221 2,116 132
Real estate ............................................... -- -- 4,304
Other ..................................................... -- -- 175
---------- ---------- ----------
143,670 149,079 127,431
Cost of investments acquired ...............................
Bonds and preferred stocks ................................ (68,202) (40,418) (26,826)
Common stocks ............................................. (93) (150) (4)
Mortgage loans on real estate ............................. (5,313) (891) --
Real estate ............................................... (26,213) (12,002) (7,837)
Policy loans .............................................. (36,241) (24,137) (15,479)
Other ..................................................... (414) -- (5)
---------- ---------- -----------
(136,476) (77,598) (50,151)
---------- ---------- ----------
Net cash provided by investing activities .................. 7,194 71,481 77,280
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate ........... 36,000 8,200 --
Capital contribution ....................................... 32,092 20,000 --
---------- ---------- ----------
Net cash provided by financing activities .................. 68,092 28,200 --
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ..... 59,912 11,416 (2,519)
Cash and short-term investments at beginning of year ....... 13,896 2,480 4,999
---------- ---------- ----------
Cash and short-term investments at end of year ............. $ 73,808 $ 13,896 $ 2,480
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
124
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and
variable annuity areas of the life insurance business. The Company is licensed
in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the
Company's products are through financial planners, independent representatives,
financial institutions and stockbrokers. The majority of the Company's new life
insurance written and a substantial portion of new annuities written is done
through one marketing organization; the Company expects to maintain this
relationship for the foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Ohio ("Insurance Department"), which practices differ from
generally accepted accounting principles. The more significant of these
differences are as follows: (a) bonds are generally reported at amortized cost
rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are expensed as incurred rather than deferred and amortized over
the life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
125
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement amounts and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) declines in the estimated realizable
value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (reported as a liability)
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to surplus rather than being
reported as assets; (j) revenues for universal life and investment products
consist of the entire premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as amounts
are paid rather than accrued and expensed during the periods in which the
employers provide service; and (l) the financial statements of wholly-owned
affiliates are not consolidated with those of the Company. The effects of these
variances have not been determined by the Company, but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. Codification will require
adoption by the various states before it becomes the prescribed statutory basis
of accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State
of Ohio must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time it is unclear whether the State of Ohio will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
126
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturities of one year or less when
purchased to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation
office of the NAIC has ascribed a value), mortgage loans on real estate and
short-term investments are reported at cost adjusted for amortization of
premiums and accrual of discounts. Amortization is computed using methods which
result in a level yield over the expected life of the investment. The Company
reviews its prepayment assumptions on mortgage and other asset backed
securities at regular intervals and adjusts amortization rates retrospectively
when such assumptions are changed due to experience and/or expected future
patterns. Common stocks of unaffiliated companies are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without
any adjustment for federal income taxes. Common stocks of the Company's
wholly-owned affiliates are recorded at the equity in net assets. Home office
and investment properties are reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other "admitted assets" are
valued, principally at cost, as required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC and
are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve
(IMR), the portion of realized gains and losses on sales of fixed income
investments, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates and amortizes those deferrals over the
remaining period to maturity of the security.
During 1998, 1997 and 1996, net realized capital gains of $1,294, $3,259
and $2,394, respectively, were credited to the IMR rather than being
immediately recognized in the statements of operations. Amortization of these
net gains aggregated $744, $1,576 and $1,335 for the years ended December 31,
1998, 1997 and 1996, respectively.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or
127
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
which are delinquent more than twelve months, or real estate where rent is in
arrears for more than three months. Further, income is not accrued when
collection is uncertain. No investment income due and accrued has been excluded
for the years ended December 31, 1998, 1997 and 1996, with respect to such
practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25 to 5.50 percent and are computed principally on the Net Level Premium
Valuation and the Commissioners' Reserve Valuation Methods. Reserves for
universal life policies are based on account balances adjusted for the
Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 8.75 percent and mortality rates, where appropriate, from a
variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the
128
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
benefit of the policyholders and, accordingly, the operations of the separate
accounts are not included in the accompanying financial statements. The
separate accounts do not have any minimum guarantees and the investment risks
associated with market value changes are borne entirely by the policyholders.
The Company received variable contract premiums of $1,240,858, $1,164,013 and
$997,513 in 1998, 1997 and 1996, respectively. All variable account contracts
are subject to discretionary withdrawal by the policyholder at the market value
of the underlying assets less the current surrender charge. Separate account
contractholders have no claim against the assets of the general account.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. Statement of Financial Accounting Standards No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
129
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or (in the case of private placements) are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities are based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of
the loans. The fair value of policy loans are assumed to equal their
carrying value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
130
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments .......... $ 73,808 $ 73,808 $ 13,896 $ 13,896
Bonds .................................... 184,697 192,556 255,919 267,763
Common stocks, other than affiliates ..... 384 384 428 428
Mortgage loans on real estate ............ 9,916 10,390 4,824 5,143
Policy loans ............................. 112,982 112,982 76,741 76,741
Separate account assets .................. 6,999,290 6,999,290 4,814,594 4,814,594
LIABILITIES
Investment contract liabilities .......... 297,349 294,105 280,121 276,113
Separate account annuities ............... 5,096,680 5,038,296 3,615,255 3,565,557
</TABLE>
131
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies ..... $ 4,749 $ 83 $ -- $ 4,832
State, municipal and other government ..... 3,234 117 -- 3,351
Public utilities .......................... 18,792 818 251 19,359
Industrial and miscellaneous .............. 96,332 6,685 577 102,440
Mortgage-backed securities ................ 61,590 1,235 251 62,574
-------- ------- ------ --------
Total bonds ................................ $184,697 $ 8,938 1,079 $192,556
======== ======= ====== ========
DECEMBER 31, 1997
Bonds:
United States Government and agencies ..... $ 3,675 $ 9 $ 30 $ 3,654
State, municipal and other government ..... 3,855 360 -- 4,215
Public utilities .......................... 15,794 904 403 16,295
Industrial and miscellaneous .............. 121,513 7,700 710 128,503
Mortgage-backed securities ................ 111,082 4,198 184 115,096
-------- ------- ------ --------
Total bonds ................................ $255,919 $13,171 $1,327 $267,763
======== ======= ====== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1998 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 2,706 $ 2,743
Due one through five years ......................... 61,340 64,696
Due five through ten years ......................... 43,233 45,352
Due after ten years ................................ 15,828 17,191
-------- --------
123,107 129,982
Mortgage and other asset backed securities ......... 61,590 62,574
-------- --------
$184,697 $192,556
======== ========
</TABLE>
132
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds ....................................... $ 17,150 $ 25,723 $ 33,969
Dividends on equity investments from subsidiary ......... 13,233 10,855 --
Interest on mortgage loans .............................. 499 478 559
Rental income on real estate ............................ 2,839 1,371 919
Interest on policy loans ................................ 6,241 4,656 3,339
Other investment income ................................. 540 26 9
-------- -------- --------
Gross investment income ................................. 40,502 43,109 38,795
Investment expenses ..................................... (4,187) (3,096) (2,728)
-------- -------- --------
Net investment income ................................... $ 36,315 $ 40,013 $ 36,067
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $143,449 $146,963 $122,820
======== ======== ========
Gross realized gains .......... $ 4,641 $ 3,921 $ 2,984
Gross realized losses ......... 899 626 791
-------- -------- --------
Net realized gains ............ $ 3,742 $ 3,295 $ 2,193
======== ======== ========
</TABLE>
At December 31, 1998, bonds with an aggregate carrying value of $4,297
were on deposit with certain state regulatory authorities or were restrictively
held in bank custodial accounts for benefit of such state regulatory
authorities, as required by statute.
133
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
Realized investment gains (losses) and changes in unrealized gains
(losses) for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ---------- -------------
<S> <C> <C> <C>
Debt securities .......................................... $ 3,742 $3,295 $ 2,193
Real estate .............................................. -- -- (606)
Other invested assets .................................... (18) -- (4)
-------- ------ ---------
3,724 3,295 1,583
Tax expense .............................................. (936) (711) --
Transfer to interest maintenance reserve ................. (1,294) (3,259) (2,394)
-------- ------ ---------
Net realized gains (losses) .............................. $ 1,494 $ 747 $ (811)
======== ====== =========
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ---------- -------------
<S> <C> <C> <C>
Debt securities .......................................... $ (3,985) $ (896) $ (14,442)
Common stock ............................................. 248 -- (66)
-------- ------ ---------
Change in unrealized appreciation (depreciation) ......... $ (3,737) $ (896) $ (14,508)
======== ====== =========
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
REALIZED
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
-------- ------ -------
<S> <C> <C> <C>
Unrealized gains ............. $ 579 $295 $295
Unrealized losses ............ (36) -- --
----- ---- ----
Net unrealized gains ......... $ 543 $295 $295
===== ==== ====
</TABLE>
During 1998, the Company issued one mortgage loan with an interest rate of
6.71%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 75%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
During 1998, 1997 and 1996, no mortgage loans were foreclosed and
transferred to real estate. During 1998 and 1997, the Company held a mortgage
loan loss reserve in the asset valuation reserve of $112 and $54, respectively.
At December 31, 1998, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
134
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed
its established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums .............. $1,345,752 $1,219,271 $1,034,757
Reinsurance assumed .......... 461 2,389 2,063
Reinsurance ceded ............ (75,319) (5,141) (3,105)
---------- ---------- ----------
Net premiums earned .......... $1,270,894 $1,216,519 $1,033,715
---------- ---------- ----------
</TABLE>
The Company received reinsurance recoveries in the amount of $5,260,
$2,288 and $2,156 during 1998, 1997 and 1996, respectively. At December 31,
1998 and 1997, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $1,003 and $2,721,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of
$2,849 and $1,369, respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a
tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
135
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to gain (loss) from operations
before income taxes (benefit) and realized capital gains (losses) on
investments for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ---------
<S> <C> <C> <C>
Computed tax (benefit) at federal statutory rate (35%) .......... $ (2,019) $ (1,156) $3,189
Deferred acquisition costs -- tax basis ......................... 9,672 9,164 7,172
Tax reserve valuation ........................................... 1,513 (194) (696)
Excess tax depreciation ......................................... (442) (127) (65)
Amortization of IMR ............................................. (260) (552) (467)
Dividend received deduction ..................................... (6,657) (5,326) --
Prior year over-accrual ......................................... (2,322) (1,541) (9)
Other, net ...................................................... 168 201 173
-------- -------- ------
Federal income tax expense (benefit) ............................ $ (347) $ 469 $9,297
-------- -------- ------
</TABLE>
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation, but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($293 at December 31, 1998). To the extent dividends are paid
from the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $103.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for 1994 and 1995 resulting in a tax refund of $300 and interest
received of $53.
136
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
----------------------- ----------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with market value
adjustment ......................................... $ 12,810 $ 13,812 1%
Subject to discretionary withdrawal at book value less
surrender charge ................................... 76,289 1% 68,376 2
Subject to discretionary withdrawal at market value .. 5,096,680 94 3,615,255 91
Subject to discretionary withdrawal at book value
(minimal or no charges or adjustments) ............. 210,270 4 201,457 5
Not subject to discretionary withdrawal provision .... 15,681 1 16,572 1
---------- --- ---------- ---
5,411,730 100% 3,915,472 100%
=== ===
Less reinsurance ceded ............................... 1,131 --
---------- ----------
Total policy reserves on annuities and deposit fund
liabilities ........................................ $5,410,599 $3,915,472
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of operations of the
separate accounts statement:
Transfers to separate accounts ............................. $1,240,858 $1,164,013 $ 997,513
Transfers from separate accounts ........................... 847,507 646,477 339,523
---------- ---------- ----------
Net transfers to separate accounts .......................... 393,351 517,536 657,990
Reconciling adjustments -- change in accruals for
investment management, administration fees and
contract guarantees, and separate account surplus ......... 9,267 1,678 (205,519)
---------- ---------- ----------
Transfers as reported in the summary of operations of the
life, accident and health annual statement ................ $ 402,618 $ 519,214 $ 452,471
========== ========== ==========
</TABLE>
137
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
Reserves on the Company's traditional life products are computed using
mean reserving methodologies. These methodologies result in the establishment
of assets for the amount of the net valuation premiums that are anticipated to
be received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- --------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1998
Ordinary direct renewal business ............ $1,101 $201 $ 900
------ ---- ------
$1,101 $201 $ 900
====== ==== ======
DECEMBER 31, 1997
Ordinary direct first year business ......... $ 2 $ 1 $ 1
Ordinary direct renewal business ............ 1,350 140 1,210
Group life direct business .................. 717 -- 717
------ ---- ------
$2,069 $141 $1,928
====== ==== ======
</TABLE>
In 1994, the NAIC enacted a guideline to clarify reserving methodologies
for contracts that require immediate payment of claims upon proof of death of
the insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $2,132,
$1,872 and $2,995 was made for the years ended December 31, 1998, 1997 and
1996, respectively, related to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Ohio, on
the payment of dividends to its parent company. Generally, dividends during any
twelve month period may not be paid; without prior regulatory approval, in
excess of the lesser of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to the availability of unassigned surplus at the time
of such dividend, the maximum payment which may be made in 1999, without the
prior approval of insurance regulatory authorities, is $14,657.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored
by AEGON. The Company has no legal obligation for the plan. The Company
recognizes pension expense equal to its allocation from AEGON. The pension
expense is allocated among the participating companies based on the FASB
Statement No. 87 expense as a percent of salaries. The benefits are based on
years of service and the employee's
138
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
compensation during the highest five consecutive years of employment. Pension
expense aggregated $917, $659 and $581 for the years ended December 31, 1998,
1997 and 1996, respectively. The plan is subject to the reporting and
disclosure requirements of the Employee Retirement and Income Security Act of
1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k) of
the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Pension expense related to this plan was $632, $448 and
$184 for the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under
the Internal Revenue Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON
also sponsors an employee stock option plan for individuals employed at least
three years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
for or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $157, $99 and $98 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996,
139
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
the Company paid $12,763, $10,040 and $10,038, respectively, for such services,
which approximates their costs to the affiliates. The Company provides office
space, marketing and administrative services to certain affiliates. During
1998, 1997 and 1996, the Company received $5,125, $4,395 and $3,271,
respectively, for such services, which approximates their cost. The Company had
a net payable with affiliates of $33,449 and $1,925 at December 31, 1998 and
1997, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 4.74% at December 31, 1998. During 1998,
1997 and 1996, the Company paid net interest of $1,090, $364 and $138,
respectively, to affiliates.
The Company received capital contributions of $32,092 and $20,000 from its
parent in 1998 and 1997, respectively.
At December 31, 1998 and 1997, the Company had short-term note payables to
an affiliate of $44,200 and $8,200, respectively. Interest on these notes
ranged from 5.13% to 5.54% at December 31, 1998 and was 5.60% at December 31.
1997.
During 1998, the Company purchased life insurance policies covering the
lives of certain employees of the Company. Premiums of $43,500 were paid to an
affiliate for these policies. At December 31, 1998, the cash surrender value of
these policies is $45,445.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Association. Potential future obligations for
unknown insolvencies are not determinable by the Company. The Company has
established a reserve of $3,489 and $4,007 and an offsetting premium tax
benefit of $828 and $1,070 at December 31, 1998 and 1997, respectively, for its
estimated share of future guaranty fund assessments related to several major
insurer insolvencies. The guaranty fund expense (credit) was $(74), $0 and $212
at December 31, 1998, 1997 and 1996, respectively.
140
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)
The term Year 2000 Issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address
the Year 2000 issue as it affects the Company's internal IT and non-IT systems,
and to assess Year 2000 issues relating to third parties with whom the Company
has critical relationships.
The Plan for addressing internal systems generally includes an assessment
of internal IT and non-IT systems and equipment affected by the Year 2000
issue; definition of strategies to address affected systems and equipment;
remediation of identified systems and equipment; internal testing and
certification that each internal system is Year 2000 compliant; and a review of
existing and revised business resumption and contingency plans to address
potential Year 2000 issues. The Company has remediated and tested substantially
all of its mission-critical internal IT systems as of December 31, 1998. The
Company continues to remediate and test certain non-critical internal IT
systems, internal non-IT systems and will continue with a revalidation testing
program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers around
cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance
cannot currently be predicted with accuracy because the implementation of Year
2000 readiness will vary from one company to another.
The Company does have some exposure to date sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other
141
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
industries that may be equipment intensive, like manufacturing, the Company is
a life insurance and financial services organization providing insurance,
annuities and pension products to its customers. As such, the primary equipment
and electronic devices in use are computers and telephone related equipment.
This type of hardware can have date sensitive embedded technology which could
have Year 2000 problems. Because of this exposure, the Company has reviewed its
computer hardware and telephone systems, with assistance from the applicable
vendors, and has upgraded, or replaced, or is in the process of replacing any
equipment that will not properly process date sensitive data in the Year 2000
or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could experience
an interruption in the ability to collect and process premiums or deposits,
process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and or perform adequate customer
service. Should the worst case scenario occur, it could, dependent upon its
duration, have a material impact on the Company's business and financial
condition. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period could have a more serious impact. For this reason,
the Company is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should be noted that the Year
2000 computer problem, and its resolution, is complex and multifaceted, and any
company's success cannot be conclusively known until the Year 2000 is reached.
In spite of its efforts or results, the Company's ability to function
unaffected to and through the Year 2000 may be adversely affected by actions
(or failure to act) of third parties beyond our knowledge or control. It is
anticipated that there may be problems that will have to be resolved in the
ordinary course of business on and after the Year 2000. However, the Company
does not believe that the problems will have a material adverse affect on the
Company's operations or financial condition.
142
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as
reported in the Annual Statement filed with the Insurance Department of the
State of Ohio, to the amounts reported in the accompanying financial
statements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1998
-------------- ------------------
TOTAL CAPITAL
AND SURPLUS NET INCOME/(LOSS)
-------------- ------------------
<S> <C> <C>
Amounts reported in Annual Statement ............. $148,038 $ 528
Adjustment to federal income tax benefit ......... (4,458) (4,458)
-------- --------
Amounts reported herein .......................... $143,580 $ (3,930)
======== ========
</TABLE>
143
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------ ------------ ----------- ----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities ................................ $ 19,899 $ 20,673 $ 19,899
States, municipalities and political subdivisions ......... 6,676 6,930 6,676
Public utilities .......................................... 18,792 19,359 18,792
All other corporate bonds ................................. 139,330 145,594 139,330
--------- -------- ---------
Total fixed maturities ..................................... 184,697 192,556 184,697
EQUITY SECURITIES
Common stocks:
Affiliated entities ....................................... 243 704
Industrial, miscellaneous and all other ................... 302 384
--------- ---------
Total equity securities .................................... 545 1,088
Mortgage loans on real estate .............................. 9,916 9,916
Real estate ................................................ 34,583 34,583
Policy loans ............................................... 112,982 112,982
Other invested assets ...................................... 396 396
Cash and short-term investments ............................ 73,808 73,808
Investment properties ...................................... 11,594 11,594
--------- ---------
Total investments .......................................... $ 429,655 $ 429,064
========= =========
</TABLE>
- ----------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accruals of discounts.
144
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
BENEFITS,
CLAIMS,
FUTURE POLICY POLICY AND NET LOSSES AND OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
--------------- ------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Individual life ................ $ 221,050 $ 8,624 $ 474,120 $ 9,884 $ 122,542 $ 230,368
Group life ..................... 10,546 100 1,933 723 1,962 2,281
Annuity ........................ 265,418 509 794,841 25,708 545,532 91,505
--------- -------- ----------- -------- --------- ---------
$ 497,014 $ 9,233 $ 1,270,894 $ 36,315 $ 670,036 $ 324,154
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1997
Individual life ................ $ 177,088 $ 9,533 $ 390,452 $ 13,742 $ 88,738 $ 176,303
Group life ..................... 9,435 805 3,918 810 3,986 3,292
Annuity ........................ 296,290 591 822,149 25,461 389,726 83,179
--------- -------- ----------- -------- --------- ---------
$ 482,813 $ 10,929 $ 1,216,519 $ 40,013 $ 482,450 $ 262,774
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1996
Individual life ................ $ 145,964 $ 7,017 $ 289,375 $ 8,228 $ 125,861 $ 124,181
Group life and health .......... 9,202 713 4,215 3,940 3,828 2,818
Annuity ........................ 332,230 854 740,125 23,899 294,681 71,576
--------- -------- ----------- -------- --------- ---------
$ 487,396 $ 8,584 $ 1,033,715 $ 36,067 $ 424,370 $ 198,575
========= ======== =========== ======== ========= =========
</TABLE>
- ----------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
145
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
--------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force ........ $ 51,064,173 $ 9,862,460 $ -- $ 41,201,713 0.0%
============ =========== =========== ============ ===
Premiums:
Individual life ............... $ 493,633 $ 19,512 $ -- $ 474,121 0.0%
Group life and health ......... 1,691 220 461 1,932 23.8
Annuity ....................... 850,428 55,587 -- 794,841 0.0
------------ ----------- ----------- ------------ ----
$ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03%
============ =========== =========== ============ ====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ........ $ 40,221,361 $ 6,776,447 $ 2,692,822 $ 36,137,736 7.5%
============ =========== =========== ============ ====
Premiums:
Individual life ............... $ 395,361 $ 4,910 $ -- $ 390,452 0.0%
Group life and health ......... 1,761 231 2389 3,918 61.0
Annuity ....................... 822,149 -- -- 822,149 0.0
------------ ----------- ----------- ------------ ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
============ =========== =========== ============ ====
YEAR ENDED DECEMBER 31, 1996
Life insurance in force ........ $ 28,168,880 $ 4,463,986 $ 2,210,601 $ 25,915,495 8.5%
============ =========== =========== ============ ====
Premiums:
Individual life ............... $ 292,239 $ 2,863 $ -- $ 289,376 0.0%
Group life and health ......... 2,393 242 2,063 4,214 49.0
Annuity ....................... 740,125 -- -- 740,125 0.0
------------ ----------- ----------- ------------ ----
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
============ =========== =========== ============ ====
</TABLE>
146
