As filed with the Securities and Exchange Commission on April 22, 1999
Registration File Nos. 33-69138/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 12
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
570 Carillon Parkway
St. Petersburg, Florida 33716
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Vice President, Assistant Secretary and Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
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Title of Securities being registered: Units of interest in the separate account
under flexible payment deferred variable life policies.
It is proposed that this filing will become effective (check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on MAY 1, 1999, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on , pursuant to paragraph (a) of Rule 485
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<PAGE>
P R O S P E C T U S
MAY 1, 1999
WRL FREEDOM WEALTH PROTECTOR/registered trademark/
issued through
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
A JOINT SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 8
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
THE SECURITIES AND EXCHANGE government agency.
COMMISSION HAS NOT APPROVED
OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ADEQUACY The prospectus for the WRL
OF THISPROSPECTUS. ANY Series Fund, Inc. must
REPRESENTATION TO THE CONTRARY accompany this prospectus.
IS A CRIMINAL OFFENSE. Certain portfolios may not be
available in all states. Please
read this document before
investing and save it for
future reference.
<PAGE>
TABLE OF CONTENTS
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Glossary ....................................................... 1
Policy Summary ................................................. 4
Risk Summary ................................................... 8
Portfolio Annual Expense Table ................................. 11
Western Reserve and the Fixed Account .......................... 12
Western Reserve ............................................ 12
The Fixed Account .......................................... 12
The Separate Account and the Portfolios ........................ 13
The Separate Account ....................................... 13
The Fund ................................................... 13
Addition, Deletion, or Substitution of Investments ......... 16
Your Right to Vote Portfolio Shares ........................ 17
The Policy ..................................................... 18
Purchasing a Policy ........................................ 18
Underwriting Standards ..................................... 18
When Insurance Coverage Takes Effect ....................... 19
Ownership Rights ........................................... 20
Policy Split Option ........................................ 22
Canceling a Policy ......................................... 23
Premiums ....................................................... 23
Premium Flexibility ........................................ 23
Planned Periodic Payments .................................. 23
No Lapse Period ............................................ 23
Premium Limitations ........................................ 24
Making Premium Payments .................................... 24
Allocating Premiums ........................................ 25
Policy Values .................................................. 26
Cash Value ................................................. 26
Net Surrender Value ........................................ 26
Subaccount Value ........................................... 26
Subaccount Unit Value ...................................... 27
Fixed Account Value ........................................ 27
Transfers ...................................................... 28
General .................................................... 28
Fixed Account Transfers .................................... 29
Conversion Rights .......................................... 29
Dollar Cost Averaging ...................................... 29
Asset Rebalancing Program .................................. 30
Third Party Asset Allocation Services ...................... 31
Charges and Deductions ......................................... 32
Premium Charge ............................................. 32
Monthly Deduction .......................................... 32
Mortality and Expense Risk Charge .......................... 34
Surrender Charge ........................................... 34
This Policy is not available in the State of New York.
i
<PAGE>
Transfer Charge .......................................... 37
Cash Withdrawal Charge ................................... 38
Taxes .................................................... 38
Portfolio Expenses ....................................... 38
Group or Sponsored Policies .............................. 38
Associate Policies ....................................... 39
Death Benefit ................................................ 39
Death Benefit Proceeds ................................... 39
Death Benefit ............................................ 40
Effects of Cash Withdrawals on the Death Benefit ......... 41
Choosing Death Benefit Options ........................... 41
Changing the Death Benefit Option ........................ 41
Decreasing the Specified Amount .......................... 42
Payment Options .......................................... 42
Surrenders and Cash Withdrawals .............................. 42
Surrenders ............................................... 42
Cash Withdrawals ......................................... 43
Loans ........................................................ 44
General .................................................. 44
Interest Rate Charged .................................... 45
Loan Reserve Interest Rate Credited ...................... 45
Effect of Policy Loans ................................... 45
Policy Lapse and Reinstatement ............................... 46
Lapse .................................................... 46
No Lapse Period .......................................... 46
Reinstatement ............................................ 47
Federal Income Tax Considerations ............................ 47
Tax Status of the Policy ................................. 48
Tax Treatment of Policy Benefits ......................... 48
Other Policy Information ..................................... 51
Our Right to Contest the Policy .......................... 51
Suicide Exclusion ........................................ 51
Misstatement of Age or Gender ............................ 51
Modifying the Policy ..................................... 51
Benefits at Maturity ..................................... 51
Payments We Make ......................................... 52
Settlement Options ....................................... 52
Reports to Owners ........................................ 53
Records .................................................. 54
Policy Termination ....................................... 54
Supplemental Benefits (Riders) ............................... 54
Joint Insurance Term Rider ............................... 54
Individual Insured Rider ................................. 54
Wealth Protector Rider ................................... 54
Terminal Illness Accelerated Death Benefit Rider ......... 55
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<PAGE>
IMSA ..................................................................... 56
Performance Data ......................................................... 56
Rates of Return ...................................................... 56
Hypothetical Illustrations Based on Subaccount Performance ........... 57
Other Performance Data in Advertising Sales Literature ............... 66
Western Reserve's Published Ratings .................................. 66
Additional Information ................................................... 67
Sale of the Policies ................................................. 67
Legal Matters ........................................................ 67
Legal Proceedings .................................................... 67
Variations in Policy Provisions ...................................... 67
Year 2000 Readiness Disclosure ....................................... 68
Experts .............................................................. 68
Financial Statements ................................................. 69
Additional Information about Western Reserve ......................... 69
Western Reserve's Directors and Officers ............................. 70
Additional Information about the Separate Account .................... 72
Appendix A -- Illustrations .............................................. 73
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 77
Index to Financial Statements ............................................ 79
WRL Series Life Account .............................................. 80
Western Reserve Life Assurance Co. of Ohio ........................... 99
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<PAGE>
GLOSSARY
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<TABLE>
<S> <C>
accounts The options to which you can allocate your money. The accounts include the
fixed account and the subaccounts in the separate account.
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attained age The issue age of each joint insured, plus the number of completed years since
the Policy date.
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attained target The average age of the joint insureds on the Policy date, not to exceed the
premium age younger joint insured's age plus ten years, plus the number of completed
Policy 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 can name a 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. If
there is a Policy loan outstanding, the cash value includes any amounts held
in our fixed account to secure the Policy loan.
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death benefit The amount we will pay to the beneficiary on the surviving insured's death.
proceeds We will reduce the death benefit proceeds by the amount of any outstanding
loan amount and any due and unpaid monthly deduction. We will increase the
death benefit proceeds by any interest you paid in advance on the loan for the
period between the date of death and the next Policy anniversary.
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fixed account An option to which you may allocate premiums and cash value. We guarantee
that any amounts you allocate to the fixed account will earn interest at a
declared rate. New Jersey residents: the fixed account is NOT available to you.
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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 which is registered with
the U.S. Securities and Exchange Commission, and other registered invest-
ment companies that may be added to the Policy.
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guideline The level annual premium payment you must pay so that we can provide the
premium benefits you selected through the maturity date. The amount of the payment is
based on particular facts relating to the insured and certain assumptions
allowed by law. The guideline premium is shown on your Policy schedule
page.
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in force While coverage under the Policy is active and both insureds' lives 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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issue age Each joint insured's age on his or her birthday nearest to the Policy date.
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joint insureds The persons whose lives are insured by this Policy.
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</TABLE>
1
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<TABLE>
<S> <C>
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, and you have not made a sufficient payment by
the end of a grace period.
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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 fixed account to which amounts are transferred as collateral for
Policy loans.
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maturity date The Policy anniversary nearest the younger joint insured's 100th birthday, if
either joint insured is living and the Policy is still in force. It is the date when
life insurance coverage under this Policy ends.
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minimum The amount shown on your Policy schedule page that we use during the no
monthly lapse period to determine whether a grace period will begin. We make this
guarantee determination whenever your net surrender value is not enough to meet
premium monthly deductions.
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monthly This is the day of each month when we determine Policy charges and deduct
anniversary or them from cash value. It is the same date each month as the Policy date. If
Monthiversary there is no valuation date in the calendar month that coincides with the Policy
date in a calendar month, the Monthiversary is the next valuation date.
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net premium The part of your premium that we allocate to the fixed account or the
subaccounts. The net premium is equal to the premium you paid minus the
premium expense charge.
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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, minus any outstanding loan amount, plus any
interest you paid in advance on the loan for the period between the date of
surrender and the next Policy anniversary.
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no lapse date Either (1) the later of attained target premium age 65 or five Policy years, or
(2) the later of attained target premium age 75 or ten Policy years. You select
the no lapse date on the Policy application.
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no lapse period The period of time between the Policy date and the no lapse date during
which the Policy will not lapse if certain conditions are met.
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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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planned periodic A premium payment you make in a level amount at a fixed interval over a
premium specified period of time.
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</TABLE>
2
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<TABLE>
<S> <C>
Policy date The date when our underwriting process is complete, full life insurance
coverage goes into effect, we begin to make the monthly deductions, and your
initial premium is allocated to the WRL J.P. Morgan Money Market
subaccount. The Policy date is shown on the schedule page of your Policy.
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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record date The date we record your Policy on our books as an in force Policy, and we
allocate your cash value from the WRL J.P. Morgan Money Market
subaccount to the accounts that you elected on your application.
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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 net premiums under the Policy and other variable life insurance
policies we issue.
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specified amount The minimum death benefit we will pay under the Policy provided the Policy
is in force. It is the amount shown on the Policy's schedule page, unless you
decrease the specified amount. In addition, we will reduce the specified
amount by the dollar amount of any cash withdrawal if you choose the
Option A death benefit.
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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 15 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 either of the joint insured's lives 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 whenever the New York Stock Exchange is open.
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valuation period The period beginning at the close of business of the New York Stock
Exchange on one valuation date and continuing to the close of business 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 either or both joint insureds are living. If two owners are
policyowner(s)) 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>
3
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POLICY SUMMARY WRL FREEDOM WEALTH PROTECTOR/registered trademark/
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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 Wealth Protector/registered trademark/ is a joint
survivorship flexible premium variable life insurance policy. The 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 you. However, purchasing this Policy
involves certain risks. (See Risk Summary p. 8.) 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
<TABLE>
<S> <C>
/bullet/ You select a payment plan but are not required to pay premiums
according to the plan. You can vary the frequency and amount, within
limits, and can skip premium payments.
/bullet/ Unplanned premiums may be made, within limits.
/bullet/ Premium payments must be at least $100 per month.
/bullet/ Under certain circumstances, extra premiums may be required to
prevent lapse.
/bullet/ Once we issue your Policy, the FREE LOOK PERIOD begins. You may
return the Policy during this period and receive a refund.
</TABLE>
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR FIXED ACCOUNT
<TABLE>
<S> <C>
/bullet/ For the first ten Policy years: 6.0% premium expense charge.
/bullet/ After the tenth year: 2.5% premium expense charge.
</TABLE>
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
4
<PAGE>
DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO.
YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
The portfolios available to you are:
<TABLE>
<S> <C>
- WRL Alger Aggressive Growth - WRL Dean Asset Allocation
- WRL VKAM Emerging Growth - WRL GE U.S. Equity
- WRL Janus Growth - WRL Third Avenue Value
- WRL Janus Global - WRL AEGON Balanced
- WRL AEGON Bond - WRL NWQ Value Equity
- WRL LKCM Strategic Total Return - WRL C.A.S.E. Growth
- WRL Federated Growth & Income - WRL GE/Scottish Equitable
- WRL J.P. Morgan Money Market International Equity
</TABLE>
FIXED ACCOUNT. You may also direct the money in your Policy to the fixed
account. Money you place in the fixed account is guaranteed, and will earn
interest at a current interest rate declared from time to time. The annual
interest rate will equal at least 4.0%.
CASH VALUE
<TABLE>
<S> <C>
/bullet/ Cash value equals the sum of your Policy's value in the subaccounts
and the fixed account. If there is a loan outstanding, the cash value
includes any amounts held in our general account to secure the Policy
loan.
/bullet/ Cash value varies from day to day, depending on the investment
experience of the subaccounts you choose, the interest credited to
the fixed account, the charges deducted and any other Policy
transactions (such as additional premium payments, transfers,
withdrawals, and Policy loans).
/bullet/ Cash value is the starting point for calculating important values
under the Policy, such as net surrender value and the death benefit.
/bullet/ 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 deductions, the surrender charge and/or any outstanding loan
amount (including interest you owe on any Policy loan(s)).
/bullet/ The Policy will not lapse during the no lapse period so long as you
have paid sufficient premiums.
</TABLE>
TRANSFERS
<TABLE>
<S> <C>
/bullet/ You can transfer cash value among the subaccounts and the fixed
account. We charge a $10 transfer processing fee for each transfer
after the first 12 transfers in a Policy year.
/bullet/ You may make transfers by telephone or by fax.
/bullet/ Policy loans reduce the amount of cash value available for transfers.
/bullet/ Dollar cost averaging and asset rebalancing programs are available.
/bullet/ We must receive your request to transfer from the fixed account
within 30 days after a Policy anniversary unless you select dollar
cost averaging from the fixed account. The amount of your transfer
cannot be more than:
/arrow/ 25% of your value in the fixed account; OR
/arrow/ the amount you transferred from the fixed account in the
0prior Policy year.
</TABLE>
5
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CHARGES AND DEDUCTIONS
<TABLE>
<S> <C>
/bullet/ Premium expense charge: We deduct 6.0% from each premium payment
during the first ten Policy years. After the tenth year we reduce the
charge to 2.5%.
/bullet/ Monthly Policy charge: We deduct $5.00 from your cash value each
month. We may increase this charge but we guarantee that it will not
exceed $10.00.
/bullet/ Monthly death benefit guarantee charge: We deduct this charge from
your cash value each month. The amount of this charge is shown on the
schedule page of your Policy and will be $0.04 for each $1,000 of
your initial specified amount. We will deduct this charge only until
the no lapse date you chose on the application.
/bullet/ Cost of insurance charges: Deducted monthly from your cash value.
Your charges vary each month with each joint insured's age, the
specified amount, the death benefit option you choose, and the
investment experience of the portfolios in which you invest.
/bullet/ Mortality and expense risk charge: Deducted daily from each
subaccount at an annual rate of 0.90% of your average daily net
assets of each subaccount.
/bullet/ Surrender charge: Deducted when a full surrender occurs during the
first 15 Policy years. One portion is a deferred issue charge equal
to $5.00 per thousand of initial specified amount. The other is
calculated by multiplying total premiums paid up to the guideline
premium by 26.5%, and any premium paid above the guideline premium by
smaller percentages that vary by issue age and gender. See Charges
and Deductions -- Surrender Charge, p. 34. We reduce the total
surrender charges at the rate of 20% per year beginning in Policy
year 11, until they reach zero at the end of the 15th Policy year.
This charge may be significant. You may have no net surrender value
if you surrender your Policy in the first few Policy years.
/bullet/ Transfer fee: We deduct $10 for each transfer in excess of 12 per
Policy year.
/bullet/ Rider charges: We deduct charges each month for optional insurance
benefits (riders).
/bullet/ Cash withdrawal fee: We deduct a processing fee for cash withdrawals
equal to the lesser of $25 or 2% of the withdrawal.
/bullet/ Portfolio expenses: The portfolios deduct investment charges from the
amounts you have invested in the portfolios. These charges range from
0.40% to 1.50% annually, depending on the portfolio. See Portfolio
Annual Expense Table p. 11. See also the fund prospectus.
</TABLE>
LOANS
<TABLE>
<S> <C>
/bullet/ After the first Policy year (as long as your Policy is in force), you
may take a loan against the Policy up to 90% of the cash value, less
any surrender charge and any already outstanding loan amount.
/bullet/ The minimum loan amount is generally $500.
/bullet/ You may request a loan either by calling us or by writing or faxing
us written instructions.
/bullet/ We currently charge 5.2% interest annually. You will be charged the
interest in advance each year on any outstanding loan amount.
/bullet/ To secure the loan, we transfer a portion of your cash value to a
loan reserve account. The amount we transfer is equal to the loan
plus interest in advance until the next Policy anniversary. The loan
reserve account is part of the fixed account. You will earn at least
4.0% interest on amounts in the loan reserve account.
/bullet/ Federal income taxes and a penalty tax may apply to loans you take
against the Policy.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
/bullet/ There are risks involved in taking a Policy loan. See Risk Summary p.
8.
</TABLE>
DEATH BENEFIT
<TABLE>
<S> <C>
/bullet/ You must choose one of two death benefit options. We offer the
following:
/bullet/ Option A is the greater of:
/arrow/ the current specified amount, or
/arrow/ a specified percentage, multiplied by the Policy's cash
value on the date of the surviving insured's death.
/bullet/ Option B is the greater of:
/arrow/ the current specified amount, plus the Policy's cash
value on the date of the surviving insured's death, or
/arrow/ a specified percentage, multiplied by the Policy's cash
value on the date of the surviving insured's death.
/bullet/ So long as the Policy does not lapse, the minimum death benefit we
pay under any option will be the current specified amount.
/bullet/ The minimum specified amount for a Policy is $100,000. We will state
the minimum specified amount in your Policy. You cannot decrease the
specified amount below this minimum.
/bullet/ We will reduce the death benefit proceeds by the amount of any
outstanding Policy loan, and any due and unpaid charges.
/bullet/ We will increase the death benefit proceeds by any additional
insurance benefits you add by rider, and any interest you paid in
advance on any loan for the period between the date of death and the
next Policy anniversary.
/bullet/ After the third Policy year, you may change the death benefit option
or decrease the specified amount (but not both) once each Policy
year.
/bullet/ The death benefit should be income tax free to the beneficiary.
/bullet/ The death benefit is available in a lump sum or a variety of payout
options.
</TABLE>
CASH WITHDRAWALS AND SURRENDERS
<TABLE>
<S> <C>
/bullet/ You can take one withdrawal of cash value every 12 months after the
first Policy year.
/bullet/ The amount of the withdrawal must be:
/bullet/ No less than $500; and
/bullet/ No more than 10% of the net surrender value.
/bullet/ We will deduct a processing fee equal to $25 or 2% of the amount you
withdraw (whichever is less) from the withdrawal, and we will pay you
the balance.
/bullet/ There is no surrender charge assessed when you take a cash
withdrawal.
/bullet/ A cash withdrawal will reduce the death benefit by at least the
amount of the withdrawal.
/bullet/ If you choose death benefit Option A, we will reduce the current
specified amount by the dollar amount of the withdrawal.
/bullet/ Federal income taxes and a penalty tax may apply to cash withdrawals
and surrenders.
/bullet/ You may fully surrender the Policy at any time before the insured's
death or the maturity date. You will receive the net surrender value.
The surrender charge will apply during the first 15 Policy years.
</TABLE>
7
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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,
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 4.0%. Because charges continue to be deducted from
cash value, if withdrawals, loans and monthly deduc- tions
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, and/or you stop
making premium payments or you make payments near or below
the minimum requirements, the net surrender value of your
Policy may fall to zero. In that case, if the no lapse
period has expired or is no longer 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 time, you may be able to draw upon cash value,
through withdrawals and Policy loans.
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RISK OF LAPSE Certain circumstances will cause your Policy to enter a
60-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
surrender charge and minus outstanding loan amounts) is too
low to pay the monthly deductions, any loan charges and any
rider fees when due, and if the no lapse period has expired
or is no longer in effect, the Policy will be in default and
a grace period will begin. There is a 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, and/or you stop making
premium payments or you make payments near or below the
minimum requirements, the net surrender value of your Policy
may 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.
Your Policy contains a no lapse period. Your Policy will not
lapse before the no lapse date stated in your Policy, as
long as you pay enough premiums. If you do not pay enough
premiums, you will automatically lose the no lapse guarantee
and you will increase the risk that your Policy will lapse.
In addition, if you take a withdrawal or Policy loan, you
will increase the risk of losing the no lapse guarantee.
We deduct the total amount of your withdrawals and any
outstanding loans from your premiums paid when we determine
whether your premiums are high enough to keep the no lapse
period in effect.
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You will lessen the risk of Policy lapse if you keep the no
lapse period in effect. Before you take a cash withdrawal
or loan or add a rider, you should consider carefully the
effect it will have on the no lapse guarantee. You may
reinstate this Policy within five years after it has lapsed
if the joint insureds meet the insurability requirements and
you pay the amount we require.
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TAX RISKS We expect that the Policy will be deemed a life insurance
(INCOME TAX contract under federal tax law, so that the death benefit
AND MEC) paid to the beneficiary will not be subject to federal
income tax. However, depending on the total amount of
premiums you pay, the Policy may be treated as a modified
endowment contract ("MEC") under federal tax laws. If a
Policy is treated as a MEC, partial withdrawals, surrenders
and loans will be taxable as ordinary income to the extent
there are earnings in the Policy. In addition, a 10% penalty
tax may be imposed on partial withdrawals, surrenders and
loans taken before you reach age 591/2. If a Policy 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 involv- ing
your Policy.
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LIMITS ON CASH The Policy permits you to take only one partial withdrawal
WITHDRAWALS in any 12-month period, after the first Policy year has been
completed. The amount you may withdraw is limited to 10% of
the net surrender value. A cash withdrawal will reduce cash
value, so it will increase the risk that the Policy will
lapse. A cash withdrawal may also increase the risk that the
no lapse period will end.
A cash withdrawal will reduce the death benefit. If you
select death benefit Option A, a cash withdrawal will
permanently reduce the specified amount of the Policy.
A cash withdrawal also reduces the death benefit
under Option B because the cash value is reduced. In some
circumstances, a withdrawal may reduce the death benefit by
more than the dollar amount of the withdrawal.
Federal income taxes and a penalty tax 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 the fixed account and place that
amount in the loan reserve as collateral. We then credit a
fixed interest rate of not less than 4.0% to the loan
collateral. We currently credit interest at 4.75% annually,
but we are not obligated to do so in the future. As a
result, the loan collateral does not participate in the
investment results of the subaccounts and may not continue
to receive the current interest rates credited. The longer
the loan is outstanding, the greater the effect is likely to
be. Depending on the investment results of the subaccounts
and the
9
<PAGE>
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 5.2% to
be paid in advance. 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 and net surrender value
by the amount of the outstanding loan.
A Policy loan could make it more likely that a Policy would
lapse. A Policy loan will increase the risk that the no
lapse period will end. There is also a risk if the loan
reduces your net surrender value to too low an amount and
investment experience is unfavorable, and the no lapse
period is no longer in effect, and insufficient premiums are
paid, that the Policy will lapse.
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EFFECTS OF The surrender charge under this Policy is significant,
SURRENDER especially in the early Policy years. It is likely that you
CHARGE will receive no net surrender value if you surrender your
Policy in the first few Policy 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 when the no lapse period ends to
determine whether your Policy will remain in force or will
lapse.
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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 premiums
in investment subaccounts. The amount and duration of life
insur- ance 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 values will always vary with the investment
results 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 or used in
connection with the purchase of a Policy 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. There is
the risk 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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10
<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 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%
</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 detail.
(2) WRL Janus Growth's management fee was 0.80% of the average daily net assets
for the period prior to May 1, 1998, 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.
(3) As compensation for its services to the portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the
average daily net assets of each portfolio. The management fees for WRL
Janus Global are 0.80% up to $2 billion and 0.775% over $2 billion.
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 Investment Management, Inc. ("WRL Management"), the investment adviser
of the fund, has undertaken, until at least April 30, 2000, to pay fund
expenses on behalf of the portfolios to the extent normal 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 AEGON Balanced, WRL NWQ Value
11
<PAGE>
Equity and WRL C.A.S.E. Growth, 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 of WRL GE U.S.
Equity. In 1998, WRL Management reimbursed WRL GE/Scottish Equitable
International Equity in the amount of $127,763 and WRL Third Avenue Value in
the amount of $14,229. Without such reimbursement, the total fund expenses
during 1998 for WRL GE/Scottish Equitable International Equity and WRL Third
Avenue Value would have been 1.96% and 1.13%, 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 under the Policy. Western
Reserve intends to sell this Policy in all states (except New York), in Puerto
Rico, Guam and the District of Columbia.
THE FIXED ACCOUNT
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 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 allocated to the
fixed account will be credited interest daily at a net effective interest rate
of at least 4.0%. 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.
Money you place in the fixed account will earn interest compounded daily
at a current interest rate in effect at the time of your allocation. 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. When we declare a higher current interest rate
on amounts allocated to the fixed account, we guarantee the higher rate on
those amounts for at least one year (the "guarantee period") unless those
amounts are transferred to the loan reserve. At the end of the guarantee period
we may declare a new current interest rate on those amounts and any accrued
interest thereon. We will guarantee this new current interest rate for another
guarantee period. We credit interest greater than 4.0% during any guarantee
period at our sole discretion. You bear the risk that interest we credit will
not exceed 4.0%.
We allocate amounts from the fixed account for cash withdrawals, transfers
to the subaccounts, or monthly deduction charges on a last in, first out basis
("LIFO") for the purpose of crediting interest.
12
<PAGE>
New Jersey residents: The fixed account is NOT available to you. You may
not direct or transfer any premiums or cash value to the fixed account. The
fixed account is used solely for Policy loans.
THE FIXED ACCOUNT HAS 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.
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, 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 FUND
The separate account invests in shares of the fund, a series mutual fund
that is registered with the SEC as an open-ended management investment company.
Such registration does not involve supervision of the management or investment
practices or policies of the fund 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 AEGON
Balanced, WRL NWQ
13
<PAGE>
Value Equity, WRL C.A.S.E. Growth and WRL GE/Scottish Equitable International
Equity. 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 prospectus for the fund. You should read the fund
prospectus carefully.
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ------------------ ----------------------- -----------------------------------
<S> <C> <C> <C> <C>
WRL ALGER /arrow/ Fred Alger /arrow/ Seeks long-term capital apprecia-
AGGRESSIVE Management, Inc. tion.
GROWTH (FORMERLY
AGGRESSIVE
GROWTH)
WRL VKAM /arrow/ Van Kampen /arrow/ Seeks capital appreciation by
EMERGING Asset Management Inc. investing primarily in common
GROWTH (FORMERLY stocks of small and medium-sized
EMERGING GROWTH companies.
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks growth of capital.
GROWTH (FORMERLY Corporation
GROWTH)
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks long-term growth of capital
GLOBAL (FORMERLY Corporation in a manner consistent with the
GLOBAL) preservation of capital.
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks the highest possible current
BOND (FORMERLY Investment income within the confines of the
BOND) Management, Inc. primary goal of insuring the
protection of capital.
WRL LKCM /arrow/ Luther King Capital /arrow/ Seeks to provide current income,
STRATEGIC Management long-term growth of income and
TOTAL RETURN Corporation capital appreciation.
(FORMERLY
STRATEGIC TOTAL
RETURN)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ------------------- ------------------------ -----------------------------------
<S> <C> <C> <C> <C>
WRL FEDERATED /arrow/ Federated Investment /arrow/ Seeks total return by investing in
GROWTH & INCOME Counseling securities that have defensive
(FORMERLY GROWTH characteristics.
& INCOME)
WRL J.P. MORGAN /arrow/ J.P. Morgan Investment /arrow/ Seeks to obtain maximum current
MONEY MARKET Management Inc. income consistent with preserva-
(FORMERLY MONEY tion of principal and maintenance
MARKET) of liquidity.
WRL DEAN ASSET /arrow/ Dean Investment /arrow/ Seeks preservation of capital and
ALLOCATION Associates competitive investment returns.
(FORMERLY TACTICAL
ASSET ALLOCATION)
WRL GE U.S. /arrow/ GE Investment /arrow/ Seeks long-term growth of capital.
EQUITY Management
(FORMERLY Incorporated
U.S. EQUITY)
WRL THIRD /arrow/ EQSF Advisers, Inc. /arrow/ Seeks long-term capital apprecia-
AVENUE VALUE tion by investing primarily in a
(FORMERLY THIRD portfolio of equity securities of
AVENUE VALUE) well-financed companies believed
to be priced below their private
market values and debt securities
providing strong protective
covenants and high, effective
yields.
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks preservation of capital,
BALANCED Investment reduced volatility, and superior
(FORMERLY Management, Inc. long-term risk-adjusted returns.
BALANCED)
WRL NWQ VALUE /arrow/ NWQ Investment /arrow/ Seeks to achieve maximum,
EQUITY (FORMERLY Management consistent total return with
VALUE EQUITY) Company, Inc. minimum risk to principal.
WRL C.A.S.E. /arrow/ C.A.S.E. /arrow/ Seeks annual growth of capital
GROWTH (FORMERLY Management, Inc. through investment in companies
C.A.S.E. GROWTH) whose management, financial
resources and fundamentals appear
attractive on a scale measured
against each company's present
value.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ------------------ ---------------------- -----------------------------------
<S> <C> <C> <C> <C>
WRL GE/SCOTTISH /arrow/ Scottish Equitable /arrow/ Seeks long-term growth of capital.
EQUITABLE Investment Management
INTERNATIONAL Limited and GE
EQUITY (FORMERLY Investment Management
INTERNATIONAL Incorporated
EQUITY)
</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 fund are also sold to
other separate accounts that we (or our 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 fund
simultaneously. Neither we nor the fund 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 the fund's 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
16
<PAGE>
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 a specified investment objective.
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.
17
<PAGE>
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you 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
We determine the specified amount for a Policy based on the initial
premium paid and other characteristics of the proposed joint insureds, such as
age, gender and rate class. Joint insureds may be both male, both female or
male and female. Our current minimum specified amount for a Policy is generally
$100,000. We will generally only issue a Policy to joint insureds ages 1-85*
who provide sufficient evidence that they meet our insurability standards. The
younger joint insured cannot be older than age 80, and the sum of the joint
insureds' ages cannot be more than 160 years. Your application is subject to
our underwriting rules, and we may reject any application for any reason
permitted by law. We will not issue a Policy to you if the younger joint
insured is over age 80. The joint insureds must be insurable and acceptable to
us under our underwriting rules on the later of:
<TABLE>
<S> <C>
/bullet/ the date of your application; or
/bullet/ the date the joint insureds complete all of the medical tests and
examinations that we require.
</TABLE>
* Policies for joint insureds ages 1-19 are not available in all states.
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 each joint insured's rate
class. There is no rate discount for a preferred class. We first place each
joint insured into one of the following standard rate classes:
18
<PAGE>
<TABLE>
<S> <C>
/bullet/ select, non-tobacco use; and
/bullet/ standard, tobacco use.
</TABLE>
We then place the joint insureds into one of the following
non-sub-standard rate classes:
<TABLE>
<S> <C>
/bullet/ combination of two non-tobacco users;
/bullet/ combination of two tobacco users; and
/bullet/ combination of a tobacco user and a non-tobacco user.
</TABLE>
We also place joint insureds in various sub-standard rate classes, which
involve a higher mortality risk and higher charges. We generally charge higher
rates for insureds who use tobacco.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the
joint insureds are 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 full initial premium listed
in the conditional receipt attached to the application, and we deliver the
conditional receipt to you, the joint insureds will have conditional insurance
coverage under the terms of the conditional receipt. Conditional insurance
coverage is void if the check or draft you gave us to pay the initial premium
is not honored when we first present it for payment.
<TABLE>
<S> <C>
THE AMOUNT OF /bullet/ the specified amount applied for; or
CONDITIONAL INSURANCE /bullet/ $300,000 reduced by all amounts payable under all other
COVERAGE IS THE LESSER OF: life insurance or accidental death benefits that the insured has
in force or pending with us.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date of your application; or
COVERAGE BEGINS ON THE /bullet/ the date the joint insureds complete all of the medical tests
LATER OF: and examinations that we require.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date we determine the joint insureds have satisfied our
COVERAGE TERMINATES underwriting requirements (the Policy date); or
AUTOMATICALLY, AND /bullet/ 10 days following our offer of insurance, on any person
WITHOUT NOTICE, ON THE proposed, under a different plan or at an increased
EARLIEST OF: premium or different rate class; or
/bullet/ at the end of the fraction of a year which the payment
bears to the premium required to provide one month of
insurance in the amount as described above; or
/bullet/ 60 days from the beginning of conditional insurance
coverage.
</TABLE>
19
<PAGE>
Conditional life insurance coverage is void if the application contains any
material misrepresentation or is fraudulently completed. Benefits will also be
denied if any proposed joint insured commits suicide.
FULL INSURANCE COVERAGE AND ALLOCATION OF NET PREMIUMS. Once we determine
that the joint insureds meet our underwriting requirements, full insurance
coverage will begin and we will begin to make the monthly deductions from your
net premium. This date is the Policy date. On the Policy date, we will allocate
your initial net premium, minus monthly deductions, to the WRL J.P. Morgan
Money Market subaccount. On the record date, which is the date we record your
Policy on our books as an in force Policy, we will allocate your cash value
from the WRL J.P. Morgan Money Market subaccount to the accounts you elect on
your application.
On any day we credit net premiums or transfer cash value to a subaccount,
we will convert the dollar amount of the net 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. 26.
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. If the owner dies before the 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 /bullet/ Change the owner by providing written notice to us at any
OWNER time while the surviving insured is alive and the Policy is
in force.
/bullet/ Change is effective as of the date that the written notice is
signed.
/bullet/ Changing the owner does not automatically change the
beneficiary.
/bullet/ Changing the owner may have tax consequences. You
should consult a tax advisor before changing the owner.
/bullet/ We are not liable for payments we made before we
received the written notice.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
CHOOSING THE /bullet/ The owner designates the beneficiary (the person to
BENEFICIARY receive the death benefit when the surviving insured dies)
in the application.
/bullet/ If the owner designates more than one beneficiary, then
each beneficiary shares equally in any death benefit
proceeds unless the beneficiary designation states
otherwise.
/bullet/ If the beneficiary dies before the surviving insured, then
any contingent beneficiary becomes the surviving
beneficiary.
/bullet/ If both the beneficiary and contingent beneficiary die
before the surviving insured, then the death benefit will be
paid to the owner or the owner's estate upon the surviving
insured's death.
</TABLE>
<TABLE>
<S> <C>
CHANGING THE /bullet/ The owner changes the beneficiary by providing us with a
BENEFICIARY written notice.
/bullet/ Change is effective as of the date the owner signs the
written notice.
/bullet/ We are not liable for any payments we made before we
received the written notice.
</TABLE>
<TABLE>
<S> <C>
ASSIGNING THE /bullet/ The owner may assign Policy rights while either or both
POLICY joint insureds are alive.
/bullet/ The owner retains any ownership rights that are not
assigned.
/bullet/ 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.
/bullet/ Claims under any assignment are subject to proof of
interest and the extent of the assignment.
/bullet/ Assigning the Policy may have tax consequences. You
should consult a tax advisor before assigning the Policy.
/bullet/ We are not:
/arrow/ bound by any assignment unless we receive
a written notice of the assignment
/arrow/ responsible for the validity of any
assignment
/arrow/ liable for any payment we made before we
received written notice of the assignment
/arrow/ bound by any assignment which results in
adverse tax consequences to the owner,
joint insureds or beneficiary(ies).
</TABLE>
21
<PAGE>
POLICY SPLIT OPTION
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
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:
<TABLE>
<S> <C>
/bullet/ 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;
/bullet/ the date of entry of a final decree of divorce of the joint
insureds; or
/bullet/ written confirmation of a dissolution of a business partnership of
which the joint insureds were partners.*
</TABLE>
* The above conditions do not apply to Pennsylvania residents.
<TABLE>
<S> <C>
CONDITIONS FOR EXERCISING /bullet/ If more than one person owns the Policy, each owner must
SPLIT OPTION: agree to the split.
/bullet/ 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.
/bullet/ The new policies will be subject to our minimum and
maximum specified amounts and issue ages for the plan of
insurance you select.
/bullet/ 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. We will not deduct
the premium expense charges from the cash value allocated to the new policies.
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.
22
<PAGE>
CANCELING A POLICY
You may cancel a Policy for a refund 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 within seven days after we receive
the returned Policy. The amount of the refund will be:
<TABLE>
<S> <C>
/bullet/ any charges and taxes we deduct from your premiums; PLUS
/bullet/ any monthly deductions or other charges we deducted from amounts
you allocated to the subaccounts and the fixed account; PLUS
/bullet/ your cash value in the subaccounts and the fixed account on the
date we (or our agent) receive the returned Policy.
</TABLE>
Some states may require us to refund the premiums you paid.
PREMIUMS
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PREMIUM FLEXIBILITY
You generally have flexibility to determine the frequency and the amount
of the premiums you pay. Unlike conventional insurance policies, you do not
have to pay your premiums according to a rigid and inflexible premium schedule.
Before we issue the Policy to you, we may require you to pay a premium at least
equal to a minimum monthly guarantee premium set forth in your Policy.
Thereafter (subject to the limitations described below), you may make
unscheduled premium payments at any time and in any amount. Under some
circumstances, you may be required to pay extra premiums to prevent a lapse.
Your minimum monthly guarantee premium may change if you request a change in
your Policy. If this happens, we will notify you of the new minimum monthly
guarantee premium.
PLANNED PERIODIC PAYMENTS
You will determine a planned periodic payment schedule which allows you to
pay level premiums at fixed intervals over a specified period of time. You are
not required to pay premiums according to this schedule. You may change the
amount, frequency, and the time period over which you make your planned
periodic payments.
Even if you make your planned periodic payments on schedule, your Policy
may still lapse. The duration of your Policy depends on the Policy's net
surrender value. If the net surrender value is not high enough to pay the
monthly deduction (and your no lapse period expired), then your Policy will
lapse (unless you make the payment we specify during the 61-day grace period).
See Policy Lapse and Reinstatement p. 46.
23
<PAGE>
NO LAPSE PERIOD
Until the no lapse date that you selected on the Policy application, your
Policy will remain in force and no grace period will begin, even if your net
surrender value is too low to pay the monthly deduction, so long as:
<TABLE>
<S> <C>
/bullet/ the total amount of the premiums you paid (minus any withdrawals
and outstanding loans) is equal to or exceeds:
/arrow/ the minimum monthly guarantee premium stated in your
Policy, MULTIPLIED BY
/arrow/ the number of months since the Policy date, including the
current month; AND
/bullet/ the total of all Policy loans taken, minus any unearned loan
interest, does not exceed the Policy's cash value.
</TABLE>
PREMIUM LIMITATIONS
Premium payments must be at least $100 per month ($1,000 if by wire). We
may return premiums less than $100. We will not allow you to make any premium
payments that would cause the total amount of the premiums you pay to exceed
the current maximum premium limitations which qualify the Policy as life
insurance according to federal tax laws. This maximum is set forth in your
Policy. If you make a payment that would cause your total premiums to be
greater than the maximum premium limitations, we will return the excess portion
of the premium payment. We will not allow you to make additional premium
payments until they are allowed by the maximum premium limitations.
MAKING PREMIUM PAYMENTS
We will consider any payments you make to be premium payments, unless you
clearly mark them as loan repayments. We will deduct certain charges from your
premium payments (see Premium Charge p. 32). We will accept premium payments by
wire transfer. If you wish to make payments by bank wire, you should instruct
your bank to wire federal funds to us. Please contact us at 1-800-851-9777 for
complete wire instructions.
24
<PAGE>
TAX-FREE EXCHANGES ("1035 Exchanges"). We will accept part of your initial
premium money from one contract that qualifies 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.
ALLOCATING PREMIUMS
You must instruct us on how to allocate your net premium among the
subaccounts and the fixed account. (New Jersey residents: The fixed account is
NOT available to you. You may not direct or transfer any money to the fixed
account.) You must follow these guidelines:
<TABLE>
<S> <C>
/bullet/ allocation percentages must be in whole numbers;
/bullet/ if you select dollar cost averaging, you must have at least
$10,000 in each subaccount from which we will make transfers and you
must transfer at least a total of $1,000 monthly; and
/bullet/ if you select asset rebalancing, the cash value of your Policy
must be at least $10,000.
</TABLE>
You may change the allocation instructions for additional premium payments
without charge at any time 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, we
may decide that the minimum amount you can allocate to a particular subaccount
is 10% of each net premium payment (currently not required). We reserve the
right to limit the number of premium allocation changes to once per Policy
year.
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 below. 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 because market conditions and your overall
financial objectives may change.
25
<PAGE>
POLICY VALUES
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<TABLE>
<S> <C>
CASH VALUE /bullet/ serves as the starting point for calculating values under a
Policy.
/bullet/ equals the sum of all values in each subaccount and the
fixed account.
/bullet/ is determined on the Policy date and on each valuation
date.
/bullet/ 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 /bullet/ the cash value as of such date; MINUS
VALUE ON ANY /bullet/ any surrender charge as of such date; MINUS
VALUATION DATE /bullet/ any outstanding Policy loan(s); PLUS
EQUALS: /bullet/ any interest you paid in advance on the loan(s) for the
period between the date of the surrender and the next
Policy anniversary.
</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 /bullet/ the initial units purchased at unit value on the Policy date;
UNITS IN ANY PLUS
SUBACCOUNT ON /bullet/ units purchased with additional net premium(s); PLUS
ANY VALUATION /bullet/ units purchased via transfers from another subaccount or
DATE EQUALS: the fixed account; MINUS
/bullet/ units redeemed to pay for monthly deductions; MINUS
/bullet/ units redeemed to pay for partial withdrawals; MINUS
/bullet/ 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 cash withdrawal by the unit value for
that subaccount at the end of the valuation period.
26
<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 will increase or decrease from one
valuation period to the next.
<TABLE>
<S> <C>
THE UNIT VALUE /bullet/ 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 times the
THE END OF A portfolio's net asset value per share determined at the end
VALUATION of the valuation period; MINUS
PERIOD /bullet/ a deduction for the mortality and expense risk charge;
IS CALCULATED AS: MINUS
/bullet/ 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
/bullet/ 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 record date, the fixed account value is equal to the cash value
allocated to the fixed account from the WRL J.P. Morgan Money Market
subaccount.
<TABLE>
<S> <C>
THE FIXED ACCOUNT /bullet/ the sum of net premium(s) allocated to the fixed account;
VALUE AT THE END OF PLUS
ANY VALUATION /bullet/ any amounts transferred to the fixed account; PLUS
PERIOD IS EQUAL TO: /bullet/ total interest credited to the fixed account; MINUS
/bullet/ amounts charged to pay for monthly deductions; MINUS
/bullet/ amounts withdrawn or surrendered from the fixed account;
MINUS
/bullet/ amounts transferred from the fixed account to a
subaccount.
</TABLE>
New Jersey residents: The fixed account value at the end of any valuation
period is equal to:
<TABLE>
<S> <C>
/bullet/ any amounts transferred from a subaccount to the fixed account
to establish a loan reserve; PLUS
/bullet/ total interest credited to the loan reserve.
</TABLE>
27
<PAGE>
TRANSFERS
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GENERAL
You or your agent/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:
<TABLE>
<S> <C>
/check mark/ You may make an unlimited number of transfers in a Policy year among
the subaccounts.
/check mark/ You may make one transfer from the fixed account in a 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 each transfer
in excess of 12 transfers 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, reallocation of
cash value immediately after the record date, and transfers from the
fixed account are NOT treated as transfers for the purpose of the
transfer charge.
/check mark/ Transfers under dollar cost averaging and asset rebalancing are
treated as transfers for purposes of the transfer charge.
</TABLE>
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 WRL J.P.
Morgan Money Market. 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:
<TABLE>
<S> <C>
/arrow/ 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.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
/arrow/ We will employ reasonable procedures to confirm that telephone
instructions are genuine.
/arrow/ 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.
/arrow/ We may also require written confirmation of your request.
/arrow/ If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
/arrow/ If you do not want the ability to make telephone transfers, you
should notify us in writing.
/arrow/ Telephone or fax requests must be received before 4:00 p.m. Eastern
time to assure same-day pricing of the transaction.
/arrow/ 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.
/arrow/ We may discontinue this option at any time.
</TABLE>
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.
FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the fixed account unless
you select dollar cost averaging from the 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 amount of the
transfer cannot be more than:
<TABLE>
<S> <C>
/arrow/ 25% of your value in the fixed account; or
/arrow/ the amount you transferred from the fixed account in the prior
Policy year.
</TABLE>
New Jersey residents: The fixed account is NOT available to you. You may
not direct or transfer any money to the fixed account.
CONVERSION RIGHTS
If, within 24 months of your Policy date, you transfer all of your
subaccount values to the fixed account, then we will not charge you a transfer
fee, even if applicable. You must make your request in writing. We will not
charge for this transfer.
DOLLAR COST AVERAGING
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
29
<PAGE>
the subaccounts over a period of time. This potentially allows you to 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 carefully consider 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 it is high. We make no guarantee that dollar cost
averaging will result in a profit or protect you against a loss.
Under dollar cost averaging, we automatically transfer a set dollar amount
from the WRL J.P. Morgan Money Market subaccount, the WRL AEGON Bond
subaccount, the fixed account, or any combination of these to a subaccount that
you choose. We will make the transfers monthly as of the end of the valuation
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> <C>
TO START DOLLAR COST /arrow/ you must submit a completed form to us
AVERAGING: requesting dollar cost averaging;
/arrow/ you must have at least $10,000 in each account
from which we will make transfers;
/arrow/ your total transfers each month under dollar
cost averaging must be at least $1,000; and
/arrow/ each month, you may not transfer more than
one-tenth of the amount that was in your fixed
account at the beginning of dollar cost
averaging.
</TABLE>
There is no charge for dollar cost averaging. However, each transfer under
dollar cost averaging counts towards your 12 free transfers each year.
<TABLE>
<S> <C> <C>
DOLLAR /arrow/ we receive your request to cancel your
COST AVERAGING participation;
WILL TERMINATE IF: /arrow/ the value in the accounts from which we make the
transfers is depleted;
/arrow/ you elect to participate in the asset
rebalancing program;
OR
/arrow/ you elect to participate in any asset allocation
services provided by a third party.
</TABLE>
We may modify, suspend, or discontinue dollar cost averaging at any time.
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 fixed account and the dollar cost averaging program is not available for
this program. This program does not guarantee gains. A subaccount may still
have losses.
30
<PAGE>
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. 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.
<TABLE>
<S> <C> <C>
TO START /arrow/ you must submit a completed asset rebalancing
ASSET REBALANCING: request form to us before the maturity date; and
/arrow/ you must have a minimum cash value of $10,000 or
make a $10,000 initial premium payment.
</TABLE>
There is no charge for the asset rebalancing program. However, each
reallocation we make under the program counts towards your 12 free transfers
each year.
<TABLE>
<S> <C> <C>
ASSET REBALANCING /arrow/ you elect to participate in the dollar cost
WILL CEASE IF: averaging program;
/arrow/ we receive your request to discontinue
participation;
/arrow/ you make ANY transfer to or from any subaccount
other than under a scheduled rebalancing; OR
/arrow/ 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.
31
<PAGE>
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 services and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
<TABLE>
<S> <C>
SERVICES AND BENEFITS WE /bullet/ the death benefit, cash withdrawals and loan benefits;
PROVIDE UNDER THE POLICY: /bullet/ investment options, including premium allocations;
/bullet/ administration of elective options; and
/bullet/ the distribution of reports to owners.
</TABLE>
<TABLE>
<S> <C>
COSTS AND EXPENSES /bullet/ costs associated with processing and underwriting
WE INCUR: applications;
/bullet/ expenses of issuing and administering the Policy (includ-
ing any Policy riders);
/bullet/ overhead and other expenses for providing services and
benefits, sales commissions and marketing expenses; and
/bullet/ other costs of doing business, such as collecting premiums,
maintaining records, processing claims, effecting transac-
tions, and paying federal, state and local premium and
other taxes and fees.
</TABLE>
<TABLE>
<S> <C>
RISKS WE ASSUME: /bullet/ that the charges we may deduct may be insufficient to
meet our actual claims because insureds die sooner than
we estimate; and
/bullet/ that the costs of providing the services and benefits under
the Policies may exceed the charges we are allowed to
deduct.
</TABLE>
PREMIUM CHARGE
Before we allocate the net premiums you make, we will deduct the following
charge.
<TABLE>
<S> <C>
PREMIUM EXPENSE CHARGE /bullet/ This charge equals:
/arrow/ 6.0% of premiums during the first ten Policy
years; and
/arrow/ 2.5% of premiums thereafter.
/bullet/ This charge compensates us for distribution expenses and
state premium taxes.
</TABLE>
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each monthly anniversary. We deduct this charge from 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
32
<PAGE>
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 (such as
cost of insurance) can vary monthly, the monthly deduction will also vary.
<TABLE>
<S> <C>
MONTHLY DEDUCTION The total we deduct each month is equal to:
/bullet/ the monthly Policy charge; PLUS
/bullet/ the monthly cost of insurance charge; PLUS
/bullet/ the monthly death benefit guarantee charge; PLUS
/bullet/ the monthly charge for any riders attached to the
Policy.
</TABLE>
<TABLE>
<S> <C>
MONTHLY POLICY CHARGE /bullet/ This charge equals $5.00 each Policy month.
/bullet/ We guarantee this charge will never be more than $10.00
per month.
/bullet/ We may waive this charge if you purchase additional
policies.
/bullet/ This charge compensates us for administrative expenses
such as recordkeeping, processing death benefit claims and
Policy changes, and overhead costs.
</TABLE>
<TABLE>
<S> <C>
COST OF INSURANCE CHARGE We deduct this charge each month. It varies each month and is
equal to:
/bullet/ the cost of insurance rates; MULTIPLIED BY
/bullet/ the net amount at risk for your Policy on the
Monthiversary.
The net amount at risk is equal to:
/bullet/ the death benefit at the beginning of the month;
DIVIDED BY
/bullet/ 1.0032737 (this factor reduces the net amount at
risk, for purposes of computing the cost of
insurance, by taking into account assumed monthly
earnings at an annual rate of 4%); MINUS
/bullet/ the cash value at the beginning of the month.
</TABLE>
We base the cost of insurance rates on each joint insured's attained age,
gender, and rate class, and the length of time that the Policy has been in
force. The actual monthly cost of insurance rates are based on our expectations
as to future mortality experience. The rates will never be greater than the
guaranteed amount stated in your Policy. These guaranteed rates are based on
the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and each
joint insured's attained age and rate class. For standard rate classes, these
guaranteed
33
<PAGE>
rates will never be greater than the rates in the C.S.O. tables. We may also
guarantee a rate for a specific period of time (E.G. one year). For a listing
of rate classes, see Underwriting Standards p. 18.
We may issue certain Policies on a simplified or expedited basis. The cost
of insurance rates for Policies we issue on this basis will be no higher than
the guaranteed rates for select, non-tobacco use or standard, tobacco use
categories. However, these rates may be higher or lower than current rates
charged under otherwise identical Policies that are using standard underwriting
criteria.
<TABLE>
<S> <C>
MONTHLY DEATH BENEFIT /bullet/ This charge is $0.04 per $1,000 of your initial specified
GUARANTEE CHARGE amount.
/bullet/ This charge is deducted monthly from your cash value.
/bullet/ We will deduct this charge only until the no lapse date you
selected on the application.
/bullet/ This charge compensates us for the risk of guaranteeing
the death benefit you chose on the application.
</TABLE>
<TABLE>
<S> <C>
OPTIONAL INSURANCE RIDERS The monthly deduction will include charges for any optional
insurance benefits you add to your Policy by rider (see
Supplemental Benefits, p. 54).
</TABLE>
<TABLE>
<S> <C>
MORTALITY AND EXPENSE We deduct a daily charge from your cash value in each
RISK CHARGE subaccount to compensate us for certain mortality and expense
risks we assume. This charge is equal to:
/bullet/ your Policy's cash value in each subaccount
MULTIPLIED BY
/bullet/ the daily pro rata portion of the annual mortality
and expense risk charge rate of 0.90% (this annual
rate is equal to 0.90% of the average daily net
assets of each subaccount).
</TABLE>
The mortality risk is that the surviving insured will live for a shorter
time than we project. The expense risk is that the expenses that we incur will
exceed the administrative charge limits we set in the Policy.
If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge more than covers actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
SURRENDER CHARGE
If you totally surrender your Policy during the first 15 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. We reduce the surrender charge at older ages in compliance
with state laws.
34
<PAGE>
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CALCULATE THIS CHARGE
CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level
of the surrender charge might result in no net surrender value available if you
surrender your Policy in the first few Policy years. This will depend on a
number of factors, but is more likely if:
/bullet/ you pay premiums equal to or not much higher than the minimum
monthly guarantee premium shown in your Policy, and/or
/bullet/ investment performance is too low.
<TABLE>
<S> <C>
SURRENDER CHARGE The surrender charge is equal to:
/bullet/ the DEFERRED ISSUE CHARGE; plus
/bullet/ the DEFERRED SALES CHARGE;
AND THE SUM MULTIPLIED BY
/bullet/ the SURRENDER CHARGE PERCENTAGE.
</TABLE>
The DEFERRED ISSUE CHARGE is $5.00 MULTIPLIED BY each $1,000 of the
initial specified amount stated in your Policy. This charge helps us recover
the underwriting, processing and start-up expenses that we incur in connection
with the Policy and the separate account.
The DEFERRED SALES CHARGE equals
/bullet/ 26.5% MULTIPLIED BY the total premiums paid up to the guideline
premium shown in your Policy; PLUS
/bullet/ a percentage, which varies depending on the younger joint
insured's issue age (see table below), MULTIPLIED BY
/bullet/ the total premiums paid IN EXCESS OF the guideline premium
("excess premium charge").
<TABLE>
<CAPTION>
ISSUE AGE RANGE
(YOUNGER JOINT EXCESS PREMIUM
INSURED) CHARGE
<S> <C>
1-55 4.2%
56-63 3.7%
64-68 3.1%
69-73 2.5%
74-76 2.0%
77-78 1.6%
79-80 1.2%
</TABLE>
The deferred sales charge helps us recover distribution expenses that we
incur in connection with the Policy, including agent sales commissions and
printing and advertising costs. The proceeds of this charge may not be
sufficient to cover these expenses. To the extent they are not, we will cover
the shortfall from our general account assets, which may include profits from
the mortality and expense risk charge under the Policy.
To determine the surrender charge, we apply the SURRENDER CHARGE
PERCENTAGE to the sum of the DEFERRED ISSUE CHARGE and the DEFERRED SALES
CHARGE. In Policy years 1-10 this
35
<PAGE>
percentage is 100% for joint insureds when the age of the younger joint insured
is between issue ages 0-74 and then declines at the rate of 20% per year until
reaching zero at the end of the 15th Policy year.
For joint insureds when the age of the younger joint insured is between
issue ages 75-80, the surrender charge percentage is 100% until the end of the
6th Policy year and then declines to 0% at the end of the 15th Policy year.
Therefore, the surrender charge will be less if you surrender the Policy during
the 11th through the 15th Policy year. There is no surrender charge if the
Policy is surrendered after the 15th Policy year (see Example 2 below).
SURRENDER CHARGE PERCENTAGES
<TABLE>
<CAPTION>
END OF POLICY YEAR* YOUNGER AGE
- ----------------------- -------------------------------
LESS THAN 75 75 OR ABOVE
--------------- -------------
<S> <C> <C>
At Issue 100% 100%
1-6 100% 100%
7 100% 97%
8 100% 88%
9 100% 80%
10 100% 73%
11 80% 66%
12 60% 60%
13 40% 40%
14 20% 20%
15+ 0% 0%
</TABLE>
* The percentage on any date other than an anniversary will be
interpolated between the two end of year
percentages.
/bullet/ SURRENDER CHARGE EXAMPLE 1: Assume a male non-tobacco user age 35 and
a female non-tobacco user age 35 purchase a Policy for $100,000 of
specified amount, paying the guideline premium of $806.11, and an
additional premium amount of $193.89 in excess of the guideline
premium, for a total premium of $1,000 per year for four years
($4,000 total for four years), and then surrenders the Policy. The
surrender charge would be calculated as follows:
<TABLE>
<S> <C> <C> <C>
(a) DEFERRED ISSUE CHARGE: [100 x $5.00]
($5.00/$1,000 of initial specified amount) = $500.00
(b) DEFERRED SALES CHARGE:
(1) 26.5% of guideline
premium paid
[26.5% x $806.11], and = $213.62
(2) 4.2% of premiums paid in excess
of guideline premium
[4.2% x ((4 x $1,000) - $806.11)] = $134.14
(c) APPLICABLE SURRENDER CHARGE = 100%
[(a)$500.00 + (b)($213.62 + $134.14)]
x 100%
SURRENDER CHARGE = [$847.76]
x 100% = $847.76
=======
</TABLE>
36
<PAGE>
/bullet/ SURRENDER CHARGE EXAMPLE 2: Assume the same facts as in Example 1,
including continued premium payments of $1,000 per year, EXCEPT the
owner surrenders the Policy on the 14th Policy anniversary:
<TABLE>
<S> <C> <C> <C>
(a) DEFERRED ISSUE CHARGE: [100 x $5.00] = $500.00
(b) DEFERRED SALES CHARGE:
(1) [26.5% x $806.11], and = $213.62
(2) [4.2% x ((14 x $1,000) - $806.11)] = $554.14
(c) APPLICABLE SURRENDER CHARGE = 20%
[(a)$500.00 + (b)($213.62) + $554.14)]
x 20%
SURRENDER CHARGE = [$1,267.76]
x 20% = $253.55
=======
</TABLE>
There will be no surrender charge if the owner waits until the 15th Policy
anniversary.
For Policies issued in the state of PENNSYLVANIA, the following surrender
charge percentage table applies.
SURRENDER CHARGE PERCENTAGES
<TABLE>
<CAPTION>
ISSUE ISSUE ISSUE
POLICY YEAR AGES 20-69 AGES 70-74 AGES 75-80
- --------------- ------------ ------------ ------------
<S> <C> <C> <C>
1 100% 100% 100%
2 100% 100% 96%
3 100% 100% 89%
4 100% 100% 83%
5 100% 95% 77%
6 100% 90% 73%
7 100% 85% 68%
8 100% 80% 65%
9 95% 76% 61%
10 90% 72% 58%
11 80% 68% 55%
12 60% 60% 51%
13 40% 40% 40%
14 20% 20% 20%
15 0% 0% 0%
</TABLE>
<TABLE>
<S> <C>
TRANSFER CHARGE /bullet/ We currently allow you to make 12 transfers each year
free from charge.
/bullet/ We charge $10 for each additional transfer.
/bullet/ 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.
/bullet/ We deduct the transfer charge from the amount being
transferred.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
/bullet/ Transfers due to loans, exercise of conversion rights, or
from the fixed account do not count as transfers for the
purpose of assessing this charge.
/bullet/ Transfers under dollar cost averaging and asset rebalancing
are transfers for purposes of this charge.
/bullet/ We will not increase this charge.
</TABLE>
<TABLE>
<S> <C>
CASH WITHDRAWAL CHARGE /bullet/ When you make a cash withdrawal, we charge a process-
ing fee of $25 or 2% of the amount you withdraw,
whichever is less.
/bullet/ We deduct this amount from the withdrawal, and we pay
you the balance.
/bullet/ We will not increase this charge.
</TABLE>
TAXES
We currently do not make any deductions for taxes from the separate
account. We may do so in the future if such taxes are imposed by federal or
state agencies.
PORTFOLIO EXPENSES
The portfolios deduct investment charges from the amounts you have
invested in the portfolios. These charges range from 0.40% to 1.50%. See the
Portfolio Annual Expense Table in this prospectus, and the fund prospectus.
GROUP OR SPONSORED POLICIES
We issue a different Policy for group or sponsored arrangements
("Group/Sponsored Policies"). Under Group/Sponsored Policies, a trustee or
employer purchases individual policies covering a group of individuals on a
group basis (E.G. Section 401 employer-sponsored benefit plans and deferred
compensation plans). A sponsored arrangement is where an employer permits a
group solicitation of Policies to its employees or an association permits a
group solicitation of Policies to its members.
We have certain criteria to issue Group/Sponsored Policies. Generally, a
group or sponsored arrangement must be a specific size and must have been in
operation for a number of years. We may reduce certain charges, such as premium
expense charges, surrender charge, limits on minimum premium and minimum
specified amount, or monthly Policy charge, for these Policies. In some cases,
we currently waive the monthly Policy charge and reduce the surrender charge.
The amount of the reduction and the criteria for Group/Sponsored Policies will
reflect the reduced sales effort resulting from these sales. Groups or
sponsored arrangements which have been set up solely to purchase Group/
Sponsored Policies or which have been in existence for less than six months
will not qualify. Group/Sponsored Policies may not be available in all states.
Group/Sponsored Policies may be subject to special tax rules and consequences
and other legal restrictions (see Federal Income Tax Considerations, p. 47).
38
<PAGE>
Insurance policies where the benefits vary based on gender may not be used
to fund certain employer-sponsored benefit plans and fringe benefit programs.
Employers should consult tax attorneys before proposing to offer
Group/Sponsored Policies.
ASSOCIATE POLICIES
We offer an Associate Policy to certain employees, field associates,
directors and their relatives. An Associate Policy may have reduced or waived
premium expense charges, the surrender charge, limits on minimum premium and
minimum specified amount, or monthly Policy charge. The Associate Policy is
available to:
<TABLE>
<S> <C>>
/bullet/ our current and retired directors, officers, full-time employees
and registered representatives, and those of our affiliates; current
and retired directors, officers, full-time employees and registered
representatives of AFSG and any broker-dealer with which they have a
sales agreement;
/bullet/ any trust, pension, profit-sharing or other employee benefit plan
of the foregoing persons or entities;
/bullet/ current and retired directors, officers, and full-time employees
of the WRL Series Fund, Inc., the IDEX Mutual Funds, and any
investment adviser or sub-adviser thereto; and
/bullet/ any family member of the above.
</TABLE>
We may modify or terminate this arrangement. Associate Policies may not be
available in all states.
DEATH BENEFIT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on an individual Policy once we receive satisfactory proof of the 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 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 /bullet/ the death benefit (described below); MINUS
PROCEEDS EQUAL: /bullet/ any past due charges; MINUS
/bullet/ any outstanding Policy loan amount; PLUS
/bullet/ any additional insurance in force provided by rider; PLUS
/bullet/ any interest you paid in advance on the loan(s) for the
period between the date of death and the next Policy
anniversary.
</TABLE>
We may further adjust the amount of the death benefit proceeds if we
contest the Policy, or if you misstate either joint insured's age or gender.
See Our Right to Contest the Policy; and Misstatement of Age or Gender.
39
<PAGE>
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the surviving insured dies. You must
select one of the two death benefit options we offer in your application. No
matter which death benefit option you choose, we guarantee that, so long as the
Policy does not lapse, the death benefit will never be less than the specified
amount on the date of the surviving insured's death.
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the current specified amount; OR
OPTION A EQUALS THE /bullet/ a specified percentage called the "limitation percentage,"
GREATER OF: MULTIPLIED BY
/arrow/ the cash value on the insured's date of death.
</TABLE>
Under Option A, your death benefit remains level unless the limitation
percentage multiplied by the cash value is greater than the specified amount;
then the death benefit will vary as the cash value varies.
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 younger joint insured at the beginning of each Policy year. The
following table indicates the limitation percentages for different ages:
<TABLE>
<CAPTION>
ATTAINED AGE
OF YOUNGER
JOINT INSURED LIMITATION PERCENTAGE
<S> <C>
40 and under 250%
41 to 45 250% of cash value minus 7% for each age over age 40
46 to 50 215% of cash value minus 6% for each age over age 45
51 to 55 185% of cash value minus 7% for each age over age 50
56 to 60 150% of cash value minus 4% for each age over age 55
61 to 65 130% of cash value minus 2% for each age over age 60
66 to 70 120% of cash value minus 1% for each age over age 65
71 to 75 115% of cash value minus 2% for each age over age 70
76 to 90 105%
91 to 95 105% of cash value minus 1% for each age over age 90
96 and older 100%
</TABLE>
If the federal tax code requires us to determine the death benefit by
reference to these limitation percentages, the Policy is described as "in the
corridor." An increase in the cash value will increase our risk, and we will
increase the cost of insurance we deduct from the cash value.
OPTION A ILLUSTRATION. Assume that the younger joint insured's attained
age is under 40, there have been no withdrawals, and there are no outstanding
loans. Under Option A, a Policy with a $250,000 specified amount will generally
pay $250,000 in death benefits. However, because the death benefit must be
equal to or greater than 250% of cash value, any time the cash value of the
Policy exceeds $100,000, the death benefit will exceed the $250,000 specified
amount. Each additional dollar added to the cash value above $100,000 will
increase the death benefit by $2.50.
40
<PAGE>
Similarly, so long as the cash value exceeds $100,000, each dollar taken
out of the cash value will reduce the death benefit by $2.50. If at any time
the cash value multiplied by the limitation percentage is less than the
specified amount, the death benefit will equal the specified amount of the
Policy reduced by the dollar value of any cash withdrawals.
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the current specified amount; PLUS
OPTION B EQUALS THE /arrow/ the cash value on the surviving insured's date of
GREATER OF: death; OR
/bullet/ the limitation percentage, MULTIPLIED BY
/arrow/ the cash value on the surviving insured's date of
death.
</TABLE>
Under Option B, the death benefit always varies as the cash value varies.
OPTION B ILLUSTRATION. Assume that the younger joint insured's attained
age is under 40, there and there are no outstanding loans. Under Option B, a
Policy with a specified amount of $250,000 will generally pay a death benefit
of $250,000 plus cash value. Thus, a Policy with a cash value of $50,000 will
have a death benefit of $300,000 ($250,000 + $50,000). The death benefit,
however, must be at least 250% of cash value. As a result, if the cash value of
the Policy exceeds $166,666, the death benefit will be greater than the
specified amount plus cash value. Each additional dollar of cash value above
$166,666 will increase the death benefit by $2.50.
Similarly, any time cash value exceeds $166,666, each dollar taken out of
cash value will reduce the death benefit by $2.50. If at any time, cash value
multiplied by the limitation percentage is less than the specified amount plus
the cash value, then the death benefit will be the specified amount plus the
cash value of the Policy.
EFFECTS OF CASH WITHDRAWALS ON THE DEATH BENEFIT
If you choose Option A, a cash withdrawal will reduce the specified amount
by an amount equal to the amount of the cash withdrawal. Regardless of the
death benefit option you choose, a cash withdrawal will reduce the death
benefit by at least the amount of the withdrawal.
CHOOSING DEATH BENEFIT OPTIONS
You must choose one death benefit option on your application. This is an
important decision. The death benefit option you choose will have an impact on
the dollar value of the death benefit, on your cash value and on the amount of
cost of insurance charges you pay.
You may find Option A more suitable for you if your goal is to increase
your cash value through positive investment experience. You may find Option B
more suitable if your goal is to increase your total death benefit.
CHANGING THE DEATH BENEFIT OPTION
After the third Policy year, you may change your death benefit option once
each Policy year.
41
<PAGE>
<TABLE>
<S> <C>
/bullet/ You must make your request in writing.
/bullet/ The effective date of the change will be the monthly anniversary
on or following the date when we receive your request for a change.
/bullet/ You may not make a change that would decrease the specified
amount below the minimum specified amount stated in your Policy.
/bullet/ There may be adverse federal tax consequences.
/bullet/ You should consult a tax advisor before changing your Policy's
death benefit option.
</TABLE>
If you change your death benefit option from Option B to Option A, we will
make the specified amount after the change equal to the specified amount prior
to the change, plus your Policy's cash value on the effective date of the
change. If you change your death benefit option from Option A to Option B, we
will make the specified amount after the change equal to the specified amount
prior to the change, minus the cash value on the effective date of the change.
We will notify you of the new specified amount.
DECREASING THE SPECIFIED AMOUNT
After the Policy has been in force for three years, you may decrease the
specified amount once each Policy year. A decrease in the specified amount may
affect your cost of insurance charge and may have adverse federal tax
consequences. You should consult a tax advisor before decreasing your Policy's
specified amount.
<TABLE>
<S> <C>
CONDITIONS FOR /bullet/ you may not change your death benefit option in the same
DECREASING THE SPECIFIED Policy year that you decrease your specified amount;
AMOUNT: /bullet/ you may not decrease your specified amount lower than
the minimum specified amount stated in your Policy;
/bullet/ you may not decrease your specified amount if it would
disqualify your Policy as life insurance under the Internal
Revenue Code;
/bullet/ we may limit the amount of the decrease to no more than
20% of the specified amount; and
/bullet/ a decrease in specified amount will take effect on the
monthly anniversary on or after we receive your written
request.
</TABLE>
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. See Settlement
Options p. 52 for information concerning these settlement options.
SURRENDERS AND CASH WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
42
<PAGE>
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 15 Policy years (see Charges and Deductions --
Surrender Charge p. 34). 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 or under a settlement
option. A surrender may have tax consequences. See Federal Income Tax
Considerations p. 47.
CASH WITHDRAWALS
After the first Policy year, you may request a cash withdrawal of a
portion of your cash value subject to certain conditions.
<TABLE>
<S> <C>
CASH /bullet/ You must make your cash withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: /bullet/ We only allow one cash withdrawal during a 12-month
period.
/bullet/ We may limit the amount you can withdraw to at least
$500, and to no more than 10% of the net surrender value.
/bullet/ You can specify the subaccount(s) and the fixed account
from which to make the withdrawal. Otherwise we will
deduct the amount from the subaccounts and the fixed
account in accordance with the current allocation instruc-
tions. We generally will pay a cash withdrawal request
within seven days following the valuation date we receive
the request.
/bullet/ We will deduct a processing fee equal to $25 or 2% of the
amount you withdraw, whichever is less. We deduct this
amount from the withdrawal, and we pay you the balance.
/bullet/ You may not take a cash withdrawal that would disqualify
your Policy as life insurance under the Internal Revenue
Code.
</TABLE>
A cash withdrawal will reduce the cash value by the amount of the cash
withdrawal, and reduce the death benefit by at least the amount of the cash
withdrawal. When death benefit Option A is in effect, a cash withdrawal will
reduce the specified amount by an amount equal to the amount of the cash
withdrawal.
In no event will we permit any withdrawal to reduce the specified amount
below the minimum specified amount set forth in the Policy.
A cash withdrawal may have tax consequences (see Federal Income Tax
Considerations p. 47).
43
<PAGE>
LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL
After the first Policy year (as long as the Policy is in force) you may
borrow money from us using the Policy as the only security for the loan. We may
permit a loan prior to the first anniversary for Policies issued pursuant to
1035 Exchanges. 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 /bullet/ we may require you to borrow at least $500; and
SUBJECT TO CERTAIN /bullet/ 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 plus interest in advance until the next Policy anniversary 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. 52.
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 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 TO BE PREMIUM PAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS.
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 fixed account and transfer it to the
44
<PAGE>
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
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 a
transfer to the fixed account if the loans were originally transferred from the
fixed account.
INTEREST RATE CHARGED
We will charge you an annual interest rate on a Policy loan that is equal
to 5.2% and is payable annually in advance. 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 at least 4.0%. We may credit a higher rate, but we are
not obligated to do so.
<TABLE>
<S> <C>
/bullet/ We currently credit interest at an effective annual rate of 4.75% on amounts you
borrow during the first ten Policy years.
/bullet/ After the tenth Policy year, on all amounts that you have borrowed, we currently credit
interest to part of the cash value in excess of the premiums paid less
withdrawals at an interest rate equal to the interest rate we charge on the total
loan. The remaining portion, equal to the cost basis, is currently credited 4.75%.
</TABLE>
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. 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 plus interest in advance
until the next Policy anniversary 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. 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.
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 (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.
45
<PAGE>
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may not necessarily lapse if you fail to make a planned
periodic payment. However, even if you make all your planned periodic payments,
there is no guarantee that your Policy will not lapse. This Policy provides a
no lapse period. See below. Once your no lapse period ends, 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. Such lapse might occur if
poor investment experience causes a decrease in the net surrender value, or you
have not paid enough premiums to offset the monthly charges.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and 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.
NO LAPSE PERIOD
This Policy provides a no lapse period. As long as the no lapse period is
in effect, your Policy will not lapse and no grace period will begin. Even if
your net surrender value is not enough to pay your monthly deduction, the
Policy will not lapse so long as the no lapse period is in effect. The no lapse
period will not extend beyond the no lapse date you selected on the
application. Each month we determine whether the no lapse period is still in
effect.
<TABLE>
<S> <C>
NO LAPSE PERIOD This period is selected by you on the Policy application and may
be either:
/bullet/ Option 1 -- the target premium attained age 65 or five
Policy years, whichever is later; or
/bullet/ Option 2 -- the target premium attained age 75 or ten
Policy years, whichever is later.
The target premium attained age is:
/bullet/ the target premium age, PLUS
/bullet/ the number of completed Policy years.
The target premium age equals:
/bullet/ the average of the joint insureds' issue ages, rounded
down, but no more than
/bullet/ the younger joint insured's age, PLUS
/bullet/ ten years.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
NO LAPSE DATE This date is either:
/bullet/ the later of target premium attained age 65 or five Policy
years; or
/bullet/ the later of target premium attained age 75 or ten Policy
years.
You select the no lapse date on the Policy application.
</TABLE>
<TABLE>
<S> <C>
EARLY TERMINATION OF THE /bullet/ The no lapse period will end immediately if you do not
NO LAPSE PERIOD pay sufficient premiums.
/bullet/ You must pay total premiums (minus withdrawals and
outstanding, loans) that equal at least:
/arrow/ your minimum monthly guarantee premium
(shown in your Policy), MULTIPLIED BY
/arrow/ the number of months since the Policy date
(including the current month).
</TABLE>
Your minumum monthly guarantee premium amount will vary depending on
whether you have chosen Option 1 or 2. Neither option may exceed target premium
age 85.
You will lessen the risk of Policy lapse if you keep the no lapse period
in effect. Before you take a cash withdrawal or a loan, you should consider
carefully the effect it will have on the no lapse period guarantee.
REINSTATEMENT
We will reinstate a lapsed Policy for five years after the lapse (and
prior to the maturity date). To reinstate the Policy you must:
<TABLE>
<S> <C>
/bullet/ submit a written application for reinstatement;
/bullet/ provide evidence of insurability satisfactory to us;
/bullet/ make a premium payment that is large enough to cover:
/arrow/ one monthly deduction at the time of termination;
/arrow/ the next two monthly deductions which become due after reinstatement;
and
/arrow/ any surrender charge calculated from the Policy date to the date of
reinstatement.
</TABLE>
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. Your net surrender value on the
reinstatement date will equal the net premiums you pay at reinstatement, MINUS
one monthly deduction and any surrender charge. 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.
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
47
<PAGE>
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, we believe that a
Policy should satisfy the applicable Code requirements. Because of the absence
of pertinent interpretations of the Code requirements, there is, however,
uncertainty about the application of such requirements to a 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 your 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.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible 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
48
<PAGE>
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. Due to the
Policy's flexibility, each Policy's circumstances will determine whether the
Policy is classified as a MEC. Among other things, a reduction in benefits at
any time could cause a Policy to become 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. You will
also be notified of the amount of the maximum annual premium you can pay
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:
<TABLE>
<S> <C>
/bullet/ All distributions other than death benefits from a MEC,
including distributions upon surrender and 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.
/bullet/ Loans taken from or secured by (e.g., by assignment) such a
Policy are treated as distributions and taxed accordingly.
/bullet/ 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 591/2 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 your beneficiary.
</TABLE>
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 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
49
<PAGE>
associated with Policy loans that are outstanding after the first 10 Policy
years 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 includible in the owner's income when a taxable
distribution occurs.
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.
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.
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. The Policy Split Option permits you to
split the Policy into two new individual life insurance contracts 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. 22.) 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 contracts 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.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. We believe that the
single-sum payment we make under this rider should be fully excludable from the
gross income of the beneficiary, as long as the beneficiary is an insured under
the Policy. You should consult a tax advisor about the consequences of adding
this rider to your Policy, or requesting a single-sum payment.
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<PAGE>
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 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, while both joint
insureds are still alive, for two years from the Policy date, or if reinstated,
for two years from the date of reinstatement. 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 either joint insured commits suicide, while sane or insane, within two
years of the Policy date, the Policy will terminate and our liability is
limited to an amount equal to the premiums paid, less any outstanding
indebtedness, and less any cash withdrawals paid. 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 either joint insured commits suicide
within two years of the reinstatement date or the date of any increase in
insurance, our total liability with respect to such reinstatement or increase
will be the cost of insurance charges we deducted.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of either joint insured was stated incorrectly in the
application or any supplemental application, the death benefit will be adjusted
based on what the initial premium would have purchased based on the joint
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.
If we modify the Policy, we will provide you notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If either joint insured is living and the Policy is in force, the Policy
will mature on the Policy anniversary nearest the younger joint insured's 100th
birthday. This is the maturity
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<PAGE>
date. On the maturity date we will pay you the net surrender value of your
Policy. We may extend the maturity date if your Policy is still in force on the
maturity date and there are no adverse tax consequences in doing so. You must
submit a written request for the extension between 90 and 180 days prior to the
maturity date. We must agree to the extension.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, cash 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:
<TABLE>
<S> <C>
/bullet/ the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by the
SEC; OR
/bullet/ the SEC permits, by an order, the postponement for the
protection of policyowners; OR
/bullet/ 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.
</TABLE>
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, cash 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, cash withdrawals, or
surrenders from the fixed account for up to six months.
SETTLEMENT OPTIONS
If you surrender the Policy, or if the Policy matures, you may elect to
receive the net surrender value in either a lump sum or as a series of regular
income payments under one of the three settlement options described below. In
either event, life insurance coverage ends. Also, when the surviving insured
dies, the beneficiary may apply the lump sum death benefit proceeds to one of
the same settlement options. If the regular payment under a settlement option
would be less than $20, we will instead pay the proceeds in one lump sum. We
may make other settlement options available in the future.
Once we begin making payments under a settlement option, you or the
beneficiary will no longer have any value in the subaccounts or the fixed
account. Instead, the only entitlement will be the amount of the regular
payment for the period selected under the terms of the settlement option
chosen. Depending upon the circumstances, the effective date of a settlement
option is the surrender date, the maturity date or the surviving insured's date
of death.
Under any settlement option, the dollar amount of each payment will depend
on three things:
<TABLE>
<S> <C> >
/bullet/ the amount of the surrender or death benefit proceeds on the
surrender date, maturity date or surviving insured's date of death;
/bullet/ the interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 3%); and
/bullet/ the specific payment option(s) you choose.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
OPTION 1 - EQUAL /bullet/ We will pay the proceeds, plus interest, in equal monthly
MONTHLY INSTALLMENTS installments for a fixed period of your choice, but not
FOR A FIXED PERIOD longer than 240 months.
/bullet/ We will stop making payments once we have made all the
payments for the period selected.
</TABLE>
<TABLE>
<S> <C>
OPTION 2 - EQUAL At your or the beneficiary's direction, we will make equal
MONTHLY INSTALLMENTS monthly installments:
FOR LIFE (LIFE INCOME) /bullet/ only for the life of the payee, at the end of which
payments will end; or
/bullet/ for the longer of the payee's life, or for 10 years if
the payee dies before the end of the first 10 years of
payments; or
/bullet/ until the total amount of all payments we have made
equals the proceeds that were applied to the
settlement option.
</TABLE>
<TABLE>
<S> <C>
OPTION 3 - EQUAL /bullet/ We will make equal monthly payments during the joint
MONTHLY INSTALLMENTS FOR lifetimes of two persons, first to a chosen payee, and then
THE LIFE OF THE PAYEE AND to a co-payee, if living, upon the death of the payee.
THEN TO A DESIGNATED /bullet/ Payments to the co-payee, if living, upon the payee's death
SURVIVOR (JOINT AND will equal the full amount made to the payee before the
SURVIVOR) payee's death.
</TABLE>
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/ projected values
/check mark/ the current death benefit /check mark/ investment experience of each subaccount
/check mark/ any outstanding loans /check mark/ any other information required by law
</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.
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<PAGE>
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>
/bullet/ the maturity date; /bullet/ the end of the grace period; or
/bullet/ the date the surviving insured dies; /bullet/ the date the Policy is surrendered.
</TABLE>
SUPPLEMENTAL BENEFITS (RIDERS)
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The following supplemental benefits (riders) are available and may be
added to a Policy. Monthly charges for these riders are deducted from cash
value as part of the monthly deduction. The riders available with the Policies
provide fixed benefits that do not vary with the investment experience of the
separate account. For purposes of the riders, the face amount is the level term
insurance amount we pay at death.
JOINT INSURED TERM RIDER
This rider provides additional life insurance on the lives of both joint
insureds. We will pay the rider's face amount when we receive proof that both
joint insureds died while the rider was in force. The cost of insurance rates
for this rider increase each year. This rider terminates on the younger joint
insured's 95th birthday.
INDIVIDUAL INSURED RIDER
This rider provides additional life insurance on the life of either joint
insured. We will pay the rider's face amount when we receive proof of the
insured's death. On any monthly anniversary while the rider is in force, you
may replace it with a new Policy on the insured's life (without evidence of
insurability). This rider terminates on the insured's 95th birthday.
<TABLE>
<S> <C>
CONDITIONS TO /bullet/ your request must be in writing;
REPLACE THE /bullet/ the rider has not reached the anniversary nearest to the
RIDER: insured's 70th birthday;
/bullet/ the new policy is any permanent insurance plan that we
currently offer;
/bullet/ subject to the minimum specified amount requirements for
the new Policy, the amount of the insurance under the new
Policy will equal the face amount in force under the rider;
and
/bullet/ we will base your premium on the insured's rate class
under the rider.
</TABLE>
WEALTH PROTECTOR RIDER
This rider provides additional life insurance on the lives of both joint
insureds. We will pay the rider's face amount when we receive proof that both
joint insureds died while
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<PAGE>
the rider was in force. This rider has no conversion or exchange privilege. The
rider will terminate on the earliest of:
<TABLE>
<S> <C>
/bullet/ the date the Policy terminates;
/bullet/ the fourth Policy anniversary; or
/bullet/ The monthly anniversary after we receive your written request to
terminate the rider.
</TABLE>
The cost of insurance rates do not increase while this rider is in force.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
This rider allows us to pay all or a portion of the death benefit once we
receive satisfactory proof that the surviving insured is ill and has a life
expectancy of one year or less. A doctor must certify the insured's life
expectancy.
We will pay a "single-sum benefit" equal to:
<TABLE>
<S> <C>
/bullet/ the death benefit on the date we pay the single-sum benefit;
MULTIPLIED BY
/bullet/ the election percentage of the death benefit you elect to
receive; DIVIDED BY
/bullet/ 1 + i ("i "equals the interest rate determined by the Code or
the Policy loan interest rate, whichever is greater); MINUS
/bullet/ any indebtedness at the time we pay the single-sum benefit,
multiplied by the election percentage.
</TABLE>
The maximum terminal illness death benefit we will pay is equal to:
<TABLE>
<S> <C>
/bullet/ the death benefit available under the Policy at the surviving
insured's death; PLUS
/bullet/ the benefit available under any joint insured Term Rider or
Wealth Protector Rider in force.
/bullet/ a single-sum benefit may not be greater than $500,000.
</TABLE>
The election percentage is a percentage that you select. It may not be
greater than 100% of your Policy's death benefit under the rider.
We will not pay a benefit under the rider if the surviving insured's
terminal condition results from self-inflicted injuries which occur during the
period specified in your Policy's suicide provision.
The rider terminates at the earliest of:
<TABLE>
<S> <C>
/bullet/ the date the Policy terminates;
/bullet/ the date a settlement option takes effect;
/bullet/ the date we pay a single-sum benefit; or
/bullet/ the date you terminate the rider.
</TABLE>
We do not charge for this rider. This rider may not be available in all
states, or its terms may vary depending on a state's insurance law
requirements.
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<PAGE>
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.
These rates of return do not reflect the annual mortality and expense risk
charge, charges deducted from premiums, monthly deductions from cash value, or
surrender charge. These rates are not an estimate, projection or guarantee 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.
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<PAGE>
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 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>
Additional information regarding the investment performance of the
portfolios appears in the attached fund prospectus.
HYPOTHETICAL ILLUSTRATIONS BASED ON SUBACCOUNT PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the historical experience of the subaccounts. We started selling the Policies
in 1994. The separate account and the fund commenced operations on October 2,
1986. The rates of return below show the actual investment experience of each
subaccount for the periods shown. The illustrations of cash values and net
surrender values below depict these Policy features as if you had purchased it
on the last valuation date prior to January 1, 1987 and had selected death
benefit Option A. The illustrations are based on the historical investment
experience of the subaccount indicated as of the last valuation date prior to
January 1 of the year after the subaccount began investing in the portfolios.
We assumed the rate of return for each subaccount in each calendar year to be
uniformly earned throughout the year; however, the subaccount's actual
performance did and will vary throughout the year.
In order to demonstrate how the actual investment experience of the
subaccounts and the underlying portfolios could have affected the Option A
death benefit, cash value and net surrender value of the Policy, we provide
hypothetical illustrations using the actual investment experience of each
subaccount since it began investing in the underlying portfolios. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE HYPOTHETICAL OWNER HAD HELD THE POLICY DURING THE PERIOD
ILLUSTRATED. We assumed that the actual rate of return was uniformly earned
throughout the year; however, the portfolio's actual performance did and will
vary throughout the year
57
<PAGE>
resulting in monthly deductions from cash value that could affect performance.
These illustrations do not represent what may happen in the future.
The amounts we show for death benefits, cash values, and net surrender
values take into account all charges and deductions from the Policy, the
separate account, and the fund. For each subaccount, we base one illustration
on the guaranteed cost of insurance rates and one on the current cost of
insurance rates, for a hypothetical male and female joint insureds both age 55.
The joint insured's age, gender and rate class, amount and timing of premium
payments, withdrawals, and loans would affect individual Policy benefits.
For each subaccount, the illustrations below show death benefit Option A
based on an annual premium of $4,000, a specified amount of $250,000 for a male
age 55, and a female age 55, and a non-tobacco use, select rate class.
The following example shows how the hypothetical net return of the WRL Alger
Aggressive Growth subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL ALGER AGGRESSIVE GROWTH
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 ................................... $ 4,915 $ 4,915 $ 2,605 $ 2,605
1997* .................................. 9,266 9,266 6,616 6,616
1998* .................................. 15,759 15,759 12,941 12,941
1999* .................................. 28,407 28,407 25,421 25,421
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
58
<PAGE>
The following example shows how the hypothetical net return of the WRL VKAM
Emerging Growth subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1994. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL VKAM EMERGING GROWTH
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 3,269 $ 3,269 $ 959 $ 959
1996* ................................... 9,956 9,956 7,306 7,306
1997* ................................... 15,885 15,885 13,067 13,067
1998* ................................... 23,329 23,329 20,343 20,343
1999* ................................... 36,480 36,480 33,326 33,326
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Janus
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL JANUS GROWTH
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 ................................... 3,930 3,930 1,620 1,620
1989* .................................. 8,801 8,801 6,151 6,151
1990* .................................. 17,996 17,996 15,178 15,178
1991* .................................. 21,229 21,229 18,243 18,243
1992* .................................. 39,149 39,149 35,995 35,995
1993* .................................. 43,159 43,154 39,837 39,831
1994* .................................. 47,926 47,906 44,436 44,416
1995* .................................. 46,518 46,476 42,860 42,818
1996* .................................. 72,656 72,548 68,830 68,722
1997* .................................. 88,718 88,534 84,724 84,540
1998* .................................. 107,377 107,065 104,047 103,735
1999* .................................. 180,840 180,176 178,242 177,578
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
59
<PAGE>
The following example shows how the hypothetical net return of the WRL Janus
Global subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1993. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL JANUS GLOBAL
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $ 4,807 $ 4,807 $ 2,497 $ 2,497
1995* ................................... 8,293 8,293 5,643 5,643
1996* ................................... 14,420 14,420 11,602 11,602
1997* ................................... 22,688 22,688 19,702 19,702
1998* ................................... 30,767 30,767 27,613 27,613
1999* ................................... 44,066 44,059 40,743 40,737
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL AEGON
Bond subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL AEGON BOND
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $ 3,330 $ 3,330 $ 1,020 $ 1,020
1989* ................................... 7,343 7,343 4,693 4,693
1990* ................................... 12,346 12,347 9,528 9,528
1991* ................................... 16,656 16,656 13,670 13,670
1992* ................................... 23,685 23,685 20,531 20,530
1993* ................................... 28,659 28,653 25,336 25,330
1994* ................................... 35,975 35,952 32,484 32,462
1995* ................................... 36,180 36,134 32,522 32,476
1996* ................................... 48,060 47,958 44,234 44,132
1997* ................................... 50,798 50,635 46,804 46,640
1998* ................................... 58,568 58,271 55,239 54,941
1999* ................................... 67,023 66,498 64,425 63,899
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
60
<PAGE>
The following example shows how the hypothetical net return of the WRL LKCM
Strategic Total Return subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that net premiums and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL LKCM STRATEGIC TOTAL RETURN
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 3,516 $ 3,516 $ 1,206 $ 1,206
1996* ................................... 8,743 8,743 6,093 6,093
1997* ................................... 13,981 13,981 11,163 11,163
1998* ................................... 21,105 21,105 18,118 18,118
1999* ................................... 26,672 26,672 23,518 23,518
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL
Federated Growth & Income subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that net premiums and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL FEDERATED GROWTH & INCOME
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 4,451 $ 4,451 $ 2,141 $ 2,141
1997* ................................... 8,854 8,854 6,204 6,204
1998* ................................... 15,301 15,301 12,483 12,483
1999* ................................... 19,175 19,175 16,189 16,189
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
61
<PAGE>
The following example shows how the hypothetical net return of the WRL J.P.
Morgan Money Market subaccount would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1987. This example assumes that
net premiums and cash values were in the subaccount for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL J.P. MORGAN MONEY MARKET
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $ 3,701 $ 3,701 $ 1,391 $ 1,391
1989* ................................... 7,596 7,596 4,946 4,946
1990* ................................... 11,904 11,904 9,086 9,086
1991* ................................... 16,327 16,327 13,341 13,341
1992* ................................... 20,611 20,611 17,457 17,457
1993* ................................... 24,502 24,496 21,180 21,173
1994* ................................... 28,261 28,239 24,771 24,749
1995* ................................... 32,326 32,276 28,668 28,618
1996* ................................... 37,111 37,015 33,285 33,189
1997* ................................... 41,870 41,704 37,876 37,710
1998* ................................... 47,114 46,816 43,784 43,486
1999* ................................... 52,530 52,007 49,932 49,409
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Dean
Asset Allocation subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 4,264 $ 4,264 $ 1,954 $ 1,954
1997* ................................... 8,864 8,864 6,214 6,214
1998* ................................... 14,315 14,315 11,497 11,497
1999* ................................... 19,107 19,107 16,121 16,121
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
62
<PAGE>
The following example shows how the hypothetical net return of the WRL GE
U.S. Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL GE U.S. EQUITY
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $4,515 $4,515 $2,205 $2,205
1999* ................................... 9,832 9,832 7,182 7,182
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Third
Avenue Value subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1998. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL THIRD AVENUE VALUE
Male Issue Age 55, Female Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $3,288 $3,288 $978 $978
</TABLE>
63
<PAGE>
The following example shows how the hypothetical net return of the WRL AEGON
Balanced subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1995. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL AEGON BALANCED
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 4,253 $ 4,253 $ 1,943 $ 1,943
1997* ................................... 8,562 8,562 5,912 5,912
1998* ................................... 14,028 14,028 11,210 11,210
1999* ................................... 18,554 18,554 15,568 15,568
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL NWQ
Value Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL NWQ VALUE EQUITY
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $4,443 $4,443 $2,133 $2,133
1999* ................................... 7,528 7,528 4,878 4,878
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
64
<PAGE>
The following example shows how the hypothetical net return of the WRL C.A.S.E.
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1996. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL C.A.S.E. GROWTH
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Select Risk)
Death Benefit Option A
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 .................................... $ 4,170 $ 4,170 $1,860 $1,860
1998* ................................... 8,804 8,804 6,154 6,154
1999* ................................... 12,507 12,507 9,688 9,688
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL
GE/Scottish Equitable International Equity subaccount would have affected
benefits for a Policy dated on the last valuation date prior to January 1,
1997. This example assumes that net premiums and cash values were in the
subaccount for the entire period and that the values were determined on each
Policy anniversary thereafter.
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
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 .................................... $3,807 $3,807 $1,497 $1,497
1999* ................................... 8,230 8,230 5,580 5,580
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
65
<PAGE>
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
<TABLE>
<S> <C>
/bullet/ other variable life issuers in general;
/bullet/ 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);
/arrow/ 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.
/bullet/ the Standard & Poor's Index of 500 Common Stocks, or other widely
recognized indices;
/arrow/ 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
/bullet/ other types of investments, such as:
/arrow/ certificates of deposit;
/arrow/ savings accounts and U.S. Treasuries;
/arrow/ certain interest rate and inflation indices (E.G. the Consumer Price
Index); or
/arrow/ 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).
</TABLE>
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.
66
<PAGE>
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, N.E., 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 sales commission
payable to Western Reserve agents or other registered representatives may vary
with the sales agreement, but it is not expected to be greater than:
/bullet/ 65% of all premiums you make during the first Policy year, PLUS
/bullet/ 2.50% of all premiums you make during Policy years 2 through 10.
We will pay an additional sales commission of up to 0.15% of the Policy's cash
value on the fifth Policy anniversary and each anniversary thereafter where the
cash value (minus amounts attributable to loans) equals at least $10,000. 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 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, depending on when and where the Policy was issued, in order to
comply with different state laws. These variations may include restrictions on
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.
67
<PAGE>
YEAR 2000 READINESS DISCLOSURE
In May 1996, Western Reserve adopted and presently has 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 March 1, 1999, substantially
all of Western Reserve's mission-critical systems are Year 2000 compliant. The
Plan remains on track as we continue with the validation of our mission-critical
and non-mission-critical systems, including revalidation testing in 1999. In
addition, we have 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, Western Reserve has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly Western Reserve'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, our 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.
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).
EXPERTS
The financial statements and schedules 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 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 and Registration Statement
have been examined by Alan Yaeger as stated in the opinion filed as an exhibit
to the Registration Statement.
68
<PAGE>
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.
69
<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>
70
<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 of WRL
Actuary and Chief Series Fund, Inc. (1993 - present);
Financial Officer Director of WRL Investment
Management, Inc. (1996 - present);
Director of WRL Investment
Services, Inc. (1996 - present).
William H. Geiger* Senior Vice President, Secretary and Senior Vice President, Secretary,
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 PFL
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 (1987 -
and Controller 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 $5 million (subject to a $1 million
deductible), covering all of the
71
<PAGE>
employees of 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 $12 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, as well as
for other purposes permitted by law. The separate account is registered with
the SEC as a unit investment trust under the 1940 Act and qualifies as a
"separate account" within the meaning of the federal securities laws.
72
<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 premiums indicated were
paid and the return on the assets in the subaccounts were 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 premiums
indicated, you do not change your specified amount, and you do not take any
cash 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 75 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, annual premiums of $4,000, a $250,000 specified amount and death
benefit Option A. The illustration on that page also assumes cost of insurance
charges based on our CURRENT cost of insurance rates.
The illustration on page 76 is based on the same factors as those on page
75, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
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 0.90% of the average net assets of the subaccounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.90% of the portfolios' average daily net assets; and (3) all
applicable premium expense charges and cash value charges. The 0.90% average
portfolio expense level assumes an equal allocation of amounts among the 15
subaccounts. It is based on an average 0.76% investment advisory fee and
estimated 1998 average normal operating expenses of 0.14% for each of the
portfolios in operation during 1998. We used annualized actual 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
NWQ Value Equity (0.89%), WRL GE/Scottish Equitable International Equity
(1.50%), WRL GE U.S. Equity (1.05%) and WRL Third Avenue Value (1.00%).
During 1998, WRL Management undertook to pay those normal operating
expenses of certain portfolios that exceeded a certain stated percentage of the
portfolios' average daily
73
<PAGE>
net assets. WRL Management has undertaken until at least April 30, 2000 to pay
expenses to the extent normal operating expenses of certain portfolios of the
fund exceed a stated percentage of the portfolio's average daily net assets.
See the Portfolio Annual Expense Table p. 11. Taking into account the assumed
charges of 1.80%, the gross annual investment return rates of 0%, 6% and 12%
are equivalent to net annual investment return rates of -1.80%, 4.20%, and
10.20%.
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.
74
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION A - LEVEL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- -------- ------------- -------------------------------- -------------------------------- --------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
--------- --------- ------------ -------- ---------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 250,000 250,000 1,192 1,412 1,631 3,502 3,722 3,941
2 8,610 250,000 250,000 250,000 4,265 4,922 5,606 6,915 7,572 8,256
3 13,241 250,000 250,000 250,000 7,416 8,734 10,160 10,234 11,552 12,978
4 18,103 250,000 250,000 250,000 10,470 12,674 15,156 13,456 15,660 18,142
5 23,208 250,000 250,000 250,000 13,422 16,742 20,634 16,576 19,897 23,788
6 28,568 250,000 250,000 250,000 16,270 20,942 26,642 19,593 24,264 29,965
7 34,196 250,000 250,000 250,000 19,011 25,272 33,229 22,501 28,762 36,720
8 40,106 250,000 250,000 250,000 21,633 29,727 40,446 25,291 33,385 44,104
9 46,312 250,000 250,000 250,000 24,127 34,301 48,348 27,953 38,128 52,174
10 52,827 250,000 250,000 250,000 26,477 38,986 56,995 30,471 42,980 60,990
15 90,630 250,000 250,000 250,000 42,559 70,969 121,634 42,559 70,969 121,634
20 138,877 250,000 250,000 250,000 52,203 104,445 220,960 52,203 104,445 220,960
25 200,454 250,000 250,000 403,388 57,673 144,093 384,179 57,673 144,093 384,179
30 279,043 250,000 250,000 679,941 55,118 191,262 647,563 55,118 191,262 647,563
35 379,345 250,000 264,472 1,123,534 38,472 251,878 1,070,032 38,472 251,878 1,070,032
40 507,359 * 332,126 1,769,737 * 328,837 1,752,215 * 328,837 1,752,215
45 670,741 * 425,708 2,873,663 * 425,708 2,873,663 * 425,708 2,873,663
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
END OF HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- -------- ------------------------ -------------------------- -------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
-------- ------- ------- -------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.45 -6.95 -1.48 -70.20 -64.70 -59.22 6,150.00 6,150.00 6,150.00
2 -9.33 -3.61 2.12 -35.27 -28.32 -21.49 642.15 642.15 642.15
3 -7.75 -1.89 3.97 -22.20 -15.06 -8.09 258.47 258.47 258.47
4 -6.81 -0.86 5.09 -16.26 -9.11 -2.16 148.92 148.92 148.92
5 -6.20 -0.17 5.84 -13.01 -5.87 1.04 100.39 100.39 100.39
6 -5.77 0.31 6.38 -11.02 -3.88 2.99 73.77 73.77 73.77
7 -5.47 0.67 6.78 -9.69 -2.56 4.28 57.22 57.22 57.22
8 -5.26 0.94 7.10 -8.78 -1.64 5.19 46.06 46.06 46.06
9 -5.11 1.15 7.34 -8.13 -0.97 5.85 38.07 38.07 38.07
10 -5.02 1.30 7.55 -7.67 -0.47 6.35 32.11 32.11 32.11
15 -4.43 2.07 8.42 -4.43 2.07 8.42 16.46 16.46 16.46
20 -4.27 2.48 8.92 -4.27 2.48 8.92 9.93 9.93 9.93
25 -4.56 2.70 9.25 -4.56 2.70 9.25 6.48 6.48 9.56
30 -5.65 2.86 9.44 -5.65 2.86 9.44 4.39 4.39 9.68
35 -9.12 3.05 9.55 -9.12 3.05 9.55 3.02 3.29 9.75
40 * 3.24 9.62 * 3.24 9.62 * 3.28 9.66
45 * 3.40 9.70 * 3.40 9.70 * 3.40 9.70
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
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 investment 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 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.
75
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION A - LEVEL DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- -------- ------------- -------------------------------- -------------------------------- --------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
--------- --------- ------------ -------- ---------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 250,000 250,000 1,192 1,412 1,631 3,502 3,722 3,941
2 8,610 250,000 250,000 250,000 4,265 4,922 5,606 6,915 7,572 8,256
3 13,241 250,000 250,000 250,000 7,416 8,734 10,160 10,234 11,552 12,978
4 18,103 250,000 250,000 250,000 10,470 12,674 15,156 13,456 15,660 18,142
5 23,208 250,000 250,000 250,000 13,422 16,742 20,634 16,576 19,897 23,788
6 28,568 250,000 250,000 250,000 16,264 20,936 26,636 19,586 24,258 29,958
7 34,196 250,000 250,000 250,000 18,989 25,250 33,207 22,479 28,740 36,697
8 40,106 250,000 250,000 250,000 21,585 29,677 40,394 25,243 33,335 44,052
9 46,312 250,000 250,000 250,000 24,035 34,205 48,248 27,861 38,031 52,074
10 52,827 250,000 250,000 250,000 26,319 38,819 56,822 30,313 42,814 60,817
15 90,630 250,000 250,000 250,000 40,566 68,919 119,685 40,566 68,919 119,685
20 138,877 250,000 250,000 250,000 41,711 94,098 213,472 41,711 94,098 213,472
25 200,454 250,000 250,000 387,907 21,536 110,912 369,435 21,536 110,912 369,435
30 279,043 * 250,000 646,127 * 103,711 615,359 * 103,711 615,359
35 379,345 * 250,000 1,041,151 * 12,005 991,573 * 12,005 991,573
40 507,359 * * 1,602,136 * * 1,586,273 * * 1,586,273
45 670,741 * * 2,603,973 * * 2,603,973 * * 2,603,973
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
END OF HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- -------- ------------------------- -------------------------- -------------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
-------- -------- ------- -------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.45 -6.95 -1.48 -70.20 -64.70 -59.22 6,150.00 6,150.00 6,150.00
2 -9.33 -3.61 2.12 -35.27 -28.32 -21.49 642.15 642.15 642.15
3 -7.75 -1.89 3.97 -22.20 -15.06 -8.09 258.47 258.47 258.47
4 -6.81 -0.86 5.09 -16.26 -9.11 -2.16 148.92 148.92 148.92
5 -6.20 -0.17 5.84 -13.01 -5.87 1.04 100.39 100.39 100.39
6 -5.78 0.31 6.37 -11.03 -3.89 2.99 73.77 73.77 73.77
7 -5.49 0.65 6.77 -9.72 -2.58 4.27 57.22 57.22 57.22
8 -5.30 0.91 7.07 -8.83 -1.68 5.16 46.06 46.06 46.06
9 -5.17 1.10 7.31 -8.21 -1.02 5.81 38.07 38.07 38.07
10 -5.11 1.23 7.50 -7.78 -0.55 6.29 32.11 32.11 32.11
15 -5.07 1.71 8.23 -5.07 1.71 8.23 16.46 16.46 16.46
20 -6.72 1.52 8.64 -6.72 1.52 8.64 9.93 9.93 9.93
25 -15.47 0.79 9.00 -15.47 0.79 9.00 6.48 6.48 9.31
30 * -0.96 9.18 * -0.96 9.18 * 4.39 9.43
35 * -24.99 9.22 * -24.99 9.22 * 3.02 9.43
40 * * 9.27 * * 9.27 * * 9.30
45 * * 9.40 * * 9.40 * * 9.40
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
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 investment 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 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.
76
<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.
77
<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.]
78
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRL SERIES LIFE ACCOUNT:
Report of Independent Accountants dated January 29, 1999
Statement of Assets and Liabilities and Statement of Operations at or 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
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,
1997 and 1996
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
79
<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
80
<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.
81
<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.
82
<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.
83
<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.
84
<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.
85
<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.
86
<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.
87
<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.
88
<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 THIRD AVENUE REAL ESTATE
SUB-ACCOUNT SUB-ACCOUNT VALUE SECURITIES
December 31, December 31, SUB-ACCOUNT SUB-ACCOUNT
--------------------- -------------------- December 31, December 31,
1998 1997(a) 1998 1997(a) 1998(b) 1998(c)
---------- ---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................... $ (32) $ (4) $ 434 $ 107 $ (11) $ (4)
Net gain (loss) on investment
securities ............................................ 369 31 1,411 96 (142) (112)
------ ------ ------- ------ ------ ------
Net increase (decrease) in net assets resulting from
operations ............................................ 337 27 1,845 203 (153) (116)
------ ------ ------- ------ ------ ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................. 3,972 2,458 10,178 3,208 2,932 472
------ ------ ------- ------ ------ ------
Less cost of units redeemed:
Administrative charges ................................ 433 117 862 91 138 4
Policy loans .......................................... 196 59 159 56 8 43
Surrender benefits .................................... 35 14 113 9 26 0
Death benefits ........................................ 107 0 63 0 0 0
------ ------ ------- ------ ------ ------
771 190 1,197 156 172 47
------ ------ ------- ------ ------ ------
Increase (decrease) in net assets from capital
unit transactions ................................... 3,201 2,268 8,981 3,052 2,760 425
------ ------ ------- ------ ------ ------
Net increase (decrease) in net assets ................. 3,538 2,295 10,826 3,255 2,607 309
Depositor's equity contribution (redemption) ........... 0 (6) 0 3 200 400
NET ASSETS:
Beginning of year ...................................... 2,289 0 3,258 0 0 0
------ ------ ------- ------ ------ ------
End of year ............................................ $5,827 $2,289 $14,084 $3,258 $2,807 $ 709
====== ====== ======= ====== ====== ======
UNIT ACTIVITY:
Units outstanding - beginning of year .................. 215 0 259 0 0 0
Units issued ........................................... 767 484 1,266 393 495 113
Units redeemed ......................................... (493) (269) (606) (134) (191) (29)
------ ------ ------- ------ ------ ------
Units outstanding - end of year ........................ 489 215 919 259 304 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.
89
<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.
90
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 17.80 $ 15.13
Income from operations:
Net investment income (loss) ........................................ 0.82 2.30
Net realized and unrealized gain (loss) on investment ............... 4.32 0.37
-------- --------
Net income (loss) from operations .................................. 5.14 2.67
-------- --------
Accumulation unit value, end of year .................................. $ 22.94 $ 17.80
======== ========
Total return (a) ...................................................... 28.86% 17.69%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $233,256 $145,017
Ratios of net investment income (loss) to average net assets (b) ..... 3.92% 13.39%
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
----------------------------------
1996 1995 1994(c)
----------- ----------- ----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 1.50 0.45 0.71
Net realized and unrealized gain (loss) on investment ............... 1.68 1.70 (0.91)
------- ------- --------
Net income (loss) from operations .................................. 3.18 2.15 (0.20)
------- ------- --------
Accumulation unit value, end of year .................................. $ 15.13 $ 11.95 $ 9.80
======= ======= ========
Total return (a) ...................................................... 26.60% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $83,159 $37,049 $ 21,672
Ratios of net investment income (loss) to average net assets (b) ..... 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.
91
<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.
92
<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.
93
<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.
<TABLE>
<S> <C>
(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.
</TABLE>
The notes to the financial statements are an integral part of this report.
94
<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:
<TABLE>
<CAPTION>
SUB-ACCOUNT CONTRIBUTION UNITS
- ------------------------------------- -------------- -------
<S> <C> <C>
Third Avenue Value ............. $200,000 20,000
Real Estate Securities ......... $400,000 40,000
</TABLE>
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.
95
<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.
96
<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):
<TABLE>
<CAPTION>
PURCHASE PROCEEDS
SUB-ACCOUNT: OF SECURITIES OF SECURITIES
- ----------------------------------------- --------------- --------------
<S> <C> <C>
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
</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.
97
<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):
<TABLE>
<CAPTION>
SUB-ACCOUNT
- -----------
<S> <C>
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)
</TABLE>
98
<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.
ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
99
<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.
100
<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.
101
<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.
102
<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.
103
<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.
104
<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
105
<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.
106
<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.
107
<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)
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. 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
108
<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)
separately in the balance sheets. The assets in the separate accounts are
valued at market. Income and gains and losses with respect to the assets in the
separate accounts accrue to the benefit of the policyholders 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
109
<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)
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those
estimates can only be made at excessive cost. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH 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.
110
<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>
111
<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>
112
<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.
113
<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.
114
<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.
115
<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.
116
<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>
117
<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
118
<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.
119
<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 receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, 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
120
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
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
121
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
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 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
122
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
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.
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>
123
<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.
124
<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.
125
<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>
<PAGE>
126
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify certain
persons against certain payments incurred by such persons. The following
excerpts contain the substance of these provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he
II-1
<PAGE>
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
II-2
<PAGE>
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interests of the
corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee,
II-3
<PAGE>
or agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under sections (1) and (2) of this article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay
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<PAGE>
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this article. If a majority vote
of a quorum of disinterested directors so directs by resolution, said written
undertaking need not be submitted to the corporation. Such a determination that
a written undertaking need not be submitted to the corporation shall in no way
affect the entitlement of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any proceeding
against any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such person may also
be an agent of this corporation. The corporation may indemnify such named
fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of any other corporation in which this
Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses,
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<PAGE>
costs, judgments, decrees, fines or penalties as provided by, and to the extent
allowed by, Article Eighth of the Corporation's Articles of Incorporation, as
amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 132 pages
The undertaking to file reports
Representation pursuant to section 26(e)(2)(a)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Sutherland Asbill & Brennan LLP
(b) Ernst & Young LLP
(c) PricewaterhouseCoopers LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western Reserve
establishing the Series Account(4)
(2) Not Applicable
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement (3)
(b) Amendment to Master Service and Distribution Compliance
Agreement (6)
(c) Form of Broker/Dealer Supervisory and Service Agreement (6)
(d) Principal Underwriting Agreement (6)
(e) First Amendment to Principal Underwriting Agreement (6)
(4) Not Applicable
(5) (a) Specimen Flexible Premium Variable Life Insurance Policy (5)
(b) Joint Insured Term Rider (5)
(c) Individual Insured Rider (5)
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<PAGE>
(d) Wealth Protector Rider (5)
(e) Terminal Illness Accelerated Death Benefit Rider
(Form Nos. ACCDB-10/94, ACCDB-CT-10/94, ACCDBIN-10/94,
ACCDB-10/94MN, ACCDBMS-01/95, ACCDBSC-02/95,
ACCDBIL-10/94)(4)
(6) (a) Second Amended Articles of Incorporation of Western
Reserve (3)
(b) Amended Code of Regulations (By-Laws) of Western Reserve (3)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (1)
(b) Sub-Advisory Agreements (1)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy (4)
(11) Memorandum describing issuance, transfer and redemption
procedures (5)
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered
(5)
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to
the securities being registered (5)
7. Consent of Thomas E. Pierpan, Esq. (5)
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
11. (a) Powers of Attorney (4)
(b) Power of Attorney - James R. Walker (2)
- ----------------------------------------
(1) This exhibit was previously filed on Post Effective Amendment No. 25 to
Form N-1A Registration Statement (File No. 33-507) dated October 17,
1997 and is incorporated herein by reference.
(2) This exhibit was previously filed on Post-Effective Amendment No. 13 to
Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140)
and is incorporated herein by reference.
(3) This exhibit was previously filed on Post Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556)
and is incorporated herein by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 16 to
Form S-6 Registration Statement dated April 21, 1998 (File No. 33-31140)
and is incorporated herein by reference.
(5) This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form S-6 Registration Statement dated April 22, 1998 (File No. 33-69138)
and is incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 4 to Form
S-6 Registration Statement dated April 21, 1999 (File No. 333-23359) and is
incorporated herein by reference.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, WRL Series Life Account, certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 12 to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of St. Petersburg, County of Pinellas, Florida on this
21st day of April, 1999.
(SEAL) WRL SERIES LIFE ACCOUNT
Registrant
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
Depositor
ATTEST:
/s/ THOMAS E. PIERPAN By: /s/ JOHN R. KENNEY
- --------------------- -------------------
Thomas E. Pierpan John R. Kenney
Vice President, Assistant Secretary Chairman of the Board,
and Associate General Counsel Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 12 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ JOHN R. KENNEY April 21, 1999
- ------------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President
/s/ ALLAN J. HAMILTON April 21, 1999
- ------------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ ALAN M. YAEGER April 21, 1999
- ------------------------------
Alan M. Yaeger, Executive Vice
President, Actuary & Chief Financial Officer*
*Principal Financial Officer
<PAGE>
/s/ PATRICK S. BAIRD April 21, 1999
- ------------------------------
Patrick S. Baird, Director **/
/s/ LYMAN H. TREADWAY April 21, 1999
- ------------------------------
Lyman H. Treadway **/
/s/ JACK E. ZIMMERMAN April 21, 1999
- ------------------------------
Jack E. Zimmerman, Director **/
/s/ JAMES R. WALKER April 21, 1999
- ------------------------------
James R. Walker, Director **/
**/ /s/ THOMAS E. PIERPAN
--------------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
Exhibit 8
Consent of Sutherland Asbill & Brennan LLP
<PAGE>
S.A.B. letterhead
April 21, 1999
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Life Account
570 Carillon Parkway
St. Petersburg, FL 33716
RE: WRL Series Life Account
FILE NO. 33-69138
Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters"
in the Prospectuses for the WRL Freedom Wealth Protector contained in
Post-Effective Amendment No. 12 to the Registration Statement on Form S-6 (File
No. 33-69138) of the WRL Series Life Account filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
-------------------
Stephen E. Roth
Exhibit 9
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1999, with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in Post-Effective Amendment No. 12 to the Registration Statement (Form
S-6 No. 33-69138) and related Prospectus of WRL Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 20, 1999
Exhibit 10
Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the WRL
Freedom Wealth Protector Post-Effective Amendment No. 12 to the Registration
Statement on Form S-6 of our report dated January 29, 1999, relating to the
financial statements and financial highlights of the sub-accounts comprising the
WRL Series Life Account, which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 20, 1999
