As filed with the Securities and Exchange Commission on April 19, 2000
Registration File Nos. 33-69138/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 13
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.
Senior Vice President, General Counsel and Assistant Secretary
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, 2000, 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, 2000
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 10
OF THIS PROSPECTUS.
An investment in this Policy is
not a bank deposit. The Policy
is not insured or guaranteed by
the Federal Deposit Insurance
Corporation or any other
government agency.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED If you already own a life
OR DISAPPROVED THESE SECURITIES insurance policy, it may not be
OR PASSED UPON THE ADEQUACY to your advantage to buy
OF THIS PROSPECTUS. ANY additional insurance or to
REPRESENTATION TO THE CONTRARY replace your policy with the
IS A CRIMINAL OFFENSE. Policy described in this
prospectus.
The prospectus for the WRL
Series Fund, Inc. must
accompany this prospectus.
Certain portfolios may not be
available in all states. Please
read this document before
investing and save it for
future reference.
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TABLE OF CONTENTS
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Glossary ....................................................... 1
Policy Summary ................................................. 5
Risk Summary ................................................... 10
Portfolio Annual Expense Table ................................. 14
Western Reserve and the Fixed Account .......................... 15
Western Reserve ............................................ 15
The Fixed Account .......................................... 15
The Separate Account and the Portfolios ........................ 16
The Separate Account ....................................... 16
The Fund ................................................... 17
Addition, Deletion, or Substitution of Investments ......... 19
Your Right to Vote Portfolio Shares ........................ 20
The Policy ..................................................... 21
Purchasing a Policy ........................................ 21
Underwriting Standards ..................................... 21
When Insurance Coverage Takes Effect ....................... 22
Ownership Rights ........................................... 24
Policy Split Option ........................................ 25
Canceling a Policy ......................................... 26
Premiums ....................................................... 27
Premium Flexibility ........................................ 27
Planned Periodic Payments .................................. 27
Minimum Monthly Guarantee Premium .......................... 27
No Lapse Period ............................................ 28
Premium Limitations ........................................ 28
Making Premium Payments .................................... 28
Allocating Premiums ........................................ 29
Policy Values .................................................. 30
Cash Value ................................................. 30
Net Surrender Value ........................................ 30
Subaccount Value ........................................... 30
Subaccount Unit Value ...................................... 31
Fixed Account Value ........................................ 31
Transfers ...................................................... 32
General .................................................... 32
Fixed Account Transfers .................................... 34
Conversion Rights .......................................... 34
Dollar Cost Averaging ...................................... 34
Asset Rebalancing Program .................................. 35
Third Party Asset Allocation Services ...................... 36
Charges and Deductions ......................................... 36
Premium Charge ............................................. 37
Monthly Deduction .......................................... 37
Mortality and Expense Risk Charge .......................... 39
This Policy is not available in the State of New York.
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<TABLE>
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Surrender Charge ......................................... 39
Transfer Charge .......................................... 42
Cash Withdrawal Charge ................................... 43
Taxes .................................................... 43
Portfolio Expenses ....................................... 43
Group or Sponsored Policies .............................. 43
Associate Policies ....................................... 44
Death Benefit ................................................ 44
Death Benefit Proceeds ................................... 44
Death Benefit ............................................ 45
Effects of Cash Withdrawals on the Death Benefit ......... 46
Choosing Death Benefit Options ........................... 46
Changing the Death Benefit Option ........................ 46
Decreasing the Specified Amount .......................... 47
No Increases in the Specified Amount ..................... 47
Payment Options .......................................... 47
Surrenders and Cash Withdrawals .............................. 48
Surrenders ............................................... 48
Cash Withdrawals ......................................... 48
Loans ........................................................ 49
General .................................................. 49
Interest Rate Charged .................................... 50
Loan Reserve Interest Rate Credited ...................... 50
Effect of Policy Loans ................................... 50
Policy Lapse and Reinstatement ............................... 51
Lapse .................................................... 51
No Lapse Period .......................................... 51
Reinstatement ............................................ 52
Federal Income Tax Considerations ............................ 53
Tax Status of the Policy ................................. 53
Tax Treatment of Policy Benefits ......................... 54
Other Policy Information ..................................... 56
Our Right to Contest the Policy .......................... 56
Suicide Exclusion ........................................ 57
Misstatement of Age or Gender ............................ 57
Modifying the Policy ..................................... 57
Benefits at Maturity ..................................... 57
Payments We Make ......................................... 58
Settlement Options ....................................... 58
Reports to Owners ........................................ 60
Records .................................................. 60
Policy Termination ....................................... 60
Supplemental Benefits (Riders) ............................... 60
Joint Insurance Term Rider ............................... 60
Individual Insured Rider ................................. 60
Wealth Protector Rider ................................... 61
Terminal Illness Accelerated Death Benefit Rider ......... 61
</TABLE>
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<TABLE>
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IMSA ..................................................................... 62
Performance Data ......................................................... 62
Rates of Return ...................................................... 62
Hypothetical Illustrations Based on Subaccount Performance ........... 63
Other Performance Data in Advertising Sales Literature ............... 73
Western Reserve's Published Ratings .................................. 74
Additional Information ................................................... 74
Sale of the Policies ................................................. 74
Legal Matters ........................................................ 74
Legal Proceedings .................................................... 74
Variations in Policy Provisions ...................................... 75
Experts .............................................................. 75
Financial Statements ................................................. 75
Additional Information about Western Reserve ......................... 76
Western Reserve's Directors and Officers ............................. 77
Additional Information about the Separate Account .................... 79
Appendix A -- Illustrations .............................................. 80
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 84
Index to Financial Statements ............................................ 86
WRL Series Life Account .............................................. 87
Western Reserve Life Assurance Co. of Ohio ........................... 114
</TABLE>
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GLOSSARY
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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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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 deductions. 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. The Policy allows you to
invest in the portfolios of the fund through our subaccounts. We reserve the
right to add other registered investment companies to the Policy in the future.
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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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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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</TABLE>
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<TABLE>
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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. You may continue coverage, at
your option, under the Policy's extended maturity date benefit provision.
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minimum The amount shown on your Policy schedule page (unless changed when you
monthly change death benefit options or decrease the specified amount) that we use
guarantee during the no lapse period to determine whether a grace period will begin. We
premium will adjust the minimum monthly guarantee premium if you change death
benefit options, decrease the specified amount, or increase or add a rider. We
make this determination whenever your net surrender value is not enough to
meet monthly deductions.
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Monthiversary This is the day of each month when we determine Policy charges and deduct
them from cash value. It is the same date each month as the Policy date. If
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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monthly The monthly Policy charge, plus the monthly cost of insurance charge, plus
deduction the monthly death benefit guarantee charge, plus the monthly charge for any
riders added to your Policy.
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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 target premium attained age 65 or five Policy years, or
(2) the later of target premium attained 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>
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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 net 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 (level) 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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target premium The target premium attained age is the target premium age plus the number of
attained age completed Policy years. The target premium age equals the average of the
joint insureds' issue ages, rounded down, but no more than the younger joint
insured's age plus ten years.
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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 for business whenever the New York Stock Exchange is open.
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valuation period The period of time over which we determine the change in the value of the
subaccounts. Each valuation period begins at the close of normal trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern time on each
valuation date) and ends at the close of normal trading of the New York
Stock Exchange on the next valuation date.
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we, us, our Western Reserve Life Assurance Co. of Ohio.
(Western
Reserve) --------------------------------------------------------------------------------
</TABLE>
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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>
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POLICY SUMMARY WRL FREEDOM WEALTH PROTECTOR/registered trademark/
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This summary provides only a brief overview of the more important features
of the Policy. More detailed information about the Policy appears later in this
prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY.
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. 10.) 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
/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/ You increase your risk of lapse if you do not regularly pay premiums
at least as large as the current minimum monthly guarantee premium.
/bullet/ Until the no lapse date shown on your Policy schedule page, we
guarantee that your Policy will not lapse, so long as you have paid
total premiums (MINUS any withdrawals and MINUS any outstanding
loans) that equal or exceed the sum of the minimum monthly guarantee
premiums in effect for each month since the Policy date up to and
including the current month. If you take a withdrawal or a loan, you
may need to pay additional premiums in order to keep the no lapse
guarantee in place.
/bullet/ The minimum monthly guarantee premium on the Policy date is shown on
your Policy schedule page. We will adjust the minimum monthly
guarantee premium if you change death benefit options, decrease the
specified amount, or increase or add a rider.
/bullet/ Under certain circumstances, extra premiums may be required to
prevent lapse.
/bullet/ Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may
return the Policy during this period and receive a refund.
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DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED
ACCOUNT
/bullet/ For the first ten Policy years: 6.0% premium expense charge.
/bullet/ After the tenth year: 2.5% premium expense charge.
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to any of the
subaccounts of the WRL Series Life Account, a separate account. Each subaccount
invests exclusively in one investment portfolio of the WRL Series Fund, Inc.
(the "fund"). THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE
VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT
PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
The portfolios available to you are:
<TABLE>
<S> <C>
- WRL VKAM Emerging Growth - WRL C.A.S.E. Growth
- WRL Alger Aggressive Growth - WRL NWQ Value Equity
- WRL Third Avenue Value - WRL Dean Asset Allocation
- WRL GE International Equity - WRL LKCM Strategic Total Return
(formerly, WRL GE/Scottish - WRL Federated Growth & Income
Equitable International Equity) - WRL AEGON Balanced
- WRL Janus Global - WRL AEGON Bond
- WRL Janus Growth - WRL J.P. Morgan Money Market
- WRL GE U.S. 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%. New Jersey residents -- the fixed
account is NOT available to you.
CASH VALUE
/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 fixed 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.
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TRANSFERS
/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 in writing, 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/ You may make one transfer per Policy year from the fixed account, and
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 is
limited to the greater of:
/arrow/ 25% of your value in the fixed account; OR
/arrow/ the amount you transferred from the fixed account in the
preceding Policy year.
CHARGES AND DEDUCTIONS
/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 attained age,
gender, 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. 48. We reduce the total
surrender charge at the rate of 20% per year, beginning in Policy
year 11, until it reaches 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 the optional
insurance benefits (riders) you select. Each rider will have its own
charge.
/bullet/ CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals
equal to the lesser of $25 or 2% of the withdrawal.
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<PAGE>
/bullet/ PORTFOLIO EXPENSES: The portfolios deduct management fees and
expenses from the amounts you have invested in the portfolios. These
fees and expenses currently range from 0.44% to 1.20% annually,
depending on the portfolio. See Portfolio Annual Expense Table p. 14.
See also the fund prospectus.
LOANS
/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.
/bullet/ There are risks involved in taking a Policy loan. See Risk Summary p.
10.
DEATH BENEFIT
/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. A change in death benefit option or a decrease in specified
amount cannot reduce your specified amount below the minimum
specified amount as shown in your Policy.
/bullet/ Under current tax law, the death benefit should be income tax free to
the beneficiary.
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/bullet/ The death benefit is available in a lump sum or a variety of payout
options.
CASH WITHDRAWALS AND SURRENDERS
/bullet/ You may take one withdrawal of cash value per Policy year after the
first Policy year.
/bullet/ The amount of the withdrawal must be:
/arrow/ no less than $500; and
/arrow/ 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.
INQUIRIES
If you need more information, please contact us at:
Western Reserve Life
P.O. Box 5068
Clearwater, Florida 33758-5068
1-800-851-9777
www.westernreserve.com
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RISK SUMMARY
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INVESTMENT If you invest your cash value in one or more subaccounts,
RISK you will be subject to the risk that investment performance
could be unfavorable and that the cash value of your Policy
would decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND
YOUR POLICY COULD LAPSE. If you select the fixed account,
your cash value in the fixed account is 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%.
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RISK OF LAPSE If your Policy fails to meet certain conditions, we will
notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period.
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 sufficient minimum monthly guarantee
premiums. If you do not pay these 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 cash 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 minimum monthly guarantee premiums are high
enough to keep the no lapse period in effect.
If you change death benefit options, decrease the specified
amount or add or increase a rider, we will increase the
amount of your minimum monthly guarantee premium.
You will lessen the risk of Policy lapse if you keep the no
lapse period in effect. Before you take a cash withdrawal,
loan, decrease the specified amount, or increase or add a
rider, you should consider carefully the effect it will have
on the no lapse guarantee.
After the no lapse period, your Policy may lapse if loans,
withdrawals, the monthly deduction of insurance charges, and
insufficient investment returns reduce the net surrender
value to zero. The Policy will enter a grace period if on
any Monthiversary the net surrender value (that is, the cash
value, minus the surrender charge, and minus any outstanding
loans, plus any interest you paid in advance on the loan
between the date of surrender and the next Policy
anniversary) is not enough to pay the monthly deduction due.
A Policy lapse will have adverse tax consequences. See
Federal Income Tax Considerations p. 53 and Policy Lapse and
Reinstatement p. 51.
You may reinstate this Policy within five years after it has
lapsed (and prior to the maturity date), if the joint
insureds meet the insurability requirements and you pay the
amount we require.
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</TABLE>
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<PAGE>
<TABLE>
<S> <C>
TAX RISKS It is reasonable to conclude that the Policy will generally
(INCOME TAX be deemed a life insurance contract under federal tax law,
AND MEC) so that the death benefit 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 modi- fied 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 cash withdrawals,
surrenders and loans taken before you reach age 59 1/2. 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. Amounts in excess of your
investment in the Policy, while subject to tax as ordinary
income, will not be subject to a 10% penalty tax. You should
consult a qualified tax advisor for assistance in all tax
matters involving your Policy.
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LIMITS ON CASH The Policy permits you to take only one cash withdrawal per
WITHDRAWALS Policy year, 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 by the
amount of the withdrawal. A cash withdrawal also reduces the
death benefit under Option B because the cash value is
reduced. In some circumstances, a cash 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 cash
withdrawals and surrenders.
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</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
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 ac- count 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 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 that if the
loan, insurance charges and unfavorable investment
experience reduce your net surrender value, and the no lapse
period is no longer in effect, then the Policy will lapse.
Adverse tax consequences would result.
If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding
indebtedness will be taxed as if it were a distribution from
the Policy. See Federal Income Tax Considerations p. 53.
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EFFECTS OF THE The surrender charge under this Policy is significant,
SURRENDER especially in the early Policy years. It is likely you will
CHARGE 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. Each month we will use the cash value
(reduced by the surrender charge and reduced by outstanding
loans and interest paid in advance not yet earned) to
measure whether your Policy will remain or will enter a
grace period.
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COMPARISON Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and can provide 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
insurance protection and of the Policy's cash value will
vary with the investment performance of the amounts you
place in the subaccounts. In addition, the cash value and
net surrender value will always vary with the investment
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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</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
ILLUSTRATIONS The illustrations in this prospectus are based on
hypothetical rates of return that are not guaranteed. They
illustrate how the specified amount, Policy charges and
hypothetical rates of return affect death benefit levels,
cash value and net surrender value of the Policy. We may
also illustrate Policy values based on the adjusted
historical performance of the portfolios since the
portfolios' inception, reduced by Policy and subaccount
charges. The hypothetical and adjusted historic portfolio
rates illustrated should not be considered to represent past
or future performance. It is almost certain that actual
rates of return may be higher or lower than those
illustrated, so that the values under your Policy will be
different from those in the illustrations.
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</TABLE>
13
<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)(5)
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT OTHER RULE 12B-1 ANNUAL
PORTFOLIO FEES EXPENSES FEES EXPENSES
<S> <C> <C> <C> <C>
WRL VKAM Emerging Growth 0.80% 0.07% N/A 0.87%
WRL Alger Aggressive Growth 0.80% 0.09% N/A 0.89%
WRL Third Avenue Value 0.80% 0.20% N/A 1.00%
WRL GE International Equity(2) 1.00% 0.20% N/A 1.20%
WRL Janus Global(3) 0.80% 0.12% N/A 0.92%
WRL Janus Growth(4) 0.80% 0.05% N/A 0.85%
WRL GE U.S. Equity 0.80% 0.13% N/A 0.93%
WRL C.A.S.E. Growth 0.80% 0.20% N/A 1.00%
WRL NWQ Value Equity 0.80% 0.10% N/A 0.90%
WRL Dean Asset Allocation 0.80% 0.07% N/A 0.87%
WRL LKCM Strategic Total Return 0.80% 0.06% N/A 0.86%
WRL Federated Growth & Income 0.75% 0.14% N/A 0.89%
WRL AEGON Balanced 0.80% 0.09% N/A 0.89%
WRL AEGON Bond 0.45% 0.08% N/A 0.53%
WRL J.P. Morgan Money Market 0.40% 0.04% N/A 0.44%
</TABLE>
(1) Effective January 1, 1997, the Board of the WRL Fund authorized the WRL
Fund to charge each portfolio of the WRL Fund an annual Rule 12b-1 fee of
up to 0.15% of each portfolio's average daily net assets. However, the WRL
Fund will not deduct the fee from any portfolio before April 30, 2001. You
will receive advance written notice if a Rule 12b-1 fee is to be deducted.
See the WRL Fund prospectus for more details.
(2) Prior to May 1, 2000 this portfolio was known as WRL GE/Scottish Equitable
International Equity. The fee table reflects estimated 2000 expenses
because the expense limit for this portfolio will be reduced from 1.50% to
1.20% effective May 1, 2000.
(3) WRL Investment Management, Inc. ("WRL Management") currently waives 0.025%
of its advisory fee on portfolio average daily net assets over $2 billion
(net fee -- 0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(4) WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%);
and 0.05% for the portfolio's average daily net assets above $3 billion
(net fee -- 0.75%). This waiver is voluntary and will be terminated on
June 25, 2000. The fee table reflects estimated 2000 expenses because of
the termination of the fee waiver.
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<PAGE>
(5) WRL Management, the investment adviser of the WRL Fund, has undertaken,
until at least April 30, 2001, 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 limit, the amount reimbursed by WRL Management during 1999, and
the expense ratio without the reimbursement are listed below for each
portfolio:
<TABLE>
<CAPTION>
EXPENSE RATIO
EXPENSE REIMBURSEMENT WITHOUT
LIMIT AMOUNT REIMBURSEMENT
<S> <C> <C> <C>
WRL VKAM Emerging Growth 1.00% $ N/A N/A
WRL Alger Aggressive Growth 1.00% N/A N/A
WRL Third Avenue Value 1.00% 10,734 1.06%
WRL GE International Equity 1.20% 112,088 1.84%
WRL Janus Global 1.00% N/A N/A
WRL Janus Growth 1.00% N/A N/A
WRL GE U.S. Equity 1.00% N/A N/A
WRL C.A.S.E. Growth 1.00% N/A N/A
WRL NWQ Value Equity 1.00% N/A N/A
WRL Dean Asset Allocation 1.00% N/A N/A
WRL LKCM Strategic Total Return 1.00% N/A N/A
WRL Federated Growth & Income 1.00% N/A N/A
WRL AEGON Balanced 1.00% N/A N/A
WRL AEGON Bond 0.70% N/A N/A
WRL J.P. Morgan Money Market 0.70% N/A N/A
</TABLE>
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, 1999 (except as noted in the footnotes). 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.
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.
15
<PAGE>
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 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.
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
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<PAGE>
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 portfolios of the fund, a
series mutual fund that is registered with the SEC as an open-end management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the portfolios by the SEC.
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 VKAM /arrow/ Van Kampen /arrow/ Seeks capital appreciation by
EMERGING Asset Management Inc. investing primarily in common
GROWTH stocks of small and medium-sized
companies.
WRL ALGER /arrow/ Fred Alger /arrow/ Seeks long-term capital apprecia-
AGGRESSIVE Management, Inc. tion.
GROWTH
WRL THIRD /arrow/ EQSF Advisers, Inc. /arrow/ Seeks long-term capital apprecia-
AVENUE VALUE tion by investing primarily in a
portfolio of equity securities of
well-financed companies believed
to be priced below their private
market values and debt securities
providing strong protective
covenants and high, effective
yields.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ---------------------- -----------------------------------
<S> <C> <C> <C> <C>
WRL GE /arrow/ GE Asset Management /arrow/ Seeks long-term growth of capital.
INTERNATIONAL Incorporated*
EQUITY
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks long-term growth of capital
GLOBAL Corporation in a manner consistent with the
preservation of capital.
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks growth of capital.
GROWTH Corporation
WRL GE U.S. /arrow/ GE Asset Management /arrow/ Seeks long-term growth of capital.
EQUITY Incorporated
WRL C.A.S.E. /arrow/ C.A.S.E. /arrow/ Seeks annual growth of capital
GROWTH Management, Inc. through investment in companies
whose management, financial
resources and fundamentals appear
attractive on a scale measured
against each company's present
value.
WRL NWQ VALUE /arrow/ NWQ Investment /arrow/ Seeks to achieve maximum,
EQUITY Management consistent total return with
Company, Inc. minimum risk to principal.
WRL DEAN ASSET /arrow/ Dean Investment /arrow/ Seeks preservation of capital and
ALLOCATION Associates competitive investment returns.
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.
WRL FEDERATED /arrow/ Federated Investment /arrow/ Seeks total return by investing in
GROWTH & INCOME Counseling securities that have defensive
characteristics.
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks preservation of capital,
BALANCED Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
* Effective May 1, 2000, GE Asset Management Incorporated will be the sole sub-adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ------------------------ -----------------------------------
<S> <C> <C> <C> <C>
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks the highest possible current
BOND Investment income within the confines of the
Management, Inc. primary goal of insuring the
protection of capital.
WRL J.P. MORGAN /arrow/ J.P. Morgan Investment /arrow/ Seeks to obtain maximum current
MONEY MARKET Management Inc. income consistent with preserva-
tion of principal and maintenance
of liquidity.
</TABLE>
WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida
33716, a wholly-owned subsidiary of Western Reserve, serves as investment
adviser to the fund and manages the fund in accordance with policies and
guidelines established by the fund's Board of Directors. For certain
portfolios, WRL Management has engaged investment sub-advisers to provide
portfolio management services. WRL Management and each investment sub-adviser
are registered investment advisers under the Investment Advisers Act of 1940,
as amended. See the fund prospectus for more information regarding WRL
Management and the investment sub-advisers.
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that 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 portfolios 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 portfolio shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2)
changes in federal income tax laws, or (3) differences in voting instructions
between those given by variable life insurance policyowners and those given by
variable annuity contract owners.
If the fund's Board of Directors were to conclude that separate funds
should be established for variable life insurance and variable annuity separate
accounts, Western Reserve will bear the attendant expenses, but variable life
insurance policyowners and variable annuity contract owners would no longer
have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from,
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<PAGE>
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 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 you and prior approval of the SEC, to the extent required by
the 1940 Act or other applicable law. We may also decide to purchase for the
separate account securities from other portfolios.
We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of the fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
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. See Tax Status of the
Policy p. 53.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
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<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
You 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:
/bullet/ the date of your application; or
/bullet/ the date the joint insureds complete all of the medical tests and
examinations that we require.
* 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
males and females 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.
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<PAGE>
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:
/bullet/ select, non-tobacco use; and
/bullet/ standard, tobacco use.
We then place the joint insureds into one of the following
non-sub-standard rate classes:
/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.
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
Insurance coverage under the Policy will take effect only if the
insured(s) is alive and in the same condition of health as described in the
application when the Policy is delivered to the owner, and if the initial
premium required under the Policy as issued 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 insured 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
COVERAGE IS THE LESSER OF: /bullet/ reduced by all amounts payable under all life insurance
applications that the insured has 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 insured completes all of the medical tests and
LATER OF: examinations that we require; or
/bullet/ the date of issue, if any, requested in the application.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date we determine the insured has satisfied our
COVERAGE TERMINATES underwriting requirements and the insurance applied for
AUTOMATICALLY ON THE takes effect (the Policy date); or
EARLIEST OF: /bullet/ 60 days from the date the application was completed; or
/bullet/ the date we determine that any person proposed for
insurance in the application is not insurable according to
our rules, limits and standards for the plan, amount and
rate class shown in the application; or
/bullet/ the date we modify the plan, amount, riders and/or the
premium rate class shown in the application, or any
supplemental agreements; or
/bullet/ the date we mail notice of the ending of coverage and we
refund the first premium to the applicant at the address
shown on the application.
</TABLE>
<TABLE>
<S> <C>
SPECIAL LIMITATIONS OF THE /bullet/ the conditional receipt will be void:
CONDITIONAL RECEIPT: /arrow/ if not signed by an authorized agent of Western
Reserve; or
/arrow/ in the event the application contains any fraud or
material misrepresentation; or
/arrow/ if, on the date of the conditional receipt, the
proposed insured is under 15 days of age or over
80 years of age.
/bullet/ the conditional receipt does not provide benefits for
disability and accidental death benefits.
/bullet/ the conditional receipt does not provide benefits if any
proposed insured commits suicide. In this case, Western
Reserve's liability will be limited to return of the first
premium paid with the application.
</TABLE>
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the joint insureds meet our underwriting requirements and you
have paid the initial premium, full insurance coverage will begin and we will
begin to take 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 on which we receive the
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premium or transaction request at our office. 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. 30.
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 our
OWNER office at any 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
accepted by us.
/bullet/ Changing the owner does not automatically change the
beneficiary.
/bullet/ Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
/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 at our office.
</TABLE>
<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>
24
<PAGE>
<TABLE>
<S> <C>
CHANGING THE /bullet/ The owner changes the beneficiary by providing written
BENEFICIARY notice to us at our office.
/bullet/ Change is effective as of the date the owner signs the
written notice.
/bullet/ Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
/bullet/ We are not liable for any payments we made before we
received the written notice at our office.
</TABLE>
<TABLE>
<S> <C>
ASSIGNING THE /bullet/ The owner may assign Policy rights while either or both
POLICY joint insureds are alive.
/bullet/ Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
/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; or
/arrow/ bound by any assignment which results in adverse
tax consequences to the owner, joint insureds or
beneficiary(ies).
</TABLE>
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:
/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
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<PAGE>
/bullet/ written confirmation of a dissolution of a business partnership of
which the joint insureds were partners.*
* 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.
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:
/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
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<PAGE>
/bullet/ your cash value in the subaccounts and the fixed account on the
date we (or our agent) receive the returned Policy at our office.
Some states may require us to refund all of the premiums you paid for the
Policy.
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 over $100. 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. Please be sure to notify us or your agent/registered
representative of any address changes so that we may be able to keep your
current address on record.
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 when due (and your no lapse period has 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. 51.
MINIMUM MONTHLY GUARANTEE PREMIUM
The full initial premium is the only premium you are required to pay under
the Policy. However, you greatly increase your risk of lapse if you do not
regularly pay premiums at least as large as the current minimum monthly
guarantee premium.
Until the no lapse date shown on your Policy schedule page, we guarantee
that your Policy will not lapse, so long as:
/bullet/ total premiums paid (MINUS any withdrawals and MINUS any
outstanding loans) EQUALS OR EXCEEDS
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<PAGE>
/bullet/ the sum of the minimum monthly guarantee premiums in effect for
each specific month from the Policy date up to and including the
current month.
If you take a withdrawal or a loan, you may need to pay additional
premiums in order to keep the no lapse guarantee in place.
The initial minimum monthly guarantee premium is shown on your Policy's
schedule page. The minimum monthly guarantee premium will change if you request
a change in death benefit options, decrease the specified amount, or increase
or add a rider.
After the no lapse period ends, paying the current minimum monthly
guarantee premium each month will not necessarily keep your Policy in force.
You may need to pay additional premiums to keep the Policy in force.
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:
/bullet/ the total amount of the premiums you paid (MINUS any withdrawals
and MINUS outstanding loans) EQUALS OR EXCEEDS
/bullet/ the sum of the minimum monthly guarantee premiums in effect for
each specific month from the Policy date up to and including the
current month.
See Policy Lapse and Reinstatement p. 51.
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 permit you to make additional premium
payments until they are allowed by the maximum premium limitations. In
addition, we reserve the right to refund a premium if the premium would
increase the death benefit by more than the amount of the premium.
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 Charges and Deductions -- Premium Charge p. 37). We will
accept premium payments by wire transfer.
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<PAGE>
If you wish to make payments by bank wire, you should instruct your bank
to wire federal funds as follows:
All First Bank of Baltimore
ABA #: 052000113
For credit to: Western Reserve Life
Account #: 89539639
Policyowner's Name:
Policy Number:
Attention: General Accounting
TAX-FREE EXCHANGES ("1035 Exchanges"). We will accept part or all of your
initial premium money from one or more contracts insuring the same insured that
qualify for tax-free exchanges 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:
/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,
if an existing Policy, or your minimum initial premium, if a new
policy, must be at least $10,000.
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. This
change will be effective at the end of the valuation date on which we receive
the change. Upon instructions from you, the registered representative/agent of
record for your Policy may also change your allocation instructions for you.
The minimum amount you can allocate to a particular subaccount is 10% of each
net premium payment. 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 regular business session of the NYSE
(usually at 4:00 p.m. Eastern time). We will
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<PAGE>
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.
POLICY VALUES
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<TABLE>
<S> <C>
CASH VALUE /bullet/ 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/ 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.
/bullet/ includes any amount held in the fixed account to
secure any outstanding Policy loan.
</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 at our office.
<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.
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<PAGE>
<TABLE>
<S> <C>
THE NUMBER OF /bullet/ the initial units purchased at unit value on the record 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 cash 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 next determined at the end of the valuation period on which the
premium, transfer request or cash withdrawal request is received at our office.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value may increase or decrease from one
valuation period to the next.
THE UNIT VALUE OF ANY SUBACCOUNT AT THE END OF A VALUATION PERIOD IS CALCULATED
AS:
/bullet/ the total value of the portfolio shares held in the subaccount,
determined by multiplying the number of portfolio shares owned by the
subaccount by the portfolio's net asset value per share determined at
the end of the valuation period; MINUS
/bullet/ a charge equal to the daily net assets of the subaccount
multiplied by the daily equivalent of the daily charge; 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.
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.
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<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 from a subaccount to the fixed
PERIOD IS EQUAL TO: account; PLUS
/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:
/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.
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 at our office. WE MAY MODIFY OR REVOKE THE
TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers under
the Policy:
/arrow/ You may make an unlimited number of "non-substantive" transfers
in a Policy year among the subaccounts, although we do limit
"substantive" transfers, as discussed below.
/arrow/ You may make one transfer from the fixed account in a Policy year
(unless you choose dollar cost averaging from the fixed account).
/arrow/ You may request transfers in writing (in a form we accept), by
fax or by telephone.
/arrow/ There is no minimum amount that must be transferred.
/arrow/ There is no minimum amount that must remain in a subaccount after
a transfer.
/arrow/ We deduct a $10 charge from the amount transferred for each
transfer in excess of 12 transfers in a Policy year.
/arrow/ We consider all transfers made in any one day to be a single
transfer.
/arrow/ 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.
/arrow/ Transfers under dollar cost averaging and asset rebalancing are
treated as transfers for purposes of the transfer charge.
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<PAGE>
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, during any 12-month period. We interpret "substantive" to
mean either a dollar amount large enough to have a negative impact on a
portfolio's operations or a series of movements between portfolios. We will not
limit non-substantive transfers.
Your Policy, as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-851-9777 or fax your instructions to
727-299-1648.
Please note the following regarding telephone or fax transfers:
/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.
/arrow/ We will employ reasonable procedures to confirm that telephone
instructions are genuine.
/arrow/ If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
/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 you do not want the ability to make telephone transfers, you
should notify us in writing.
/arrow/ Telephone or fax requests must be received at our office before
4:00 p.m. Eastern time to assure same-day pricing of the
transaction.
/arrow/ WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS
IF FAXED TO A NUMBER OTHER THAN 727-299-1648.
/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.
We will process any transfer request we receive at our office 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.
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<PAGE>
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 at the end of the valuation date on which we receive the written
request. The amount of the transfer is limited to the greater of:
/arrow/ 25% of your value in the fixed account; or
/arrow/ the amount you transferred from the fixed account in the prior
Policy year.
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
average purchase price per unit. The strategy spreads the allocation of your
premium into 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 consider carefully your financial ability
to continue the program over a long enough period of time to purchase units
when their value is low as well as when 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.
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<TABLE>
<S> <C>
TO START DOLLAR COST /arrow/ you must submit a completed form to us at our office
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 ($500 for New Jersey
residents); 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>
You may request dollar cost averaging at any time. 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>
DOLLAR /arrow/ we receive your request to cancel your participation;
COST AVERAGING /arrow/ the value in the accounts from which we make the
WILL TERMINATE IF: 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 you have selected. 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.
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. You may modify your allocations quarterly. 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.
35
<PAGE>
<TABLE>
<S> <C>
TO START /arrow/ you must submit a completed asset rebalancing request
ASSET REBALANCING: form to us at our office 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>
ASSET REBALANCING /arrow/ you elect to participate in the dollar cost averaging
WILL CEASE IF: 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 participation in the asset rebalancing program at
any time; but we may restrict your right to re-enter the program to once each
Policy year. If you wish to resume the asset rebalancing program, you must
complete a new request form. We may modify, suspend, or discontinue the asset
rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES
NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY
TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM
ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF
POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT
ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR
ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve
does not currently charge you any additional fees for providing these support
services. Western Reserve reserves the right to discontinue providing
administrative and support services to owners utilizing independent third
parties who provide investment allocation and transfer recommendations.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
36
<PAGE>
<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 Monthiversary. 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 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.
37
<PAGE>
<TABLE>
<S> <C>
THE MONTHLY DEDUCTION IS /bullet/ the monthly Policy charge; PLUS
EQUAL TO: /bullet/ the monthly cost of insurance charge for the Policy; PLUS
/bullet/ the monthly death benefit guarantee charge; PLUS
/bullet/ the monthly charge for any benefits provided by riders
attached to the Policy.
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 at issue on additional policies
(not on the original Policy) purchased naming the same
owner and insured.
/bullet/ This charge compensates us for adminsitrative expenses
such as recordkeeping, processing death benefit claims and
Policy changes, and overhead costs.
COST OF INSURANCE CHARGE:
We deduct this charge each month. It varies each month and is
equal to:
/arrow/ the death benefit on the Monthiversary;
DIVIDED BY
/arrow/ 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
/arrow/ the cash value on the
Monthiversary;
MULTIPLIED BY
/arrow/ the monthly cost of insurance
rate for the Policy.
OPTIONAL INSURANCE RIDERS:
/bullet/ The monthly deduction will include charges for any
optional insurance benefits you add to your Policy by rider
(see Supplemental Benefits (Riders) p. 60).
</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 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. 21.
38
<PAGE>
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>
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from your cash value in each 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).
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 surrender your Policy completely 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. There is no surrender charge if you
wait until the 15th Policy anniversary to surrender your Policy. The payment
you receive is called the net surrender value. The formula we use reduces the
surrender charge at older ages in compliance with state laws.
39
<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>
THE SURRENDER CHARGE IS /bullet/ the DEFERRED ISSUE CHARGE; plus
EQUAL TO: /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 (the excess premium charge), 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
40
<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 a Policy anniversary will be
determined proportionately using the percentage at the end of the
Policy year prior to surrender and the percentage at the end of the
Policy year of surrender.
/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>
41
<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>
The surrender charge helps us to recover distribution expenses that we
incur in connection with the Policy, including agent sales commissions and
printing and advertising costs.
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.
/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.
42
<PAGE>
/bullet/ Transfers under dollar cost averaging and asset rebalancing are
transfers for purposes of this charge.
/bullet/ We will not increase this charge.
CASH WITHDRAWAL CHARGE
/bullet/ After the first Policy year, you may take one cash withdrawal per
Policy year.
/bullet/ When you make a cash withdrawal, we charge a processing 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.
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 management fees and expenses from the amounts you
have invested in the portfolios. These fees and expenses currently range from
0.44% to 1.20%. 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. 53).
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.
43
<PAGE>
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:
/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.
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. 47.
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the death benefit (described below); MINUS
PROCEEDS EQUAL: /bullet/ any monthly deductions due during the grace period (if
applicable); 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 56; and Misstatement of Age or Gender 57.
44
<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 surviving 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
attained 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.
45
<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, 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.
46
<PAGE>
/bullet/ You must make your request in writing.
/bullet/ The effective date of the change will be the Monthiversary on or
following the date when we receive your request for a change at
our office.
/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. You should consult
a tax advisor before changing your Policy's death benefit option.
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 must make your request in writing;
DECREASING THE SPECIFIED /bullet/ you may not change your death benefit option in the same
AMOUNT: Policy year that you decrease your specified 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
Monthiversary on or after we receive your written request.
</TABLE>
NO INCREASES IN THE SPECIFIED AMOUNT
We do not allow increases in the specified amount. If you want additional
insurance, you may purchase a term rider or purchase an additional policy(ies)
naming the same owner and insured. We may waive the Policy charge at issue on
these additional policies.
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. 58 for information concerning these settlement options.
47
<PAGE>
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 at our office. The surviving insured must be alive, the
Policy must be in force, and it must be before the maturity date when you make
your written request. A surrender is effective as of the date when we receive
your written request. The signature of the owner's spouse is required if the
owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico,
Washington or Wisconsin. You will incur a surrender charge if you surrender the
Policy during the first 15 Policy years (see Charges and Deductions --
Surrender Charge p. 39). Once you surrender your Policy, all coverage and other
benefits under it cease and cannot be reinstated. We will normally pay you the
net surrender value in a lump sum within seven days or under a settlement
option. A surrender may have tax consequences. See Federal Income Tax
Considerations p. 53.
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/ Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
/bullet/ We only allow one cash withdrawal per Policy year.
/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 may not take a cash withdrawal if it will reduce the
specified amount below the minimum specified amount set
forth in the Policy.
/bullet/ You may specify the subaccount(s) and the fixed account
from which to make the withdrawal. If you do not specify
an account, we will take the withdrawal from each account
in accordance with your current premium allocation
instructions.
/bullet/ We generally will pay a cash withdrawal request within
seven days following the valuation date we receive the
request.
</TABLE>
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<TABLE>
<S> <C>
/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.
/bullet/ A cash withdrawal may have tax consequences (see
Federal Income Tax Considerations p. 53).
</TABLE>
A cash withdrawal will reduce the cash value by the amount of the cash
withdrawal, and will 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.
LOANS
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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. 53.
<TABLE>
<S> <C>
POLICY LOANS ARE /bullet/ we may require you to borrow at least $500;
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; and
/bullet/ signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
</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. 58.
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
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<PAGE>
by telephone, you should notify us in writing. You will be required to provide
certain information for identification purposes when you request a loan by
telephone. We may ask you to provide us with written confirmation of your
request. We will not be liable for processing a loan request if we believe the
request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY 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 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.
/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%.
EFFECT OF POLICY LOANS
A Policy loan reduces the death benefit proceeds and net surrender value
by the amount of any outstanding loan. Repaying the loan causes the death
benefit proceeds and net
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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 charged 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. 53). 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.
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may not necessarily lapse (terminate without value) 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 unfavorable investment experience, loans
and cash withdrawals cause a decrease in the net surrender value, or you have
not paid sufficient premiums as discussed below to offset the monthly
deductions.
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 you keep the no lapse
period 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.
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<PAGE>
<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>
<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 coverage will end immediately if you
NO LAPSE PERIOD do not pay sufficient premiums.
/bullet/ You must pay total premiums (minus withdrawals and
outstanding loans) that equal at least:
/arrow/ the sum of the minimum monthly guarantee
premium in effect for each month from the Policy
date up to and including the current month.
</TABLE>
Your minimum 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. See Minimum
Monthly Guarantee Premium p. 27.
REINSTATEMENT
We will reinstate a lapsed Policy if within five years after the lapse
(and prior to the maturity date). To reinstate the Policy you must:
/bullet/ submit a written application for reinstatement;
/bullet/ provide evidence of insurability satisfactory to us;
/bullet/ make a minimum premium payment sufficient to provide a net
premium that is large enough to cover:
/arrow/ three monthly deductions; and
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<PAGE>
/arrow/ any surrender charge calculated from the Policy date to
the date of reinstatement. (Although we do not currently
assess this charge, we reserve the right to do so in the
future.)
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 Monthiversary 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 summarizes some of the basic federal income tax
considerations associated with a Policy and does not purport to be complete or
to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please
consult counsel or other qualified tax advisors for more complete information.
We base this discussion on our understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service (the
"IRS"). Federal income tax laws and the current interpretations by the IRS may
change.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance policies under federal tax law. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that it is
reasonable to conclude that a Policy should generally satisfy the applicable
Code requirements. Because of the absence of pertinent interpretations of the
Code requirements, there is, however, less certainty 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
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<PAGE>
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 from or secured by a Policy (e.g., by
assignment), the tax consequences depend on whether the Policy is classified as
a "Modified Endowment Contract" ("MEC").
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as MECs and receive less favorable tax treatment than
other life insurance policies. The rules are too complex to summarize here, but
generally depend on the amount of premiums paid during the first seven Policy
years. Certain changes in the Policy after it is issued could also cause the
Policy to be classified as a MEC. 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 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 or would not be classified as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, then you will also be notified of the maximum
amount of additional premiums you can pay 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 (other than Death Benefits) from Modified Endowment
Contracts. Policies classified as MECs are subject to the following tax rules:
/bullet/ All distributions other than death benefits from a MEC, including
distributions upon surrender and cash 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.
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<PAGE>
/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 the beneficiary.
/bullet/ If a Policy becomes a MEC, distributions that occur during the
Policy year will be taxed as distributions from a MEC. In
addition, distributions from a Policy within two years before it
becomes a MEC will be taxed in this manner. This means that a
distribution from a Policy that is not a MEC at the time when the
distribution is made could later become taxable as a distribution
from a MEC.
Distributions (other than Death Benefits) 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 associated with Policy loans 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.
POLICY LOANS. If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding indebtedness will be
taxed as if it were a distribution.
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
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<PAGE>
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. 25.) A policy split could
have adverse tax consequences. For example, it is not clear whether a policy
split will be treated as a nontaxable exchange under Sections 1031 through 1043
of the Code. If a policy split is not treated as a nontaxable exchange, a split
could result in the recognition of taxable income in an amount up to any gain
in the Policy at the time of the split. It is also not clear whether the
individual policies that result from a policy split would in all circumstances
be treated as life insurance 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 excludible 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.
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 legal 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
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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 (or two years from the reinstatement date; if the
Policy lapses and is reinstated), the Policy will terminate and our liability
is limited to an amount equal to the premiums paid within such two year period,
less any outstanding loans, and less any cash withdrawals. We will pay this
amount to the beneficiary in one sum. If the Policy lapsed, we will measure the
suicide period from the reinstatement date.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of either joint insured was stated incorrectly in the
application or any supplemental application, then the death benefit will be
adjusted based on what the cost of insurance charge for the most recent monthly
deduction 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 date. On the maturity date we will pay you the
net surrender value of your Policy.
If your Policy was issued before May 1, 2000, 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.
If your Policy was issued after May 1, 2000, we will extend the maturity
date if your Policy is still in force on the maturity date. Any riders in force
on the scheduled maturity date will terminate on that date and will not be
extended. Interest on any outstanding Policy loans will continue to accrue
during the period for which the maturity date is extended. You must submit a
written request for the extension between 90 and 180 days prior to the maturity
date and elect one of the following:
1. If you had previously selected death benefit Option B or C, we will
change the death benefit to Option A. On each valuation date, we will
adjust the specified
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amount to equal the cash value, and the limitation percentage will be
100%. We will not permit you to make additional premium payments
unless it is required to prevent the Policy from lapsing. We will
waive all future monthly deductions; or
2. We will automatically extend the maturity date until the next Policy
anniversary. You must submit a written request, between 90 and 180
days before each subsequent Policy anniversary, stating that you wish
to extend the maturity date for another Policy year. All benefits and
charges will continue as set forth in your Policy. We will adjust the
annual cost of insurance rates using the then current cost of
insurance rates.
If you choose 2 above, you may change your election to 1 above at any
time. However, if you choose 1 above, then you may not change your election to
2 above.
The tax consequences of extending the maturity date beyond the younger
joint insured's 100th birthday are uncertain. You should consult a tax advisor
as to those consequences.
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 at our
office. However, we can postpone such payments if:
/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.
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, death
benefit proceeds, or surrenders from the fixed account for up to six months.
SETTLEMENT OPTIONS
If you surrender the Policy, 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.
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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 or the surviving insured's date of death.
Under any settlement option, the dollar amount of each payment will depend
on four things:
/bullet/ the amount of the surrender or death benefit proceeds on the
surrender 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%);
/bullet/ the mortality tables we use; and
/bullet/ the specific payment option(s) you choose.
<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 lifetime 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>
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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/ the current cash value /check/ any activity since the last report
/check/ the current net surrender value /check/ projected values
/check/ the current death benefit /check/ investment experience of each subaccount
/check/ any outstanding loans /check/ 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.
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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. These riders may not be available in all
states.
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
60
<PAGE>
Monthiversary 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 as long as it meets
the minimum face amount requirements of the
original Policy; 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. This rider can only be added at issue of your Policy. We will pay the
rider's face amount when we receive proof that both joint insureds died while
the rider was in force. This rider has no conversion or exchange privilege. The
rider will terminate on the earliest of:
/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.
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:
/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 current yield on 90-day Treasury bills 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.
61
<PAGE>
The maximum terminal illness death benefit we will pay is equal to:
/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.
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:
/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.
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.
IMSA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 total return for the periods ended
on December 31, 1999.
62
<PAGE>
These rates of return do not reflect any charges that are deducted under
the Policy or from the separate account (such as the annual mortality and
expense risk charge, the monthly deduction, or the surrender charge). IF THESE
CHARGES WERE DEDUCTED, PERFORMANCE WOULD BE SIGNIFICANTLY LOWER. These rates of
return are not estimates, projections or guarantees of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION
FUND PORTFOLIO INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR DATE
- ----------------------------------------- ----------- ---------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
WRL VKAM Emerging Growth ................ 32.64% N/A 42.96% 50.69% 105.16% 03/01/1993
WRL Alger Aggressive Growth ............. 30.35% N/A 36.62% 46.16% 69.02% 03/01/1994
WRL Third Avenue Value .................. 3.84% N/A N/A N/A 15.72% 01/02/1998
WRL GE International Equity ............. 14.90% N/A N/A N/A 24.95% 01/02/1997
WRL Janus Global ........................ 27.91% N/A 32.94% 38.24% 71.10% 12/03/1992
WRL Janus Growth ........................ 23.47% 23.62% 39.89% 45.60% 59.67% 10/02/1986
WRL GE U.S. Equity ...................... 22.76% N/A N/A N/A 18.41% 01/02/1997
WRL C.A.S.E. Growth ..................... 18.80% N/A N/A 16.41% 33.84% 05/01/1995
WRL NWQ Value Equity .................... 10.76% N/A N/A 8.73% 7.95% 05/01/1996
WRL Dean Asset Allocation ............... 10.38% N/A N/A 6.02% (5.64)% 01/03/1995
WRL LKCM Strategic Total Return ......... 13.82% N/A 16.50% 14.40% 12.07% 03/01/1993
WRL Federated Growth & Income ........... 8.82% N/A 11.41% 7.07% (4.45)% 03/01/1994
WRL AEGON Balanced ...................... 8.53% N/A 11.34% 8.86% 3.03% 03/01/1994
WRL AEGON Bond .......................... 7.03% 7.33% 7.36% 5.02% (2.94)% 10/02/1986
WRL J.P. Morgan Money Market* ........... 5.00% 4.67% 5.11% 5.04% 4.63% 10/02/1986
S&P 500 ................................. 18.11% 18.20% 28.54% 27.56% 21.04% 10/02/1986
</TABLE>
* Yield more closely reflects the current earnings than its total return.
The annualized yield for the WRL J.P. Morgan Money Market portfolio for
the seven days ended December 31, 1999 was 5.15%.
Additional information regarding the investment performance of the
portfolios appears in the fund prospectus, which accompanies this 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 value and net
surrender value below depict these Policy values as if you had purchased the
Policy on the last valuation date prior to January 1 of the year after the
subaccount began operations and had selected death benefit Option A. The
illustrations are based on the
63
<PAGE>
historical investment experience of the subaccount indicated as of the last
valuation date prior to January 1 of the year after the subaccount began
operations. 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 could have affected the Option A death benefit, cash value and net
surrender value of the Policy, we provide hypothetical illustrations for a
hypothetical insured. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE
PERFORMANCE THAT COULD HAVE RESULTED IF THE HYPOTHETICAL INSURED HAD HELD THE
POLICY DURING THE PERIOD ILLUSTRATED. 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 subaccounts. 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, cash withdrawals, and loans would affect individual Policy
benefits.
For each subaccount, the illustrations below assume death benefit Option A
was selected 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.
64
<PAGE>
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, Non-Tobacco Use Select Class)
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
2000 .................................... 292,024 290,871 290,224 289,071
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
65
<PAGE>
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, Non-Tobacco Use Select Class)
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
2000 ..................................... 67,555 66,758 65,756 64,959
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
66
<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, Non-Tobacco Use Select Class)
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
2000 ..................................... 57,775 56,909 55,976 55,110
</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
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, Non-Tobacco Use Select Class)
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
2000 ..................................... 80,563 80,534 77,072 77,044
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
67
<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-Tobacco Use Select Class)
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
2000 ..................................... 81,286 81,278 77,964 77,956
</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 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-Tobacco Use Select Class)
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
2000 ..................................... 33,406 33,399 30,083 30,077
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
68
<PAGE>
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-Tobacco Use Select Class)
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
2000 .................................... 53,455 53,455 50,300 50,300
</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 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-Tobacco Use Select Class)
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
2000 ..................................... 21,065 21,065 17,910 17,910
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
69
<PAGE>
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-Tobacco Use Select Class)
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
2000 ..................................... 21,396 21,396 18,242 18,242
</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 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-Tobacco Use Select Class)
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
2000 ..................................... 22,449 22,449 19,295 19,295
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
70
<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-Tobacco Use Select Class)
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
2000 ..................................... 21,241 21,241 18,254 18,254
</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
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 INTERNATIONAL EQUITY
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Tobacco Use Select Class)
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
2000 ..................................... 14,566 14,566 11,747 11,747
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
71
<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, Non-Tobacco Use Select Class)
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
2000 ..................................... 15,676 15,676 12,858 12,858
</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, Non-Tobacco Use Select Class)
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
2000 ..................................... 11,815 11,815 8,997 8,997
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
72
<PAGE>
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, Non-Tobacco Use Select Class)
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
2000 ..................................... 7,846 7,846 5,196 5,196
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
/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
73
<PAGE>
securities markets (E.G., Donoghue Money Market Institutional
Average, Lehman Brothers Corporate Bond Index, or Lehman
Brothers Government Bond Index).
WESTERN RESERVE'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the fund or its portfolios, or to their
performance.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road, 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, Senior
Vice President, Assistant Secretary and 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
74
<PAGE>
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.
EXPERTS
The financial statements and schedules of WRL Series Life Account as of
December 31, 1999 and for the year then ended have been included herein in
reliance upon the report of PricewaterhouseCoopers LLP, independent certified
public 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, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999, 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 certified public
accountants. The financial statements and schedules referred to above are
included in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
Actuarial matters included in this prospectus and Registration Statement
have been examined by Alan Yaeger as stated in the opinion filed as an exhibit
to the Registration Statement.
FINANCIAL STATEMENTS
Western Reserve's financial statements appear on the following pages.
These financial statements should be distinguished from the separate account's
financial statements and you should consider these financial statements only as
bearing upon Western Reserve's ability to meet our obligations under the
Policies.
Western Reserve's financial statements as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999, have
been prepared on the basis of statutory accounting principles rather than
generally accepted accounting principles.
75
<PAGE>
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 indirectly
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.
76
<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 and Chairman of the Board, and
570 Carillon Parkway Chief Executive Officer President of WRL Series Fund,
St. Petersburg, Florida 33716 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).
Jerome C. Vahl Director and President Executive Vice President (1998 -
570 Carillon Parkway 1999), Vice President (1995 -
St. Petersburg, Florida 33716 1998), Assistant Vice President
(1994 - 1995) of Western
Reserve; Vice President and
Manager Corporate Projects
(1991 - 1996), and Manager Tax
and Technical (1986 - 1991) 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>
77
<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, Senior Vice President, Secretary,
Corporate Counsel and Group Vice Corporate Counsel, and Group Vice
President -- Compliance 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,
Inc., 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 USA, Inc. ("AEGON USA") in the
aggregate amount of $12 million, covering all of the employees of AEGON USA 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 to a limit of $10 million.
78
<PAGE>
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.
79
<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 82 on a Policy for joint insureds who
are a 55 year old male and a 55 year old female in the non-tobacco use, select
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 83 is based on the same factors as those on page
82, 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 0.87% of the portfolios' average daily net assets; and (3) all
applicable premium expense charges and cash value charges. The 0.87% average
portfolio expense level assumes an equal allocation of amounts among the 15
subaccounts. We used annualized actual audited expenses incurred during 1999 as
shown in the Portfolio Annual Expense Table for the portfolios to calculate the
average annual expense level.
During 1999, WRL Management undertook to pay those normal operating
expenses of certain portfolios that exceeded a certain stated percentage of the
portfolios' average daily net assets. WRL Management has undertaken until at
least April 30, 2001 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. For details on these expense limits, the amounts
reimbursed by WRL Management during 1999, and the expense ratios without the
reimbursements, see the Portfolio Annual Expense Table on p. 14.
WITHOUT THESE WAIVERS AND REIMBURSEMENTS, TOTAL ANNUAL EXPENSES FOR THE
PORTFOLIOS WOULD HAVE BEEN GREATER, AND THE ILLUSTRATIONS WOULD HAVE ASSUMED
THAT THE ASSETS IN THE PORTFOLIOS WERE SUBJECT TO AN AVERAGE ANNUAL EXPENSE
LEVEL OF 1.53%. Taking into account the assumed charges of 1.77%, the gross
annual investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.77%, 4.23%, and 10.23%.
THE HYPOTHETICAL RETURNS SHOWN IN THE TABLES ARE PROVIDED ONLY TO
ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR
FUTURE INVESTMENT RATES
80
<PAGE>
OF RETURN. Tax charges that may be attributable to the separate account are not
reflected 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 Policy
features.
81
<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 1,194 1,413 1,632 3,504 3,723 3,942
2 8,610 250,000 250,000 250,000 4,268 4,926 5,610 6,918 7,576 8,260
3 13,241 250,000 250,000 250,000 7,423 8,741 10,167 10,241 11,559 12,985
4 18,103 250,000 250,000 250,000 10,481 12,686 15,169 13,467 15,672 18,155
5 23,208 250,000 250,000 250,000 13,437 16,760 20,655 16,591 19,915 23,809
6 28,568 250,000 250,000 250,000 16,292 20,968 26,674 19,614 24,290 29,996
7 34,196 250,000 250,000 250,000 19,038 25,307 33,274 22,529 28,797 36,764
8 40,106 250,000 250,000 250,000 21,668 29,774 40,508 25,327 33,432 44,166
9 46,312 250,000 250,000 250,000 24,170 34,361 48,430 27,996 38,187 52,256
10 52,827 250,000 250,000 250,000 26,529 39,061 57,103 30,523 43,055 61,097
15 90,630 250,000 250,000 250,000 42,665 71,156 121,968 42,665 71,156 121,968
20 138,877 250,000 250,000 250,000 52,375 104,825 221,812 52,375 104,825 221,812
25 200,454 250,000 250,000 405,381 57,923 144,786 386,077 57,923 144,786 386,077
30 279,043 250,000 250,000 684,085 55,458 192,473 651,509 55,458 192,473 651,509
35 379,345 250,000 266,605 1,131,741 38,916 253,910 1,077,848 38,916 253,910 1,077,848
40 507,359 * 335,098 1,784,888 * 331,780 1,767,216 * 331,780 1,767,216
45 670,741 * 429,929 2,901,976 * 429,929 2,901,976 * 429,929 2,901,976
<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 -12.41 -6.93 -1.44 -70.16 -64.68 -59.19 6,150.00 6,150.00 6,150.00
2 -9.30 -3.58 2.15 -35.24 -28.29 -21.45 642.15 642.15 642.15
3 -7.72 -1.86 4.00 -22.17 -15.03 -8.06 258.47 258.47 258.47
4 -6.78 -0.83 5.12 -16.22 -9.07 -2.12 148.92 148.92 148.92
5 -6.17 -0.14 5.87 -12.98 -5.83 1.08 100.39 100.39 100.39
6 -5.74 0.34 6.41 0.98 -3.85 3.03 73.77 73.77 73.77
7 -5.44 0.70 6.81 -9.66 -2.53 4.32 57.22 57.22 57.22
8 -5.22 0.97 7.13 -8.74 -1.60 5.22 46.06 46.06 46.06
9 -5.08 1.18 7.38 -8.09 -0.93 5.88 38.07 38.07 38.07
10 -4.98 1.33 7.58 -7.63 -0.43 6.38 32.11 32.11 32.11
15 -4.40 2.10 8.45 -4.40 2.10 8.45 16.46 16.46 16.46
20 -4.24 2.51 8.95 -4.24 2.51 8.95 9.93 9.93 9.93
25 -4.52 2.74 9.28 -4.52 2.74 9.28 6.48 6.48 9.59
30 -5.60 2.89 9.47 -5.60 2.89 9.47 4.39 4.39 9.72
35 -9.01 3.09 9.58 -9.01 3.09 9.58 3.02 3.33 9.78
40 * 3.28 9.65 * 3.28 9.65 * 3.32 9.69
45 * 3.43 9.73 * 3.43 9.73 * 3.43 9.73
</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.
82
<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 1,194 1,413 1,632 3,504 3,723 3,942
2 8,610 250,000 250,000 250,000 4,268 4,926 5,610 6,918 7,576 8,260
3 13,241 250,000 250,000 250,000 7,423 8,741 10,167 10,241 11,559 12,985
4 18,103 250,000 250,000 250,000 10,481 12,686 15,169 13,467 15,672 18,155
5 23,208 250,000 250,000 250,000 13,437 16,760 20,655 16,591 19,915 23,809
6 28,568 250,000 250,000 250,000 16,285 20,961 26,667 19,607 24,284 29,990
7 34,196 250,000 250,000 250,000 19,017 25,285 33,252 22,507 28,775 36,742
8 40,106 250,000 250,000 250,000 21,620 29,723 40,456 25,278 33,381 44,114
9 46,312 250,000 250,000 250,000 24,078 34,265 48,330 27,904 38,091 52,156
10 52,827 250,000 250,000 250,000 26,371 38,894 56,930 30,365 42,888 60,924
15 90,630 250,000 250,000 250,000 40,671 69,106 120,021 40,671 69,106 120,021
20 138,877 250,000 250,000 250,000 41,881 94,483 214,350 41,881 94,483 214,350
25 200,454 250,000 250,000 389,946 21,777 111,657 371,377 21,777 111,657 371,377
30 279,043 * 250,000 650,253 * 105,248 619,288 * 105,248 619,288
35 379,345 * 250,000 1,049,043 * 15,971 999,088 * 15,971 999,088
40 507,359 * * 1,616,269 * * 1,600,266 * * 1,600,266
45 670,741 * * 2,630,280 * * 2,630,280 * * 2,630,280
<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 -12.41 -6.93 -1.44 -70.16 -64.68 -59.19 6,150.00 6,150.00 6,150.00
2 -9.30 -3.58 2.15 -35.24 -28.29 -21.45 642.15 642.15 642.15
3 -7.72 -1.86 4.00 -22.17 -15.03 -8.06 258.47 258.47 258.47
4 -6.78 -0.83 5.12 -16.22 -9.07 -2.12 148.92 148.92 148.92
5 -6.17 -0.14 5.87 -12.98 -5.83 1.08 100.39 100.39 100.39
6 -5.75 0.34 6.40 -10.99 -3.86 3.02 73.77 73.77 73.77
7 -5.46 0.68 6.80 -9.69 -2.55 4.30 57.22 57.22 57.22
8 -5.27 0.94 7.10 -8.80 -1.64 5.19 46.06 46.06 46.06
9 -5.14 1.13 7.34 -8.17 -0.99 5.84 38.07 38.07 38.07
10 -5.08 1.26 7.53 -7.74 -0.51 6.33 32.11 32.11 32.11
15 -5.04 1.75 8.26 -5.04 1.75 8.26 16.46 16.46 16.46
20 -6.67 1.56 8.67 -6.67 1.56 8.67 9.93 9.93 9.93
25 -15.31 0.84 9.04 -15.31 0.84 9.04 6.48 6.48 9.34
30 * -0.86 9.21 * -0.86 9.21 * 4.39 9.46
35 * -20.02 9.26 * -20.02 9.26 * 3.02 9.46
40 * * 9.30 * * 9.30 * * 9.33
45 * * 9.43 * * 9.43 * * 9.43
</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.
83
<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 1999. 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 74-year period: investments of $1.00
in these assets would have grown to $2,845.63 and $6,640.79, respectively, by
year-end 1999. 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
$40.22.
The lowest-risk strategy over the past 74 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 - 1999 period.
84
<PAGE>
(GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS:)
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9
</TABLE>
- ----------------
* Based on the period 1926-1929.
Used with permission. /copyright/2000 Ibbotson Associates, Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted works of
Roger G. Ibbotson and Rex Sinquefield.]
85
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRL SERIES LIFE ACCOUNT:
Report of Independent Certified Public Accountants dated February 16, 2000
Statements of Assets and Liabilities as of December 31, 1999
Statements of Operations for the year ended December 31, 1999
Statements of Changes in Net Assets for the years ended December 31, 1999 and
1998
Financial Highlights for the periods ended December 31, 1999, 1998, 1997, 1996
and 1995
Notes to the Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Report of Independent Auditors dated February 18, 2000
Statutory-Basis Balance Sheets at December 31, 1999 and 1998
Statutory-Basis Statements of Operations for the years ended December 31, 1999,
1998 and 1997
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1999, 1998 and 1997
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
WRL00053-5/2000
86
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC 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 statements 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 Subaccounts constituting the WRL Series Life Account (a separate
account of Western Reserve Life Assurance Co. of Ohio ("WRL")) at December 31,
1999, the results of each of their operations, the changes in each of their net
assets and financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of WRL'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 auditing standards generally accepted in the United States, 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
Tampa, Florida
February 16, 2000
87
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 58,182 2,559 17,348 12,035
====== ===== ====== ======
Cost ............................................... $ 58,182 $ 29,390 $ 743,669 $ 257,249
========= ========= ============ ==========
Investment, at net asset value ...................... $ 58,182 $ 27,148 $ 1,353,104 $ 450,848
Transfers receivable from depositor ................. 0 0 853 650
--------- --------- ------------ ----------
Total assets ....................................... 58,182 27,148 1,353,957 451,498
--------- --------- ------------ ----------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 2,112 19 0 0
--------- --------- ------------ ----------
Total liabilities .................................. 2,112 19 0 0
--------- --------- ------------ ----------
Net assets ......................................... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498
========= ========= ============ ==========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498
Depositor's equity .................................. 0 0 0 0
--------- --------- ------------ ----------
Net assets applicable to units outstanding ......... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498
========= ========= ============ ==========
Policy Owners' units ................................ 3,206 1,232 9,293 11,605
Depositor's units ................................... 0 0 0 0
--------- --------- ------------ ----------
Units outstanding .................................. 3,206 1,232 9,293 11,605
========= ========= ============ ==========
Accumulation unit value ............................ $ 17.49 $ 22.01 $ 145.70 $ 38.91
========= ========= ============ ==========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
88
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 6,332 13,205 10,626 1,436
===== ====== ====== =====
Cost ............................................... $ 90,108 $ 343,339 $ 206,459 $ 17,378
========== ========== ========== =========
Investment, at net asset value ...................... $ 106,667 $ 607,493 $ 353,584 $ 18,182
Transfers receivable from depositor ................. 0 637 594 1
---------- ---------- ---------- ---------
Total assets ....................................... 106,667 608,130 354,178 18,183
---------- ---------- ---------- ---------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 2 0 0 0
---------- ---------- ---------- ---------
Total liabilities .................................. 2 0 0 0
---------- ---------- ---------- ---------
Net assets ......................................... $ 106,665 $ 608,130 $ 354,178 $ 18,183
========== ========== ========== =========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 106,665 $ 608,130 $ 354,178 $ 18,183
Depositor's equity .................................. 0 0 0 0
---------- ---------- ---------- ---------
Net assets applicable to units outstanding ......... $ 106,665 $ 608,130 $ 354,178 $ 18,183
========== ========== ========== =========
Policy Owners' units ................................ 4,674 9,357 7,928 1,186
Depositor's units ................................... 0 0 0 0
---------- ---------- ---------- ---------
Units outstanding .................................. 4,674 9,357 7,928 1,186
========== ========== ========== =========
Accumulation unit value ............................ $ 22.82 $ 64.99 $ 44.67 $ 15.33
========== ========== ========== =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
89
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN ASSET C.A.S.E. NWQ
INCOME ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 1,594 2,746 1,751 2,087
===== ===== ===== =====
Cost ............................................... $ 19,647 $ 36,698 $ 25,553 $ 28,559
========= ========= ========= =========
Investment, at net asset value ...................... $ 17,383 $ 33,309 $ 27,504 $ 26,650
Transfers receivable from depositor ................. 6 8 5 28
--------- --------- --------- ---------
Total assets ....................................... 17,389 33,317 27,509 26,678
--------- --------- --------- ---------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0
--------- --------- --------- ---------
Total liabilities .................................. 0 0 0 0
--------- --------- --------- ---------
Net assets ......................................... $ 17,389 $ 33,317 $ 27,509 $ 26,678
========= ========= ========= =========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 17,389 $ 33,317 $ 27,509 $ 26,678
Depositor's equity .................................. 0 0 0 0
--------- --------- --------- ---------
Net assets applicable to units outstanding ......... $ 17,389 $ 33,317 $ 27,509 $ 26,678
========= ========= ========= =========
Policy Owners' units ................................ 1,117 2,128 1,657 1,895
Depositor's units ................................... 0 0 0 0
--------- --------- --------- ---------
Units outstanding .................................. 1,117 2,128 1,657 1,895
========= ========= ========= =========
Accumulation unit value ............................ $ 15.57 $ 15.66 $ 16.60 $ 14.08
========= ========= ========= =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
90
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL
EQUITABLE WRL WRL J.P. MORGAN
INTERNATIONAL GE THIRD AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 489 1,669 329 78
=== ===== === ==
Cost ............................................... $ 6,058 $ 24,322 $ 3,045 $ 674
======== ========= ======== =======
Investment, at net asset value ...................... $ 6,985 $ 26,359 $ 3,435 $ 632
Transfers receivable from depositor ................. 28 57 0 0
-------- --------- -------- -------
Total assets ....................................... 7,013 26,416 3,435 632
-------- --------- -------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 24 5
-------- --------- -------- -------
Total liabilities .................................. 0 0 24 5
-------- --------- -------- -------
Net assets ......................................... $ 7,013 $ 26,416 $ 3,411 $ 627
======== ========= ======== =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 7,013 $ 26,416 $ 3,411 $ 304
Depositor's equity .................................. 0 0 0 323
-------- --------- -------- -------
Net assets applicable to units outstanding ......... $ 7,013 $ 26,416 $ 3,411 $ 627
======== ========= ======== =======
Policy Owners' units ................................ 475 1,468 322 38
Depositor's units ................................... 0 0 0 40
-------- --------- -------- -------
Units outstanding .................................. 475 1,468 322 78
======== ========= ======== =======
Accumulation unit value ............................ $ 14.76 $ 17.99 $ 10.59 $ 8.06
======== ========= ======== =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
91
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 83 31 53 69
== == == ==
Cost ............................................... $ 858 $ 325 $ 505 $ 784
======== ======== ======= ========
Investment, at net asset value ...................... $ 972 $ 346 $ 491 $ 924
Transfers receivable from depositor ................. 5 0 10 1
-------- -------- ------- --------
Total assets ....................................... 977 346 501 925
-------- -------- ------- --------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 2 0 0
-------- -------- ------- --------
Total liabilities .................................. 0 2 0 0
-------- -------- ------- --------
Net assets ......................................... $ 977 $ 344 $ 501 $ 925
======== ======== ======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 949 $ 317 $ 478 $ 894
Depositor's equity .................................. 28 27 23 31
-------- -------- ------- --------
Net assets applicable to units outstanding ......... $ 977 $ 344 $ 501 $ 925
======== ======== ======= ========
Policy Owners' units ................................ 84 28 52 72
Depositor's units ................................... 3 3 3 3
-------- -------- ------- --------
Units outstanding .................................. 87 31 55 75
======== ======== ======= ========
Accumulation unit value ............................ $ 11.29 $ 10.92 $ 9.16 $ 12.31
======== ======== ======= ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
92
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ......................................... 34 285 30
== === ==
Cost ........................................... $ 365 $ 3,873 $ 298
======== ======== ========
Investment, at net asset value .................. $ 383 $ 5,051 $ 322
Transfers receivable from depositor ............. 0 14 15
-------- -------- --------
Total assets ................................... 383 5,065 337
-------- -------- --------
LIABILITIES:
Accrued expenses ................................ 0 0 0
Transfers payable to depositor .................. 0 0 0
-------- -------- --------
Total liabilities .............................. 0 0 0
-------- -------- --------
Net assets ..................................... $ 383 $ 5,065 $ 337
======== ======== ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ........................... $ 356 $ 5,065 $ 312
Depositor's equity .............................. 27 0 25
-------- -------- --------
Net assets applicable to units outstanding ..... $ 383 $ 5,065 $ 337
======== ======== ========
Policy Owners' units ............................ 33 317 30
Depositor's units ............................... 3 0 3
-------- -------- --------
Units outstanding .............................. 36 317 33
======== ======== ========
Accumulation unit value ........................ $ 10.70 $ 15.98 $ 10.14
======== ======== ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
93
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 1,813 $ 1,562 $ 19,913 $ 0
Capital gain distributions ................................ 0 0 215,100 29,152
------- -------- --------- ---------
Total investment income .................................. 1,813 1,562 235,013 29,152
EXPENSES:
Mortality and expense risk ................................ 339 233 8,918 2,614
------- -------- --------- ---------
Net investment income (loss) ............................. 1,474 1,329 226,095 26,538
------- -------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 0 317 26,760 3,824
Change in unrealized appreciation (depreciation) .......... 0 (2,644) 235,401 149,719
------- -------- --------- ---------
Net gain (loss) on investment securities ................. 0 (2,327) 262,161 153,543
------- -------- --------- ---------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 1,474 $ (998) $ 488,256 $ 180,081
======= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 2,159 $ 2,813 $ 15,251 $ 363
Capital gain distributions ................................ 6,826 82,040 22,784 0
-------- --------- --------- ------
Total investment income .................................. 8,985 84,853 38,035 363
EXPENSES:
Mortality and expense risk ................................ 913 3,146 2,069 150
-------- --------- --------- ------
Net investment income (loss) ............................. 8,072 81,707 35,966 213
-------- --------- --------- ------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 3,286 39,266 5,348 292
Change in unrealized appreciation (depreciation) .......... (461) 178,458 96,140 (187)
-------- --------- --------- ------
Net gain (loss) on investment securities ................. 2,825 217,724 101,488 105
-------- --------- --------- ------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 10,897 $ 299,431 $ 137,454 $ 318
======== ========= ========= ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
94
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN ASSET C.A.S.E. NWQ
INCOME ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 1,109 $ 1,118 $ 2,613 $ 219
Capital gain distributions ................................ 132 178 0 400
-------- --------- ------- -------
Total investment income .................................. 1,241 1,296 2,613 619
EXPENSES:
Mortality and expense risk ................................ 150 342 211 240
-------- --------- ------- -------
Net investment income (loss) ............................. 1,091 954 2,402 379
-------- --------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 9 948 427 307
Change in unrealized appreciation (depreciation) .......... (2,087) (4,362) 3,473 850
-------- --------- ------- -------
Net gain (loss) on investment securities ................. (2,078) (3,414) 3,900 1,157
-------- --------- ------- -------
Net increase (decrease) in net assets resulting
from operations ....................................... $ (987) $ (2,460) $ 6,302 $ 1,536
======== ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 24 $ 786 $ 89 $ 11
Capital gain distributions ................................ 358 1,131 0 0
------- ------- ------ ------
Total investment income .................................. 382 1,917 89 11
EXPENSES:
Mortality and expense risk ................................ 57 187 28 5
------- ------- ------ ------
Net investment income (loss) ............................. 325 1,730 61 6
------- ------- ------ ------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 296 575 (126) (75)
Change in unrealized appreciation (depreciation) .......... 808 969 491 34
------- ------- ------ ------
Net gain (loss) on investment securities ................. 1,104 1,544 365 (41)
------- ------- ------ ------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 1,429 $ 3,274 $ 426 $ (35)
======= ======= ====== ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
95
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 0 $ 15 $ 0 $ 29
Capital gain distributions ................................ 0 0 0 0
----- ----- ----- -----
Total investment income .................................. 0 15 0 29
EXPENSES:
Mortality and expense risk ................................ 2 1 1 3
----- ----- ----- -----
Net investment income (loss) ............................. (2) 14 (1) 26
------- ----- -------- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... (4) (2) (3) 22
Change in unrealized appreciation (depreciation) .......... 114 22 (14) 140
------ ------ ------- -----
Net gain (loss) on investment securities ................. 110 20 (17) 162
------ ------ ------- -----
Net increase (decrease) in net assets resulting
from operations ....................................... $ 108 $ 34 $ (18) $ 188
====== ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................... $ 12 $ 13 $ 0
Capital gain distributions .......................... 0 0 0
------ ------ -----
Total investment income ............................ 12 13 0
EXPENSES:
Mortality and expense risk .......................... 1 8 1
------ ------ -----
Net investment income (loss) ....................... 11 5 (1)
------ ------ -------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ... (3) 91 (8)
Change in unrealized appreciation (depreciation) .... 18 1,177 24
------- ------ ------
Net gain (loss) on investment securities ........... 15 1,268 16
------- ------ ------
Net increase (decrease) in net assets resulting
from operations ................................. $ 26 $1,273 $ 15
======= ====== ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
96
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL
J.P. MORGAN AEGON
MONEY MARKET BOND
SUBACCOUNT SUBACCOUNT
------------------------- ------------------------
DECEMBER 31, DECEMBER 31,
------------------------- ------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 1,474 $ 919 $ 1,329 $ 1,002
Net gain (loss) on investment securities ......... 0 0 (2,327) 713
---------- ---------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 1,474 919 (998) 1,715
---------- ---------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 38,977 12,763 7,560 9,472
---------- ---------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 3,050 3,123 2,538 2,292
Policy loans .................................... 1,775 1,163 954 594
Surrender benefits .............................. 4,017 1,250 846 865
Death benefits .................................. 115 10 29 159
---------- ---------- -------- --------
8,957 5,546 4,367 3,910
---------- ---------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 30,020 7,217 3,193 5,562
---------- ---------- -------- --------
Net increase (decrease) in net assets ........... 31,494 8,136 2,195 7,277
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0
NET ASSETS:
Beginning of year ................................ 24,576 16,440 24,934 17,657
---------- ---------- -------- --------
End of year ...................................... $ 56,070 $ 24,576 $ 27,129 $ 24,934
========== ========== ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 1,460 1,020 1,090 836
Units issued ..................................... 18,474 11,339 883 1,030
Units redeemed ................................... (16,728) (10,899) (741) (776)
---------- ---------- -------- --------
Units outstanding - end of year .................. 3,206 1,460 1,232 1,090
========== ========== ======== ========
<CAPTION>
WRL
JANUS
GROWTH
SUBACCOUNT
---------------------------
DECEMBER 31,
---------------------------
1999 1998
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 226,095 $ 1,103
Net gain (loss) on investment securities ......... 262,161 295,459
----------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 488,256 296,562
----------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 192,993 140,684
----------- ---------
Less cost of units redeemed:
Administrative charges .......................... 57,685 44,910
Policy loans .................................... 33,172 18,083
Surrender benefits .............................. 32,554 22,312
Death benefits .................................. 1,908 4,185
----------- ---------
125,319 89,490
----------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... 67,674 51,194
----------- ---------
Net increase (decrease) in net assets ........... 555,930 347,756
Depositor's equity contribution
(net redemption) ................................ 0 0
NET ASSETS:
Beginning of year ................................ 798,027 450,271
----------- ---------
End of year ...................................... $ 1,353,957 $ 798,027
=========== =========
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 8,668 7,972
Units issued ..................................... 2,854 2,967
Units redeemed ................................... (2,229) (2,271)
----------- ---------
Units outstanding - end of year .................. 9,293 8,668
=========== =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
97
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
WRL LKCM WRL
JANUS STRATEGIC VKAM
GLOBAL TOTAL RETURN EMERGING GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ------------------------- -------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 26,538 $ 7,425 $ 8,072 $ 3,284 $ 81,707 $ 6,894
Net gain (loss) on investment securities ......... 153,543 38,427 2,825 4,347 217,724 59,514
--------- --------- --------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 180,081 45,852 10,897 7,631 299,431 66,408
--------- --------- --------- -------- --------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 81,308 72,962 11,792 24,191 94,168 64,824
--------- --------- --------- -------- --------- ---------
Less cost of units redeemed:
Administrative charges .......................... 25,132 19,369 8,436 7,696 25,202 19,612
Policy loans .................................... 9,284 4,953 3,000 2,319 11,395 5,601
Surrender benefits .............................. 8,537 5,662 3,136 2,587 11,025 7,688
Death benefits .................................. 194 591 378 1,047 512 368
--------- --------- --------- -------- --------- ---------
43,147 30,575 14,950 13,649 48,134 33,269
--------- --------- --------- -------- --------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... 38,161 42,387 (3,158) 10,542 46,034 31,555
--------- --------- --------- -------- --------- ---------
Net increase (decrease) in net assets ........... 218,242 88,239 7,739 18,173 345,465 97,963
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 0
NET ASSETS:
Beginning of year ................................ 233,256 145,017 98,926 80,753 262,665 164,702
--------- --------- --------- -------- --------- ---------
End of year ...................................... $ 451,498 $ 233,256 $ 106,665 $ 98,926 $ 608,130 $ 262,665
========= ========= ========= ======== ========= =========
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 10,167 8,145 4,814 4,270 8,218 7,013
Units issued ..................................... 4,823 5,610 1,538 1,946 4,977 4,099
Units redeemed ................................... (3,385) (3,588) (1,678) (1,402) (3,838) (2,894)
--------- --------- --------- -------- --------- ---------
Units outstanding - end of year .................. 11,605 10,167 4,674 4,814 9,357 8,218
========= ========= ========= ======== ========= =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
98
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
ALGER AEGON FEDERATED
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ----------------------- -------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ----------------------- -------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 35,966 $ 7,851 $ 213 $ 227 $ 1,091 $ 644
Net gain (loss) on investment securities ......... 101,488 44,348 105 576 (2,078) (269)
--------- --------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 137,454 52,199 318 803 (987) 375
--------- --------- -------- -------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 74,699 53,159 5,997 5,658 5,627 8,963
--------- --------- -------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 19,544 13,960 1,931 1,423 2,355 1,633
Policy loans .................................... 8,193 3,522 429 279 346 218
Surrender benefits .............................. 7,977 4,423 626 596 542 431
Death benefits .................................. 118 248 10 15 55 72
--------- --------- -------- -------- -------- --------
35,832 22,153 2,996 2,313 3,298 2,354
--------- --------- -------- -------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 38,867 31,006 3,001 3,345 2,329 6,609
--------- --------- -------- -------- -------- --------
Net increase (decrease) in net assets ........... 176,321 83,205 3,319 4,148 1,342 6,984
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 0
NET ASSETS:
Beginning of year ................................ 177,857 94,652 14,864 10,716 16,047 9,063
--------- --------- -------- -------- -------- --------
End of year ...................................... $ 354,178 $ 177,857 $ 18,183 $ 14,864 $ 17,389 $ 16,047
========= ========= ======== ======== ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 6,669 5,230 990 756 976 563
Units issued ..................................... 3,640 3,797 637 578 714 966
Units redeemed ................................... (2,381) (2,358) (441) (344) (573) (553)
--------- --------- -------- -------- -------- --------
Units outstanding - end of year .................. 7,928 6,669 1,186 990 1,117 976
========= ========= ======== ======== ======== ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
99
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
DEAN C.A.S.E. NWQ
ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ------------------------ ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------ ------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 954 $ 3,419 $ 2,402 $ 1,475 $ 379 $ 2,021
Net gain (loss) on investment securities ......... (3,414) (1,087) 3,900 (1,114) 1,157 (4,683)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... (2,460) 2,332 6,302 361 1,536 (2,662)
-------- -------- -------- -------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 1,729 13,703 7,781 8,731 3,283 6,086
-------- -------- -------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 3,875 3,421 2,946 2,433 2,874 2,846
Policy loans .................................... 991 748 668 520 713 643
Surrender benefits .............................. 901 925 678 295 605 401
Death benefits .................................. 89 160 12 60 32 165
-------- -------- -------- -------- -------- --------
5,856 5,254 4,304 3,308 4,224 4,055
-------- -------- -------- -------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... (4,127) 8,449 3,477 5,423 (941) 2,031
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets ........... (6,587) 10,781 9,779 5,784 595 (631)
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 0
NET ASSETS:
Beginning of year ................................ 39,904 29,123 17,730 11,946 26,083 26,714
-------- -------- -------- -------- -------- --------
End of year ...................................... $ 33,317 $ 39,904 $ 27,509 $ 17,730 $ 26,678 $ 26,083
======== ======== ======== ======== ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 2,383 1,867 1,417 969 1,982 1,916
Units issued ..................................... 937 1,377 1,347 1,317 1,296 1,748
Units redeemed ................................... (1,192) (861) (1,107) (869) (1,383) (1,682)
-------- -------- -------- -------- -------- --------
Units outstanding - end of year .................. 2,128 2,383 1,657 1,417 1,895 1,982
======== ======== ======== ======== ======== ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
100
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
GE/SCOTTISH EQUITABLE GE THIRD AVENUE
INTERNATIONAL EQUITY U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- ----------------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- ----------------------- -----------------------
1999 1998 1999 1998 1999 1998(1)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 325 $ (32) $ 1,730 $ 434 $ 61 $ (11)
Net gain (loss) on investment securities ......... 1,104 369 1,544 1,411 365 (142)
------- ------- -------- -------- ------- -------
Net increase (decrease) in net assets
resulting from operations ....................... 1,429 337 3,274 1,845 426 (153)
------- ------- -------- -------- ------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 761 3,972 12,169 10,178 730 2,932
------- ------- -------- -------- ------- -------
Less cost of units redeemed:
Administrative charges .......................... 644 433 2,237 862 218 138
Policy loans .................................... 101 196 422 159 52 8
Surrender benefits .............................. 258 35 444 113 80 26
Death benefits .................................. 1 107 8 63 3 0
------- ------- -------- -------- ------- -------
1,004 771 3,111 1,197 353 172
------- ------- -------- -------- ------- -------
Increase (decrease) in net assets from
capital unit transactions ...................... (243) 3,201 9,058 8,981 377 2,760
------- ------- -------- -------- ------- -------
Net increase (decrease) in net assets ........... 1,186 3,538 12,332 10,826 803 2,607
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 (199) 200
NET ASSETS:
Beginning of year ................................ 5,827 2,289 14,084 3,258 2,807 0
------- ------- -------- -------- ------- -------
End of year ...................................... $ 7,013 $ 5,827 $ 26,416 $ 14,084 $ 3,411 $ 2,807
======= ======= ======== ======== ======= =======
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 489 215 919 259 304 0
Units issued ..................................... 672 767 1,292 1,266 258 495
Units redeemed ................................... (686) (493) (743) (606) (240) (191)
------- ------- -------- -------- ------- -------
Units outstanding - end of year .................. 475 489 1,468 919 322 304
======= ======= ======== ======== ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
101
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE
REAL ESTATE SECURITIES GROWTH SMALL CAP DIVIDEND GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------- --------------- --------------- ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------- --------------- --------------- ----------------
1999 1998(1) 1999(1) 1999(1) 1999(1)
-------- ------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 6 $ (4) $ (2) $ 14 $ (1)
Net gain (loss) on investment securities ......... (41) (112) 110 20 (17)
----- ------ ------ ------ ----
Net increase (decrease) in net assets
resulting from operations ....................... (35) (116) 108 34 (18)
----- ------ ------ ------ ----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... (26) 472 871 295 499
----- ------ ------ ------ ----
Less cost of units redeemed:
Administrative charges .......................... 19 4 18 5 2
Policy loans .................................... 0 43 2 5 0
Surrender benefits .............................. 1 0 7 0 3
Death benefits .................................. 1 0 0 0 0
----- ------ ------ ------ ----
21 47 27 10 5
----- ------ ------ ------ ----
Increase (decrease) in net assets from
capital unit transactions ...................... (47) 425 844 285 494
----- ------ ------ ------ ----
Net increase (decrease) in net assets ........... (82) 309 952 319 476
Depositor's equity contribution
(net redemption) ................................ 0 400 25 25 25
NET ASSETS:
Beginning of year ................................ 709 0 0 0 0
----- ------ ------ ------ ----
End of year ...................................... $ 627 $ 709 $ 977 $ 344 $ 501
===== ====== ====== ====== =====
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 84 0 0 0 0
Units issued ..................................... 67 113 106 41 65
Units redeemed ................................... (73) (29) (19) (10) (10)
----- ------ ------ ------ -----
Units outstanding - end of year .................. 78 84 87 31 55
===== ====== ====== ====== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
102
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
T. ROWE PRICE SALOMON PILGRIM BAXTER DREYFUS
SMALL CAP ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- -------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- -------------- ---------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 26 $ 11 $ 5 $ (1)
Net gain (loss) on investment securities ......... 162 15 1,268 16
------ ------ ------ ----
Net increase (decrease) in net assets
resulting from operations ....................... 188 26 1,273 15
------ ------ ------ ----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 727 344 3,885 297
------ ------ ------ ----
Less cost of units redeemed:
Administrative charges .......................... 15 9 37 0
Policy loans .................................... 0 3 18 0
Surrender benefits .............................. 0 0 30 0
Death benefits .................................. 0 0 0 0
------ ------ ------ ----
15 12 85 0
------ ------ ------ ----
Increase (decrease) in net assets from
capital unit transactions ...................... 712 332 3,800 297
------ ------ ------ ----
Net increase (decrease) in net assets ........... 900 358 5,073 312
Depositor's equity contribution
(net redemption) ................................ 25 25 (8) 25
NET ASSETS:
Beginning of year ................................ 0 0 0 0
------ ------ -------- ----
End of year ...................................... $ 925 $ 383 $ 5,065 $ 337
====== ====== ======== =====
UNIT ACTIVITY:
Units outstanding - beginning of year ............ 0 0 0 0
Units issued ..................................... 161 58 412 52
Units redeemed ................................... (86) (22) (95) (19)
------ ------ -------- -----
Units outstanding - end of year .................. 75 36 317 33
====== ====== ======== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
103
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19
Income from operations:
Net investment income (loss) ..................... 0.66 0.70 0.68 0.62 0.64
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 0.66 0.70 0.68 0.62 0.64
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 17.49 $ 16.83 $ 16.13 $ 15.45 $ 14.83
======== ======== ======== ======== ========
Total return ....................................... 3.92 % 4.36 % 4.37 % 4.17 % 4.49 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 56,070 $ 24,576 $ 16,440 $ 12,740 $ 10,759
Ratio of net investment income (loss) to average
net assets ....................................... 3.87 % 4.24 % 4.28 % 4.07 % 4.37 %
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14
Income from operations:
Net investment income (loss) ..................... 1.13 1.01 1.01 0.99 1.05
Net realized and unrealized gain (loss) on
investment ...................................... ( 2.01) 0.76 0.58 ( 1.13) 2.48
--------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 0.88) 1.77 1.59 ( 0.14) 3.53
--------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 22.01 $ 22.89 $ 21.12 $ 19.53 $ 19.67
========= ======== ======== ======== ========
Total return ....................................... ( 3.81)% 8.34 % 8.18 % ( 0.75)% 21.81 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 27,129 $ 24,934 $ 17,657 $ 11,585 $ 10,066
Ratio of net investment income (loss) to average
net assets ....................................... 5.10 % 4.58 % 5.06 % 5.34 % 5.80 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
104
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH SUBACCOUNT
----------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44
Income from operations:
Net investment income (loss) ..................... 25.03 0.13 5.83 2.88 3.89
Net realized and unrealized gain (loss) on
investment ...................................... 28.60 35.46 2.17 4.13 9.14
---------- -------- -------- -------- --------
Net income (loss) from operations ............... 53.63 35.59 8.00 7.01 13.03
---------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 145.70 $ 92.07 $ 56.48 $ 48.48 $ 41.47
========== ======== ======== ======== ========
Total return ....................................... 58.25 % 63.01 % 16.50 % 16.91 % 45.81 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 1,353,957 $ 798,027 $ 450,271 $ 349,491 $ 262,467
Ratio of net investment income (loss) to average
net assets ....................................... 22.67 % 0.19 % 10.84 % 6.41 % 11.05 %
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
---------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80
Income from operations:
Net investment income (loss) ..................... 2.44 0.82 2.30 1.50 0.45
Net realized and unrealized gain (loss) on
investment ...................................... 13.53 4.32 0.37 1.68 1.70
---------- -------- -------- -------- --------
Net income (loss) from operations ............... 15.97 5.14 2.67 3.18 2.15
---------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 38.91 $ 22.94 $ 17.80 $ 15.13 $ 11.95
========== ======== ======== ======== ========
Total return ....................................... 69.58 % 28.86 % 17.69 % 26.60 % 21.96 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 451,498 $ 233,256 $ 145,017 $ 83,159 $ 37,049
Ratio of net investment income (loss) to average
net assets ....................................... 9.07 % 3.92 % 13.39 % 11.09 % 4.25 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
105
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12
Income from operations:
Net investment income (loss) ..................... 1.68 0.71 1.56 0.82 0.68
Net realized and unrealized gain (loss) on
investment ...................................... 0.59 0.93 1.69 1.10 1.94
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 2.27 1.64 3.25 1.92 2.62
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 22.82 $ 20.55 $ 18.91 $ 15.66 $ 13.74
======== ======== ======== ======== ========
Total return ....................................... 11.07 % 8.66 % 20.77 % 13.97 % 23.55 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 106,665 $ 98,926 $ 80,753 $ 55,900 $ 39,648
Ratio of net investment income (loss) to average
net assets ....................................... 7.93 % 3.67 % 8.89 % 5.76 % 5.47 %
</TABLE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH SUBACCOUNT
------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38
Income from operations:
Net investment income (loss) ..................... 9.32 0.91 2.20 0.82 0.65
Net realized and unrealized gain (loss) on
investment ...................................... 23.71 7.57 1.77 2.13 4.53
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 33.03 8.48 3.97 2.95 5.18
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 64.99 $ 31.96 $ 23.48 $ 19.51 $ 16.56
======== ======== ======== ======== ========
Total return ....................................... 103.33 % 36.11 % 20.37 % 17.82 % 45.49 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 608,130 $ 262,665 $ 164,702 $ 107,925 $ 67,905
Ratio of net investment income (loss) to average
net assets ....................................... 23.19 % 3.44 % 10.18 % 4.51 % 4.66 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
106
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
-----------------------------------------------------------------------
DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 26.67 $ 18.10 $ 14.70 $ 13.43 $ 9.82
Income from operations:
Net investment income (loss) ..................... 4.90 1.33 1.75 0.36 0.37
Net realized and unrealized gain (loss) on
investment ...................................... 13.10 7.24 1.65 0.91 3.24
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 18.00 8.57 3.40 1.27 3.61
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 44.67 $ 26.67 $ 18.10 $ 14.70 $ 13.43
======== ======== ======== ======== ========
Total return ....................................... 67.52 % 47.36 % 23.14 % 9.46 % 36.79 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 354,178 $ 177,857 $ 94,652 $ 54,408 $ 32,904
Ratio of net investment income (loss) to average
net assets ....................................... 15.54 % 6.20 % 10.26 % 2.65 % 2.93 %
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
-----------------------------------------------------------------------
DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37
Income from operations:
Net investment income (loss) ..................... 0.19 0.25 1.55 0.36 0.37
Net realized and unrealized gain (loss) on
investment ...................................... 0.12 0.60 0.41 0.72 1.39
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 0.31 0.85 1.96 1.08 1.76
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.33 $ 15.02 $ 14.17 $ 12.21 $ 11.13
======== ======== ======== ======== ========
Total return ....................................... 2.11 % 5.98 % 16.06 % 9.73 % 18.73 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 18,183 $ 14,864 $ 10,716 $ 6,418 $ 3,795
Ratio of net investment income (loss) to average
net assets ....................................... 1.26 % 1.76 % 11.62 % 3.18 % 3.59 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
107
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH & INCOME SUBACCOUNT
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49
Income from operations:
Net investment income (loss) ..................... 1.05 0.77 2.61 0.76 0.49
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.92) ( 0.42) 0.45 0.50 1.79
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 0.87) 0.35 3.06 1.26 2.28
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.57 $ 16.44 $ 16.09 $ 13.03 $ 11.77
======== ======== ======== ======== ========
Total return ....................................... ( 5.31)% 2.13 % 23.54 % 10.64 % 24.14 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 17,389 $ 16,047 $ 9,063 $ 5,501 $ 2,631
Ratio of net investment income (loss) to average
net assets ....................................... 6.51 % 4.83 % 18.50 % 6.38 % 4.57 %
</TABLE>
<TABLE>
<CAPTION>
WRL DEAN ASSET ALLOCATION SUBACCOUNT
--------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 16.74 $ 15.60 $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.41 1.58 1.20 0.53 0.61
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.49) ( 0.44) 0.90 1.07 1.29
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 1.08) 1.14 2.10 1.60 1.90
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.66 $ 16.74 $ 15.60 $ 13.50 $ 11.90
======== ======== ======== ======== ========
Total return ....................................... ( 6.48)% 7.36 % 15.55 % 13.40 % 19.03 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 33,317 $ 39,904 $ 29,123 $ 17,946 $ 9,446
Ratio of net investment income (loss) to average
net assets ....................................... 2.50 % 9.69 % 8.14 % 4.35 % 5.47 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
108
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 12.51 $ 12.32 $ 10.81 $ 10.00
Income from operations:
Net investment income (loss) ..................... 1.52 1.24 1.51 0.37
Net realized and unrealized gain (loss) on
investment ...................................... 2.57 ( 1.05) 0.00 0.44
-------- -------- -------- --------
Net income (loss) from operations ............... 4.09 0.19 1.51 0.81
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 16.60 $ 12.51 $ 12.32 $ 10.81
======== ======== ======== ========
Total return ....................................... 32.65 % 1.56 % 14.00 % 8.09 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 27,509 $ 17,730 $ 11,946 $ 4,466
Ratio of net investment income (loss) to average
net assets ....................................... 10.16 % 10.21 % 12.65 % 6.11 %
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 13.16 $ 13.94 $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.20 0.95 0.14 0.05
Net realized and unrealized gain (loss) on
investment ...................................... 0.72 ( 1.73) 2.55 1.20
-------- -------- -------- --------
Net income (loss) from operations ............... 0.92 ( 0.78) 2.69 1.25
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 14.08 $ 13.16 $ 13.94 $ 11.25
======== ======== ======== ========
Total return ....................................... 6.98 % ( 5.63)% 23.93 % 12.51 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 26,678 $ 26,083 $ 26,714 $ 8,887
Ratio of net investment income (loss) to average
net assets ....................................... 1.42 % 6.84 % 1.05 % 0.77 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
109
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY SUBACCOUNT WRL GE U.S. EQUITY SUBACCOUNT
-------------------------------------- ----------------------------------------
DECEMBER 31, DECEMBER 31,
-------------------------------------- ----------------------------------------
1999 1998 1997(1) 1999 1998 1997(1)
------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of year ...... $ 11.92 $ 10.65 $ 10.00 $ 15.33 $ 12.59 $ 10.00
Income from operations:
Net investment income (loss) .................. 0.62 ( 0.09) ( 0.03) 1.38 0.73 0.99
Net realized and unrealized gain (loss) on
investment ................................... 2.22 1.36 0.68 1.28 2.01 1.60
-------- -------- -------- -------- -------- --------
Net income (loss) from operations ............ 2.84 1.27 0.65 2.66 2.74 2.59
-------- -------- -------- -------- -------- --------
Accumulation unit value, end of year ............ $ 14.76 $ 11.92 $ 10.65 $ 17.99 $ 15.33 $ 12.59
======== ======== ======== ======== ======== ========
Total return .................................... 23.84 % 11.84 % 6.54 % 17.35 % 21.78 % 25.89 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $ 7,013 $ 5,827 $ 2,289 $ 26,416 $ 14,084 $ 3,258
Ratio of net investment income (loss) to average
net assets .................................... 5.09 % ( 0.81)% ( 0.28)% 8.27 % 5.30 % 8.28 %
</TABLE>
<TABLE>
<CAPTION>
WRL WRL
THIRD AVENUE J.P. MORGAN
VALUE REAL ESTATE SECURITIES
SUBACCOUNT SUBACCOUNT
---------------------------- --------------------------
DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------
1999 1998(1) 1999 1998(1)
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 9.23 $ 10.00 $ 8.46 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.19 ( 0.05) 0.07 ( 0.05)
Net realized and unrealized gain (loss) on
investment ...................................... 1.17 ( 0.72) ( 0.47) ( 1.49)
-------- -------- ------- --------
Net income (loss) from operations ............... 1.36 ( 0.77) ( 0.40) ( 1.54)
-------- -------- ------- --------
Accumulation unit value, end of year ............... $ 10.59 $ 9.23 $ 8.06 $ 8.46
======== ======== ======= ========
Total return ....................................... 14.68 % ( 7.67)% ( 4.63)% ( 15.44)%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 3,411 $ 2,807 $ 627 $ 709
Ratio of net investment income (loss) to average
net assets ....................................... 1.98 % ( 0.52)% 0.95% ( 0.90)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
110
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL
WRL WRL T. ROWE PRICE WRL
GOLDMAN SACHS GOLDMAN SACHS DIVIDEND T. ROWE PRICE
GROWTH SMALL CAP GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- --------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- --------------- --------------- --------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... ( 0.05) 0.76 ( 0.04) 0.41
Net realized and unrealized gain (loss) on
investment ...................................... 1.34 0.16 ( 0.80) 1.90
-------- -------- -------- --------
Net income (loss) from operations ............... 1.29 0.92 ( 0.84) 2.31
-------- -------- -------- --------
Accumulation unit value, end of period ............. $ 11.29 $ 10.92 $ 9.16 $ 12.31
======== ======== ======== ========
Total return ....................................... 12.91 % 9.23 % ( 8.37)% 23.09 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 944 $ 344 $ 501 $ 925
Ratio of net investment income (loss) to average
net assets ....................................... ( 0.90)% 15.66 % ( 0.90)% 8.13 %
</TABLE>
<TABLE>
<CAPTION>
WRL
WRL PILGRIM WRL
SALOMON BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ---------------- -------------
1999(1) 1999(1) 1999(1)
-------------- ---------------- -------------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.40 0.04 ( 0.04)
Net realized and unrealized gain (loss) on
investment ...................................... 0.30 5.94 0.18
-------- -------- --------
Net income (loss) from operations ............... 0.70 5.98 0.14
-------- -------- --------
Accumulation unit value, end of period ............. $ 10.70 $ 15.98 $ 10.14
======== ======== ========
Total return ....................................... 7.02 % 59.78 % 1.44 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 383 $ 5,065 $ 337
Ratio of net investment income (loss) to average
net assets ....................................... 8.07 % 0.62 % ( 0.90)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
111
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1999
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", or the "depositor") and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Life Account contains
twenty-three investment options referred to as subaccounts. Each subaccount
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
("Sub-Advisers"), some of which are affiliates of WRL. Each Sub-Adviser is
compensated directly by WRL Management.
Effective May 1, 1999 the names on the following subaccounts were changed:
<TABLE>
<CAPTION>
SUBACCOUNT FORMERLY
- --------------------------------- ---------------------------
<S> <C>
WRL J.P. Morgan Money Market Money Market Subaccount
WRL AEGON Bond Bond Subaccount
WRL Janus Growth Growth Subaccount
WRL Janus Global Global Subaccount
WRL LKCM Strategic Total Return Strategic Total Return
Subaccount
WRL VKAM Emerging Growth Emerging Growth Subaccount
WRL Alger Aggressive Growth Aggressive Growth
Subaccount
WRL AEGON Balanced Balanced Subaccount
WRL Federated Growth & Income Growth & Income Subaccount
WRL Dean Asset Allocation Tactical Asset Allocation
Subaccount
WRL C.A.S.E. Growth C.A.S.E. Growth Subaccount
WRL NWQ Value Equity Value Equity Subaccount
WRL GE/Scottish Equitable International Equity
International Equity Subaccount
WRL GE U.S. Equity U.S. Equity Subaccount
WRL Third Avenue Value Third Avenue Value
Subaccount
WRL J.P. Morgan Real Estate Real Estate Securities
Securities Subaccount
</TABLE>
The Financial Statements reflect a full twelve month period for each year
reported on, except as follows:
<TABLE>
<CAPTION>
SUBACCOUNT INCEPTION DATE
- ------------------------------------------------ ---------------
<S> <C>
WRL Dean Asset Allocation 01/03/1995
WRL C.A.S.E. Growth 05/01/1996
WRL NWQ Value Equity 05/01/1996
WRL GE/Scottish Equitable International Equity 01/02/1997
WRL GE U.S. Equity 01/02/1997
WRL Third Avenue Value 01/02/1998
WRL J.P. Morgan Real Estate Securities 05/01/1998
WRL Goldman Sachs Growth 07/01/1999
WRL Goldman Sachs Small Cap 07/01/1999
WRL T. Rowe Price Dividend Growth 07/01/1999
WRL T. Rowe Price Small Cap 07/01/1999
WRL Salomon All Cap 07/01/1999
WRL Pilgrim Baxter Mid Cap Growth 07/01/1999
WRL Dreyfus Mid Cap 07/01/1999
</TABLE>
On July 1, 1999, WRL made initial contributions totaling $175,000 to the Life
Account. The respective amounts of the contributions and units received are as
follows:
<TABLE>
<CAPTION>
SUBACCOUNT CONTRIBUTION UNITS
- ----------------------------------- -------------- --------
<S> <C> <C>
WRL Goldman Sachs Growth $ 25,000 2,500
WRL Goldman Sachs Small Cap 25,000 2,500
WRL T. Rowe Price Dividend Growth 25,000 2,500
WRL T. Rowe Price Small Cap 25,000 2,500
WRL Salomon All Cap 25,000 2,500
WRL Pilgrim Baxter Mid Cap Growth 25,000 2,500
WRL Dreyfus Mid Cap 25,000 2,500
</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
accounting principles generally accepted in the United States, have been
consistently applied in the preparation of the Life Account Financial
Statements. The preparation of the Financial Statements required management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
112
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 1 -- (CONTINUED)
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are valued at the closing net asset value
("NAV") per share of the underlying Portfolio, as determined by the Fund.
Investment transactions are accounted for on the trade date at the Portfolio
NAV next determined after receipt of sale or redemption orders without sales
charges. Dividend income and capital gains distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the total
operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 -- CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are deducted
by WRL prior to allocation of policy owner payments to the subaccounts.
Contingent surrender charges may also apply.
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 for
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 -- DIVIDEND 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.
NOTE 4 -- SECURITIES TRANSACTIONS
Securities transactions for the year ended December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
PURCHASES PROCEEDS
OF FROM SALES
SUBACCOUNT SECURITIES OF SECURITIES
- ---------------------------------------- ------------ --------------
<S> <C> <C>
WRL J.P. Morgan Money Market $ 133,389 $ 99,679
WRL AEGON Bond 11,936 7,386
WRL Janus Growth 329,222 36,072
WRL Janus Global 71,976 7,800
WRL LKCM Strategic Total Return 14,849 9,892
WRL VKAM Emerging Growth 188,708 61,487
WRL Alger Aggressive Growth 83,923 9,614
WRL AEGON Balanced 4,525 1,311
WRL Federated Growth & Income 5,634 2,209
WRL Dean Asset Allocation 4,351 7,517
WRL C.A.S.E. Growth 10,787 4,903
WRL NWQ Value Equity 6,846 7,419
WRL GE/Scottish Equitable
International Equity 5,739 5,682
WRL GE U.S. Equity 13,901 3,164
WRL Third Avenue Value 1,611 1,344
WRL J.P. Morgan Real Estate Securities 519 554
WRL Goldman Sachs Growth 977 115
WRL Goldman Sachs Small Cap 374 47
WRL T. Rowe Price Dividend Growth 543 35
WRL T. Rowe Price Small Cap 1,428 666
WRL Salomon All Cap 551 183
WRL Pilgrim Baxter Mid Cap Growth 4,402 620
WRL Dreyfus Mid Cap 470 164
</TABLE>
NOTE 5 -- FINANCIAL HIGHLIGHTS
Per unit information has been computed using average units outstanding
throughout each period. Total return is not annualized for periods of less than
one year. The ratio of net investment income (loss) to average net assets is
annualized for periods of less than one year.
113
<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 (wholly owned indirectly by AEGON N.V.) as
of December 31, 1999 and 1998, 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, 1999. 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 and schedules based on our audits. We did not audit the
"Separate Account Assets" and "Separate Account Liabilities" in the
statutory-basis 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 Accounts, 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 matter 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, 1999 and 1998, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1999.
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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, 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 18, 2000
114
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .......................... $ 23,932 $ 73,808
Bonds .................................................... 119,731 184,697
Common stocks:
Affiliated entities (cost: 1999 and 1998 - $243)......... 2,156 704
Other (cost: 1999 and 1998 - $302)....................... 358 384
Mortgage loans on real estate ............................ 9,698 9,916
Home office properties .................................. 34,066 34,583
Investment properties ................................... 11,078 11,594
Policy loans ............................................ 182,975 112,982
Other invested assets ................................... -- 396
----------- ----------
Total cash and invested assets ............................ 383,994 429,064
Premiums deferred and uncollected ......................... 785 900
Accrued investment income ................................. 1,638 2,867
Transfers from separate accounts due or accrued ........... 463,721 350,633
Cash surrender value of life insurance policies ........... 47,518 45,445
Other assets .............................................. 6,614 9,239
Separate account assets ................................... 11,587,982 6,999,290
----------- ----------
Total admitted assets ..................................... $12,492,252 $7,837,438
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
115
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life .................................................................... $ 302,138 $ 231,596
Annuity ................................................................. 268,864 265,418
Policy and contract claim reserves ....................................... 9,269 9,233
Other policyholders' funds ............................................... 38,633 38,080
Remittances and items not allocated ...................................... 20,686 20,569
Federal income taxes payable ............................................. 5,873 5,716
Asset valuation reserve .................................................. 3,809 2,848
Interest maintenance reserve ............................................. 7,866 9,684
Short-term note payable to affiliate ..................................... 17,100 44,200
Payable to affiliate ..................................................... 964 37,907
Other liabilities ........................................................ 49,478 31,151
Separate account liabilities ............................................. 11,582,656 6,997,456
----------- ----------
Total liabilities ......................................................... 12,307,336 7,693,858
Commitments and contingencies (NOTE 11) ...................................
Capital and surplus:
Common stock, $1.00 par value, 3,000,000 shares authorized and
2,500,000 shares issued and outstanding at December 31, 1999 and
1,500,000 shares authorized, issued and outstanding at December 31, 1998 2,500 1,500
Paid-in surplus .......................................................... 120,107 120,107
Unassigned surplus ....................................................... 62,309 21,973
----------- ----------
Total capital and surplus ................................................. 184,916 143,580
----------- ----------
Total liabilities and capital and surplus ................................. $12,492,252 $7,837,438
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
116
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life .................................................................. $ 584,729 $ 476,053 $ 394,370
Annuity ............................................................... 1,104,525 794,841 822,149
Net investment income .................................................. 39,589 36,315 40,013
Amortization of interest maintenance reserve ........................... 1,751 744 1,576
Commissions and expense allowances on reinsurance ceded ................ 4,178 15,333 11
Income from fees associated with investment management,
administration and contract guarantees for separate accounts ......... 19,620 72,817 --
Other income ........................................................... 44,366 67,751 3,016
---------- ---------- ----------
1,798,758 1,463,854 1,261,135
Benefits and expenses:
Benefits paid or provided for:
Life .................................................................. 35,591 42,982 28,060
Surrender benefits .................................................... 689,535 551,528 431,939
Other benefits ........................................................ 32,201 31,280 28,112
Increase (decrease) in aggregate reserves for policies and
contracts:
Life ................................................................. 70,542 42,940 29,485
Annuity .............................................................. 3,446 (30,872) (35,940)
Other ................................................................ (121) 32,178 794
---------- ---------- ----------
831,194 670,036 482,450
Insurance expenses:
Commissions ............................................................ 246,334 205,939 179,106
General insurance expenses ............................................. 112,536 102,611 70,546
Taxes, licenses and fees ............................................... 19,019 15,545 13,101
Net transfers to separate accounts ..................................... 540,443 475,435 519,214
Other expenses ......................................................... -- 59 21
---------- ---------- ----------
918,332 799,589 781,988
---------- ---------- ----------
1,749,526 1,469,625 1,264,438
---------- ---------- ----------
Gain (loss) from operations before federal income tax expense
(benefit) and net realized capital gains
(losses) on investments ............................................... 49,232 (5,771) (3,303)
Federal income tax expense (benefit) .................................... 11,816 (347) 469
---------- ---------- ----------
Gain (loss) from operations before net realized capital gains (losses)
on investments ........................................................ 37,416 (5,424) (3,772)
Net realized capital gains (losses) on investments
(net of related federal income taxes and amounts transferred to
interest maintenance reserve) ......................................... (716) 1,494 747
---------- ---------- ----------
Net income (loss) ....................................................... $ 36,700 $ (3,930) $ (3,025)
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
117
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 .......................... $1,500 $ 68,015 $ 26,041 $ 95,556
Net loss ........................................... -- -- (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 ........................................... -- -- (3,930) (3,930)
Change in 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
Net income .......................................... -- -- 36,700 36,700
Change in net unrealized capital gains ............. -- -- 1,421 1,421
Change in non-admitted assets ...................... -- -- 703 703
Change in asset valuation reserve .................. -- -- (961) (961)
Change in surplus in separate accounts ............. -- -- 451 451
Transfer from unassigned surplus to common
stock (stock dividend) ........................... 1,000 -- (1,000) --
Settlement of prior period tax returns ............. -- -- 1,000 1,000
Tax benefits on stock options exercised ............ -- -- 2,022 2,022
------ -------- -------- --------
Balance at December 31, 1999 ........................ $2,500 $120,107 $ 62,309 $184,916
====== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
118
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance .......... $1,738,870 $1,356,732 $1,223,898
Net investment income .......................................... 44,235 38,294 43,802
Life and accident and health claims ............................ (35,872) (44,426) (26,005)
Surrender benefits and other fund withdrawals .................. (689,535) (551,528) (431,939)
Other benefits to policyholders ................................ (32,642) (31,231) (28,147)
Commissions, other expenses and other taxes .................... (382,372) (326,080) (262,901)
Net transfers to separate accounts ............................. (628,762) (461,982) (596,347)
Federal income taxes received (paid) ........................... (9,637) 11,956 5,006
Interest paid .................................................. -- -- (731)
Other, net ..................................................... (21,054) (7,109) (14,901)
---------- ---------- ----------
Net cash used in operating activities .......................... (16,769) (15,374) (88,265)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks .................................... 114,177 143,449 146,963
Mortgage loans on real estate ................................. 212 221 2,116
Other ......................................................... 18 -- --
114,407 143,670 149,079
Cost of investments acquired
Bonds and preferred stocks .................................... (49,279) (68,202) (40,418)
Common stocks ................................................. -- (93) (150)
Mortgage loans on real estate ................................. (1) (5,313) (891)
Real estate ................................................... (286) (26,213) (12,002)
Policy loans .................................................. (69,993) (36,241) (24,137)
Other ......................................................... (855) (414) --
---------- ---------- ----------
(120,414) (136,476) (77,598)
Net cash provided by (used in) investing activities ............ (6,007) 7,194 71,481
FINANCING ACTIVITIES
Issuance (payment) of short-term note payable to
affiliate, net ............................................... (27,100) 36,000 8,200
Capital contribution ........................................... -- 32,092 20,000
---------- ---------- ----------
Net cash provided by (used in) financing activities ............ (27,100) 68,092 28,200
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ......... (49,876) 59,912 11,416
Cash and short-term investments at beginning of year ........... 73,808 13,896 2,480
---------- ---------- ----------
Cash and short-term investments at end of year ................. $ 23,932 $ 73,808 $ 13,896
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
119
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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 an indirect 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
account values; (e) reinsurance amounts are netted against the corresponding
asset or
120
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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) potential 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 unassigned 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; (l) stock options settled in cash are
recorded as an expense of the Company's indirect parent rather than charged to
current operations; (m) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of income tax expense in the statement of operations; and (n) 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") effective
January 1, 2001. 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.
121
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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
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 potential
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 1999, 1998 and 1997, net realized capital gains (losses) of $(67),
$1,294 and $3,259, respectively, were credited to the IMR rather than being
immediately
122
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
recognized in the statements of operations. Amortization of these net gains
aggregated $1,751, $744 and $1,576 for the years ended December 31, 1999, 1998
and 1997, respectively.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. No investment income due and accrued
has been excluded for the years ended December 31, 1999, 1998 and 1997, 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.
123
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the 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 $1,675,642, $1,240,858 and $1,164,013 in 1999, 1998 and
1997, 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 unassigned surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 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
124
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparisons
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement of Financial Accounting Standards No.
107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements and allows companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
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.
125
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following sets forth a comparison of the fair values and carrying
amounts of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1999 1998
--------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments ..... $ 23,932 $ 23,932 $ 73,808 $ 73,808
Bonds ............................... 119,731 119,076 184,697 192,556
Common stocks, other than affiliates 358 358 384 384
Mortgage loans on real estate ....... 9,698 9,250 9,916 10,390
Policy loans ........................ 182,975 182,975 112,982 112,982
Separate account assets ............. 11,587,982 11,587,982 6,999,290 6,999,290
LIABILITIES
Investment contract liabilities ..... 301,403 294,342 297,349 294,105
Separate account annuities .......... 8,271,548 8,079,141 5,096,680 5,038,296
</TABLE>
126
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
3. INVESTMENTS
The carrying amount and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and agencies .......... $ 4,755 $ 4 $ 66 $ 4,693
State, municipal and other government .......... 2,185 12 -- 2,197
Public utilities ............................... 13,134 129 368 12,895
Industrial and miscellaneous ................... 52,997 1,213 1,208 53,002
Mortgage and other asset-backed securities ..... 46,660 480 851 46,289
-------- ------ ------ --------
Total bonds ..................................... $119,731 $1,838 $2,493 $119,076
======== ====== ====== ========
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 and other asset-backed securities ..... 61,590 1,235 251 62,574
-------- ------ ------ --------
Total bonds ..................................... $184,697 $8,938 $1,079 $192,556
======== ====== ====== ========
</TABLE>
The carrying amount and fair value of bonds at December 31, 1999 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
Amount Value
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 10,521 $ 10,560
Due one through five years ......................... 32,248 31,993
Due five through ten years ......................... 17,342 17,104
Due after ten years ................................ 12,960 13,130
-------- --------
73,071 72,787
Mortgage and other asset-backed securities ......... 46,660 46,289
-------- --------
$119,731 $119,076
======== ========
</TABLE>
127
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds .................... $ 12,094 $ 17,150 $ 25,723
Dividends on equity investments from
subsidiaries ........................ 18,555 13,233 10,855
Interest on mortgage loans ........... 746 499 478
Rental income on real estate ......... 5,794 2,839 1,371
Interest on policy loans ............. 9,303 6,241 4,656
Other investment income .............. 414 540 26
-------- -------- --------
Gross investment income .............. 46,906 40,502 43,109
Investment expenses .................. (7,317) (4,187) (3,096)
-------- -------- --------
Net investment income ................ $ 39,589 $ 36,315 $ 40,013
======== ======== ========
</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
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $114,177 $143,449 $146,963
======== ======== ========
Gross realized gains .......... $ 1,762 $ 4,641 $ 3,921
Gross realized losses ......... 1,709 899 626
-------- -------- --------
Net realized gains ............ $ 53 $ 3,742 $ 3,295
======== ======== ========
</TABLE>
At December 31, 1999, bonds with an aggregate carrying value of $4,152
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.
128
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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
-------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Debt securities .................................. $ 53 $ 3,742 $ 3,295
Other invested assets ............................ 18 (18) --
------ -------- --------
71 3,724 3,295
Tax expense ...................................... (854) (936) (711)
Transfer to interest maintenance reserve ......... 67 (1,294) (3,259)
------ -------- --------
Net realized gains (losses) ...................... $ (716) $ 1,494 $ 747
====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Changes in Unrealized
----------------------------------------
Year ended December 31
----------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Debt securities .......................................... $ (8,514) $ (3,985) $ (896)
Common stocks ............................................ 1,426 248 --
-------- -------- ------
Change in unrealized appreciation (depreciation) ......... $ (7,088) $ (3737) $ (896)
======== ======== ======
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
Unrealized
-------------------
December 31
-------------------
1999 1998
--------- -------
<S> <C> <C>
Unrealized gains ............. $1,995 $ 579
Unrealized losses ............ (26) (36)
------ -----
Net unrealized gains ......... $1,969 $ 543
====== =====
</TABLE>
During 1999, the Company did not issue any mortgage loans. The Company
requires all mortgagees to carry fire insurance equal to the value of the
underlying property.
During 1999, 1998 and 1997, no mortgage loans were foreclosed and
transferred to real estate. During 1999 and 1998, the Company held a mortgage
loan loss reserve in the asset valuation reserve of $110 and $112,
respectively.
At December 31, 1999, 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,
collectively.
129
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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>
Year ended December 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums ............. $1,748,265 $1,345,752 $1,219,271
Reinsurance assumed ......... -- 461 2,389
Reinsurance ceded ........... (59,011) (75,319) (5,141)
---------- ---------- ----------
Net premiums earned ......... $1,689,254 $1,270,894 $1,216,519
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $4,916,
$5,260 and $2,288 during 1999, 1998 and 1997, respectively. At December 31,
1999 and 1998, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $1,557 and $1,003,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of
$3,487 and $2,849, 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.
130
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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 federal income tax expense (benefit) and realized capital gains (losses)
on investments for the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed tax (benefit) at federal statutory rate (35%) ......... $ 17,231 $ (2,019) $ (1,156)
Deferred acquisition costs -- tax basis ........................ 11,344 9,672 9,164
Tax reserve valuation .......................................... (2,272) 1,513 (194)
Excess tax depreciation ........................................ (727) (442) (127)
Amortization of IMR ............................................ (613) (260) (552)
Dividend received deduction .................................... (10,784) (6,657) (5,326)
Prior year over-accrual ........................................ (3,167) (2,322) (1,541)
Other, net ..................................................... 804 168 201
--------- -------- --------
Federal income tax expense (benefit) ........................... $ 11,816 $ (347) $ 469
========= ======== ========
</TABLE>
Federal income tax expense (benefit) 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, 1999). 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 1999, the Company received $1,000 from its former parent, an
unaffiliated company, for reimbursement of prior period tax payments made by
the Company but owed by the former parent. In 1998, the Company reached a final
settlement with the
131
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
Internal Revenue Service for 1994 and 1995 resulting in a tax refund of $300
and interest received of $53. Tax settlements for 1999 and 1998 were credited
directly to unassigned surplus.
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
------------------------------------------------------
1999 1998
-------------------------- -------------------------
Percent Percent
Amount of Total Amount of Total
------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment ..................... $ 12,534 0% $ 12,810 0%
Subject to discretionary withdrawal at book
value less surrender charge ................. 73,903 1 76,289 1
Subject to discretionary withdrawal at market
value ....................................... 8,271,441 96 5,096,680 94
Subject to discretionary withdrawal at book
value (minimal or no charges or
adjustments) ................................ 217,372 3 210,270 4
Not subject to discretionary withdrawal
provision ................................... 15,433 0 15,681 1
---------- -- ---------- --
8,590,683 100% 5,411,730 100%
=== ===
Less reinsurance ceded ....................... 1,581 1,131
---------- ----------
Total policy reserves on annuities and deposit
fund liabilities ............................ $8,589,102 $5,410,599
========== ==========
</TABLE>
132
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts ................. $1,675,642 $1,240,858 $1,164,013
Transfers from separate accounts ............... 1,056,207 774,690 646,477
---------- ---------- ----------
Net transfers to separate accounts ............. 619,435 466,168 517,536
Reconciling adjustments -- change in accruals
for investment management, administration
fees and contract guarantees, reinsurance and
separate account surplus ..................... (78,992) 9,267 1,678
---------- ---------- ----------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement ............................. $ 540,443 $ 475,435 $ 519,214
========== ========== ==========
</TABLE>
Reserves on the Company's traditional life insurance 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, 1999 and 1998, 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, 1999
Ordinary direct renewal business ......... $1,017 $232 $785
------ ---- ----
$1,017 $232 $785
====== ==== ====
DECEMBER 31, 1998
Ordinary direct renewal business ......... $1,101 $201 $900
------ ---- ----
$1,101 $201 $900
====== ==== ====
</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
and $1,872 was made for the years ended December 31, 1998 and 1997,
respectively, related to the change in reserve methodology.
133
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
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 greater 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 2000, without the
prior approval of insurance regulatory authorities, is $36,700.
8. CAPITAL STRUCTURE
During 1999, the Company's Board of Director's approved an amendment to
the Company's Articles of Incorporation which increased the number of
authorized capital shares to 3,000,000. The Board of Directors also authorized
a stock dividend in the amount of $1,000, which was transferred from unassigned
surplus. This amendment and stock dividend were in response to a change in
California law which requires all life insurance companies which do business in
the state to have capital stock of at least $2,500.
9. 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 Statement
of Financial Accounting Standards No. 87 expense as a percent of salaries. The
benefits are based on years of service and the employee's compensation during
the highest five consecutive years of employment. Pension expense aggregated
$1,105, $917 and $659 for the years ended December 31, 1999, 1998 and 1997,
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.
134
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
9. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
Pension expense related to this plan was $816, $632 and $448 for the years
ended December 31, 1999, 1998 and 1997, 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 $81, $157 and $99 for the years ended December 31, 1999, 1998
and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $16,905 $12,763 and $10,040, respectively, for
such services, which approximates their costs to the affiliates. The Company
provides office space, marketing and administrative services to certain
affiliates. During 1999, 1998 and 1997, the Company received $3,755, $5,125 and
$4,395, respectively, for such services, which approximates their cost.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.06% at December 31, 1999. During 1999,
1998 and 1997, the Company paid net interest of $1,997, $1,090 and $364,
respectively, to affiliates.
The Company received capital contributions of $32,092 and $20,000 from its
parent in 1998 and 1997, respectively.
135
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
At December 31, 1999 and 1998, the Company had short-term note payables to
an affiliate of $17,100 and $44,200, respectively. Interest on these notes
ranged from 5.15% to 5.9% at December 31, 1999 and 5.13% to 5.54% at December
31, 1998.
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, 1999 and 1998, the cash surrender
value of these policies was $47,518 and $45,445, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Association. Potential future obligations for
unknown insolvencies are not determinable by the Company. The Company has
established a reserve of $3,498 and $3,489 and an offsetting premium tax
benefit of $837 and $828 at December 31, 1999 and 1998, respectively, for its
estimated share of future guaranty fund assessments related to several major
insurer insolvencies. The guaranty fund expense (credit) was $(20), $(74) and
$0 at December 31, 1999, 1998 and 1997, respectively.
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as
reported in the 1998 Annual Statement filed with the Insurance Department of
the State of Ohio, to the amounts reported in the accompanying financial
statements:
136
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME--(CONTINUED)
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 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>
137
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
FAIR 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 ................................ $ 5,827 $ 5,820 $ 5,827
States, municipalities and political subdivisions ......... 7,110 7,275 7,110
Public utilities .......................................... 13,134 12,895 13,134
All other corporate bonds ................................. 93,660 93,086 93,660
--------- ------- ---------
Total fixed maturities ..................................... 119,731 119,076 119,731
EQUITY SECURITIES
Common stocks:
Affiliated entities ....................................... 243 2,156 2,156
Industrial, miscellaneous and all other ................... 302 358 358
--------- ------- ---------
Total equity securities .................................... 545 2,514 2,514
Mortgage loans on real estate .............................. 9,698 9,698
Real estate ................................................ 45,144 45,144
Policy loans ............................................... 182,975 182,975
Cash and short-term investments ............................ 23,932 23,932
--------- ---------
Total investments .......................................... $ 382,025 $ 383,994
========= =========
</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.
138
<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, 1999
Individual life ................ $ 291,106 $ 9,152 $ 583,656 $ 10,754 $ 178,237 $ 261,284
Group life ..................... 11,032 100 1,073 706 1,437 599
Annuity ........................ 268,864 17 1,104,525 28,129 651,520 116,006
--------- -------- ----------- -------- --------- ---------
$ 571,002 $ 9,269 $ 1,689,254 $ 39,589 $ 831,194 $ 377,889
========= ======== =========== ======== ========= =========
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
========= ======== =========== ======== ========= =========
</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.
139
<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, 1999
Life insurance in force ........ $63,040,741 $11,297,250 $ -- $51,743,494 0.0%
=========== =========== ========== =========== ===
Premiums:
Individual life ............... $ 604,628 $ 20,972 $ -- $ 583,656 0.0%
Group life and health ......... 1,383 310 -- 1,073 0.0
Annuity ....................... 1,142,254 37,729 -- 1,104,525 0.0
----------- ----------- ---------- ----------- ---
$ 1,748,265 $ 59,011 $ -- $ 1,689,254 0.0%
=========== =========== ========== =========== ===
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 2,389 3,918 61.0
Annuity ....................... 822,149 -- -- 822,149 0.0
----------- ----------- ---------- ----------- ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
=========== =========== ========== =========== ====
</TABLE>
140
<PAGE>
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 contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he
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:
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(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,
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<PAGE>
or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but 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
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<PAGE>
expenses, costs, judgments, decrees, fines or penalties as provided by, and to
the extent allowed by, Article Eighth of the Corporation's Articles of
Incorporation, as amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (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 144 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)
(f) Endorsement (EL101)(7)
(6) (a) Second Amended Articles of Incorporation of
Western Reserve (3)
(b) Amended Code of Regulations (By-Laws) of Western
Reserve (3)
(c) Certificate of First Amendment to the Second
Amended Articles of Incorporation of Western
Reserve (8)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (1)
(b) Sub-Advisory Agreement (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.
(7) 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.
(8) This exhibit was previously filed on Post-Effective Amendment No.5 to Form
S-6 Registration Statement dated April 19, 2000 (File No. 333-23359) and is
incorporated herein by reference.
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<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. 13 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
19th day of April, 2000.
(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
Senior Vice President, General Counsel Chairman of the Board and
and Assistant Secretary Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 13 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 19, 2000
- -------------------------------
John R. Kenney, Chairman of the
Board and Chief Executive Officer
/s/ Allan J. Hamilton April 19, 2000
- -------------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ Alan M. Yaeger April 19, 2000
- -------------------------------
Alan M. Yaeger, Executive Vice
President, Actuary & Chief Financial Officer*
- ----------
*Principal Financial Officer
<PAGE>
/s/ Jerome C. Vahl April 19, 2000
- ----------------------
Jerome C. Vahl, Director and
President
/s/ Lyman H. Treadway April 19, 2000
- -------------------------------
Lyman H. Treadway **/
/s/ Jack E. Zimmerman April 19, 2000
- -------------------------------
Jack E. Zimmerman, Director **/
/s/ James R. Walker April 19, 2000
- -------------------------------
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 17, 2000
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
WRL Freedom Wealth Protector
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. 13 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 18, 2000, with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in Post-Effective Amendment No. 13 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 17, 2000
Exhibit 10
Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-6 of our
report dated February 16, 2000, relating to the financial statements and
financial highlights of the sub-accounts constituting the WRL Series Life
Account, which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 17, 2000
