P R O S P E C T U S
MAY 1, 2000
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WRL FREEDOM EQUITY 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
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AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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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.
If you already own a life insurance policy, it may not be to your advantage to
buy additional insurance or to replace your policy with the Policy described in
this prospectus.
Prospectuses for the portfolios of:
WRL Series Fund, Inc.;
Variable Insurance Products Fund (VIP);
Variable Insurance Products Fund II (VIP II; and
Variable Insurance Products Fund III (VIP III)
must accompany this prospectus. Certain portfolios may not be available in all
states. Please read these documents before investing and save them for future
reference.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Glossary ....................................................... 1
Policy Summary ................................................. 4
Risk Summary ................................................... 10
Portfolio Annual Expense Table ................................. 14
Western Reserve and the Fixed Account .......................... 16
Western Reserve ............................................ 16
The Fixed Account .......................................... 16
The Separate Account and the Portfolios ........................ 17
The Separate Account ....................................... 17
The Funds .................................................. 17
Addition, Deletion, or Substitution of Investments ......... 22
Your Right to Vote Portfolio Shares ........................ 22
The Policy ..................................................... 23
Purchasing a Policy ........................................ 23
Underwriting Standards ..................................... 23
When Insurance Coverage Takes Effect ....................... 24
Ownership Rights ........................................... 26
Canceling a Policy ......................................... 27
Premiums ....................................................... 28
Premium Flexibility ........................................ 28
Planned Periodic Payments .................................. 28
Minimum Monthly Guarantee Premium .......................... 28
No Lapse Period ............................................ 29
Premium Limitations ........................................ 29
Making Premium Payments .................................... 29
Allocating Premiums ........................................ 30
Policy Values .................................................. 31
Cash Value ................................................. 31
Net Surrender Value ........................................ 31
Subaccount Value ........................................... 31
Subaccount Unit Value ...................................... 32
Fixed Account Value ........................................ 33
Transfers ...................................................... 33
General .................................................... 33
Fixed Account Transfers .................................... 35
Conversion Rights .......................................... 35
Dollar Cost Averaging ...................................... 35
Asset Rebalancing Program .................................. 36
Third Party Asset Allocation Services ...................... 37
Charges and Deductions ......................................... 38
Premium Charges ............................................ 38
Monthly Deduction .......................................... 39
Mortality and Expense Risk Charge .......................... 40
This Policy is not available in the State of New York.
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Surrender Charge ......................................... 40
Transfer Charge .......................................... 43
Cash Withdrawal Charge ................................... 43
Taxes .................................................... 44
Portfolio Expenses ....................................... 44
Group or Sponsored Policies .............................. 44
Associate Policies ....................................... 45
Protector Plus Program(SM)................................ 45
Death Benefit ................................................ 46
Death Benefit Proceeds ................................... 46
Death Benefit ............................................ 46
Effects of Cash Withdrawals on the Death Benefit ......... 48
Choosing Death Benefit Options ........................... 48
Changing the Death Benefit Option ........................ 48
Changing the Specified Amount ............................ 49
Payment Options .......................................... 49
Surrenders and Cash Withdrawals .............................. 50
Surrenders ............................................... 50
Cash Withdrawals ......................................... 50
Loans ........................................................ 51
General .................................................. 51
Interest Rate Charged .................................... 52
Loan Reserve Interest Rate Credited ...................... 52
Effect of Policy Loans ................................... 53
Policy Lapse and Reinstatement ............................... 53
Lapse .................................................... 53
No Lapse Period .......................................... 54
Reinstatement ............................................ 54
Federal Income Tax Considerations ............................ 55
Tax Status of the Policy ................................. 55
Tax Treatment of Policy Benefits ......................... 56
Special Rules for 403(b) Arrangements .................... 58
Other Policy Information ..................................... 59
Our Right to Contest the Policy .......................... 59
Suicide Exclusion ........................................ 59
Misstatement of Age or Gender ............................ 59
Modifying the Policy ..................................... 59
Benefits at Maturity ..................................... 59
Payments We Make ......................................... 60
Settlement Options ....................................... 61
Reports to Owners ........................................ 62
Records .................................................. 62
Policy Termination ....................................... 63
Supplemental Benefits (Riders) ............................... 63
Children's Insurance Rider ............................... 63
Accidental Death Benefit Rider ........................... 63
Other Insured Rider ...................................... 63
Disability Waiver Rider .................................. 64
Disability Waiver and Income Rider ....................... 64
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Primary Insured Rider ("PIR") and Primary Insured
Rider Plus ("PIR Plus") ........................................... 64
Terminal Illness Accelerated Death Benefit Rider ..................... 65
IMSA ..................................................................... 66
Performance Data ......................................................... 66
Rates of Return ...................................................... 66
Hypothetical Illustrations Based on Subaccount Performance ........... 68
Other Performance Data in Advertising Sales Literature ............... 78
Western Reserve's Published Ratings .................................. 78
Additional Information ................................................... 79
Sale of the Policies ................................................. 79
Legal Matters ........................................................ 79
Legal Proceedings .................................................... 79
Variations in Policy Provisions ...................................... 79
Experts .............................................................. 80
Financial Statements ................................................. 80
Additional Information about Western Reserve ......................... 80
Western Reserve's Directors and Officers ............................. 81
Additional Information about the Separate Account .................... 83
Appendix A -- Illustrations .............................................. 84
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 88
Index to Financial Statements ............................................ 90
WRL Series Life Account .............................................. 91
Western Reserve Life Assurance Co. of Ohio ........................... 118
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GLOSSARY
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<TABLE>
<S> <C>
accounts The options to which you can allocate your money. The accounts include the
fixed account and the subaccounts in the separate account.
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attained age The issue age of the person 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 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 insured's death. We will
proceeds 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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funds Investment companies which are registered with the U.S. Securities and
Exchange Commission. The Policy allows you to invest in the portfolios of
the funds through our subaccounts. We reserve the right to add other
registered investment companies to the Policy in the future.
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guideline The level annual premium payment you must pay so that we can provide the
premium benefits you selected through the maturity date. The amount of the payment is
based on particular facts relating to the insured and certain assumptions
allowed by law. The guideline premium is shown on your Policy schedule
page.
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in force While coverage under the Policy is active and the insured's life remains
insured.
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initial premium The amount you must pay before insurance coverage begins under this Policy.
The initial premium is shown on the schedule page of your Policy.
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insured The person whose life is insured by this Policy.
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issue age The insured's age on his or her birthday nearest to the Policy date.
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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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</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
loan amount The total amount of all outstanding Policy loans, including both principal and
interest due.
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loan reserve A part of the fixed account to which amounts are transferred as collateral for
Policy loans.
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maturity date The Policy anniversary nearest the insured's 95th birthday if the 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 that we use during the no
monthly lapse period to determine whether a grace period will begin. We make this
guarantee determination whenever your net surrender value is not enough to meet
premium monthly deductions. If you pay your minimum monthly guarantee premium
each month during the no lapse period, your Policy will not lapse, so long as
you do not take a loan, increase the specified amount or add a rider.
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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 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, plus the
deduction 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 charges and the premium collection 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 period The first three Policy years 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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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 a fund.
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premiums All payments you make under the Policy other than loan repayments.
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</TABLE>
2
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<TABLE>
<CAPTION>
<S> <C>
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
increase or 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 a 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. We will deduct an additional
surrender charge for 15 years following an increase in the specified amount.
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When the insured's life is no longer insured under the Policy.
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termination Each day the New York Stock Exchange is open for trading. Western Reserve
valuation date 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)
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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 entitled to exercise all rights as owner under the Policy.
(owner or
policyowner)
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</TABLE>
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POLICY SUMMARY WRL FREEDOM EQUITY 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 Equity Protector/registered trademark/ is an individual
flexible premium variable life insurance 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 access to the
fixed account and on other 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 $50 if paid monthly and $600 if
paid annually.
/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 do NOT:
/bullet/ increase the specified amount, or
/bullet/ add a rider.
AND you must:
/bullet/ pay total premiums (MINUS any withdrawals and MINUS any
outstanding loans) that equals or is greater than the sum of
the minimum monthly guarantee premiums in effect for each
month since the Policy date up to and including the current
month.
/bullet/ The minimum monthly guarantee premium is shown on your Policy schedule
page.
/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.
/bullet/ A premium collection charge of $2.00 from each premium payment.
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 a 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 SERIES FUND, INC.
- WRL VKAM Emerging Growth - WRL Great Companies -- America(SM)
- WRL T. Rowe Price Small Cap - WRL Salomon All Cap
- WRL Goldman Sachs Small Cap - WRL C.A.S.E. Growth
- WRL Pilgrim Baxter Mid Cap Growth - WRL Dreyfus Mid Cap
- WRL Alger Aggressive Growth - WRL NWQ Value Equity
- WRL Third Avenue Value - WRL T. Rowe Price Dividend Growth
- WRL Value Line Aggressive Growth - WRL Dean Asset Allocation
- WRL GE International Equity (formerly, - WRL LKCM Strategic Total Return
WRL GE/Scottish Equitable International Equity) - WRL J.P. Morgan Real Estate Securities
- WRL Janus Global - WRL Federated Growth & Income
- WRL Great Companies -- Technology(SM) - WRL AEGON Balanced
- WRL Janus Growth - WRL AEGON Bond
- WRL Goldman Sachs Growth - WRL J.P. Morgan Money Market
- WRL GE U.S. Equity
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND (VIP)
- - - Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
- - - Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
- - - Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
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%. The fixed account is NOT available to
residents of New Jersey.
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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:
--> do not increase the specified amount; OR
--> do not add any riders; AND
--> have paid sufficient premiums.
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. Depending on when your Policy
was issued, the amount of your transfer may be limited to the greater
of:
--> 25% of your value in the fixed account; OR
--> 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/ PREMIUM COLLECTION CHARGE: We deduct $2.00 from each premium payment
to compensate us for billing and collection costs.
/bullet/ MONTHLY POLICY CHARGE: We deduct $5.00 from your cash value each
month.
/bullet/ COST OF INSURANCE CHARGES: Deducted monthly from your cash value.
Your charges vary each month with the insured's attained age, gender,
the specified amount, the death benefit option you choose, and the
investment results of the portfolios in which you invest.
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/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. If you
increase the specified amount, we deduct an additional surrender
charge upon surrender during the 15 years following the increase. See
Charges and Deductions -- Surrender Charge p. 40. 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.
/bullet/ PORTFOLIO EXPENSES: The portfolios deduct management fees and
expenses from the amounts you have invested in the portfolios. Some
portfolios also deduct 12b-1 fees from portfolio assets. 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 prospectuses.
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.
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DEATH BENEFIT
/bullet/ You must choose one of two death benefit options. We offer the
following:
/bullet/ Option A is the greater of:
--> the current specified amount, or
--> a specified percentage, multiplied by the Policy's
cash value on the date of the insured's death.
/bullet/ Option B is the greater of:
--> the current specified amount, plus the Policy's cas
value on the date of the insured's death, or
--> a specified percentage, multiplied by the Policy's
cash value on the date of the 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 for issue ages 0-45 is
$50,000. It declines to $25,000 for issue ages 46-75. 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 first Policy year, you may increase the specified amount
once each Policy year before your attained age 75.
/bullet/ After the third Policy year, you may either increase or decrease the
specified amount once each Policy year. A decrease in specified
amount cannot reduce your specified amount below the minimum
specified amount as shown in your Policy.
/bullet/ After the third Policy year, you may change the death benefit option.
A change in your death benefit option cannot reduce your specified
amount below the minimum specified amount shown in your Policy.
/bullet/ Under current tax law, the death benefit should be income tax free to
the beneficiary.
/bullet/ The death benefit is available in a lump sum or a variety of payout
options.
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:
--> at least $500; and
--> 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.
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/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.
A surrender charge will apply during the first 15 Policy years. An
additional surrender charge will also apply if you surrender your
Policy 15 years after any increase in specified amount.
INQUIRIES
If you need additional 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 three-year no lapse period. Your
Policy will not lapse during the first three Policy years as
long as you pay your minimum monthly guarantee premium as
shown in your Policy AND you do NOT add any riders and you
do not increase the specified amount after the Policy date.
If you do not pay the premiums and if you add any riders or
increase the specified amount after the Policy date, you
will automatically lose the no lapse guarantee and you will
increase the risk that your Policy will lapse. In addition,
if you take a withdrawal or a 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 the sum of
your minimum monthly guarantee premiums are high enough to
keep the no lapse period in effect.
You will lessen the risk of Policy lapse if you keep the no
lapse period in effect. During the first 3 Policy years,
before you take a cash withdrawal, loan, increase 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) is not enough to pay the monthly deduction due.
A Policy lapse may have adverse tax consequences. See
Federal Income Tax Considerations, p. 55 and Policy Lapse
and Reinstatement, p. 53.
You may reinstate this Policy within five years after it has
lapsed (and prior to the maturity date), if the insured
meets the insurability requirements and you pay the amount
we require.
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<PAGE>
TAX RISKS We expect that the Policy will generally be deemed a life
(INCOME TAX insurance contract under federal tax law, so that the death
AND MEC) benefit paid to the beneficiary will not be subject to
federal income tax. However, due to lack of guidance, there
is less certainty in this regard with respect to Policies
issued on a substandard basis. Depending on the total amount
of premiums you pay, the Policy may be treated as a modified
endowment contract ("MEC") under federal tax laws. A
Protector Plus Program(SM) Policy (discussed on page 45)
will in most instances be treated as a MEC. If a Policy is
treated as a MEC, partial withdrawals, surrenders and loans
will be taxable as ordinary income to the extent there are
earnings in the Policy. In addition, a 10% penalty tax may
be imposed on partial withdrawals, surrenders and loans
taken before you reach age 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 partial withdrawal
WITHDRAWALS per 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. If death benefit Option B is in
effect when you make a withdrawal, the death benefit will be
reduced by the amount the cash value was reduced. In some
circumstances, a withdrawal may reduce the death benefit by
more than the dollar amount of the withdrawal.
Federal income taxes and a penalty tax may apply to partial
withdrawals and surrenders.
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11
<PAGE>
LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from
the subaccounts and the fixed account and place that amount
in the loan reserve as collateral. We then credit a fixed
interest rate of not less than 4.0% to the loan collateral.
We currently credit interest at 4.75% annually, but we are
not obligated to do so in the future. As a result, the loan
collateral does not participate in the investment results of
the subaccounts and may not continue to receive the current
interest rates credited. The longer the loan is outstanding,
the greater the effect is likely to be. Depending on the
investment results of the subaccounts and the 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.
(The above loan interest rates may vary depending on when
and where your Policy was issued. See Loans p. 51.)
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds by the amount of the
outstanding loan.
A Policy loan could make it more likely that a Policy would
lapse. A Policy loan will increase the risk that the no
lapse period will end. There is also a risk if the loan
reduces your net surrender value to too low an amount and
investment experience is unfavorable, while the no lapse
period is no longer in effect, that 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. 55.
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EFFECTS OF 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) to measure whether your Policy will
remain in force or will enter a grace period.
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<PAGE>
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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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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<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
prospectuses.
ANNUAL PORTFOLIO OPERATING EXPENSES
(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 SERIES FUND, INC.(1)(9)
WRL VKAM Emerging Growth 0.80% 0.07% N/A 0.87%
WRL T. Rowe Price Small Cap(5) 0.75% 0.25% N/A 1.00%
WRL Goldman Sachs Small Cap(5) 0.90% 0.10% N/A 1.00%
WRL Pilgrim Baxter Mid Cap Growth(5) 0.90% 0.10% N/A 1.00%
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 Value Line Aggressive Growth(6) 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 Great Companies -- Technology(SM)) 0.80% 0.20% N/A 1.00%
WRL Janus Growth(4) 0.80% 0.05% N/A 0.85%
WRL Goldman Sachs Growth(5) 0.90% 0.10% N/A 1.00%
WRL GE U.S. Equity 0.80% 0.13% N/A 0.93%
WRL Great Companies -- America(SM)(6) 0.80% 0.20% N/A 1.00%
WRL Salomon All Cap(5) 0.90% 0.10% N/A 1.00%
WRL C.A.S.E. Growth 0.80% 0.20% N/A 1.00%
WRL Dreyfus Mid Cap(5) 0.85% 0.15% N/A 1.00%
WRL NWQ Value Equity 0.80% 0.10% N/A 0.90%
WRL T. Rowe Price Dividend Growth(5) 0.90% 0.10% N/A 1.00%
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 J.P. Morgan Real Estate Securities 0.80% 0.20% N/A 1.00%
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%
VARIABLE INSURANCE PRODUCTS FUND
(VIP)
Fidelity VIP Equity-Income Portfolio --
Service Class 2(8) 0.48% 0.10% 0.25%(7) 0.83%
VARIABLE INSURANCE PRODUCTS FUND II
(VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2(8) 0.58% 0.12% 0.25%(7) 0.95%
VARIABLE INSURANCE PRODUCTS FUND III
(VIP III)
Fidelity VIP III Growth Opportunities Portfolio --
Service Class 2(8) 0.58% 0.13% 0.25%(7) 0.96%
</TABLE>
(1) Effective January 1, 1997, the Board of the WRL Series Fund, Inc. ("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
14
<PAGE>
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.
(5) Because these portfolios did not commence operations until May 3, 1999,
the percentages set forth as "Other Expenses" and "Total Annual Expenses"
are annualized.
(6) Because these portfolios did not commence operations until May 1, 2000,
the percentages set forth as "Other Expenses" and "Total Annual Expenses"
reflect estimates of "Other Expenses" for the first year of operations.
(7) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and Variable Insurance
Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain
shareholder support services provided by companies selling variable
contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed
against the Fidelity VIP Funds shares held for the Policies will be
remitted to AFSG, the principal underwriter for the Policies.
(8) Service Class 2 expenses are based on estimated expenses for the year
2000.
(9) WRL Management, the investment adviser of the WRL Fund, has undertaken,
until at least April 30, 2001, to pay expenses on behalf of the portfolios
of the WRL Fund 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 T. Rowe Price Small Cap 1.00% 63,542 2.46%
WRL Goldman Sachs Small Cap 1.00% 60,555 5.57%
WRL Pilgrim Baxter Mid Cap Growth 1.00% 34,986 1.40%
WRL Alger Aggressive Growth 1.00% N/A N/A
WRL Third Avenue Value 1.00% 10,734 1.06%
WRL Value Line Aggressive Growth 1.00% N/A N/A
WRL GE International Equity 1.20% 112,088 1.84%
WRL Janus Global 1.00% N/A N/A
WRL Great Companies -- Technology(SM) 1.00% N/A N/A
WRL Janus Growth 1.00% N/A N/A
WRL Goldman Sachs Growth 1.00% 49,677 2.68%
WRL GE U.S. Equity 1.00% N/A N/A
WRL Great Companies -- America(SM) 1.00% N/A N/A
WRL Salomon All Cap 1.00% 53,174 2.87%
WRL C.A.S.E. Growth 1.00% N/A N/A
WRL Dreyfus Mid Cap 1.00% 34,541 4.89%
WRL NWQ Value Equity 1.00% N/A N/A
WRL T. Rowe Price Dividend Growth 1.00% 46,989 2.35%
WRL Dean Asset Allocation 1.00% N/A N/A
WRL LKCM Strategic Total Return 1.00% N/A N/A
WRL J.P. Morgan Real Estate Securities 1.00% 51,924 2.69%
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>
15
<PAGE>
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 funds for the fiscal
year ended December 31, 1999 (except as noted in the footnotes). Expenses of
the funds may be higher or lower in the future. For more information on the
charges described in this table, see the fund prospectuses which accompany 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), Puerto
Rico, Guam and the District of Columbia.
THE FIXED ACCOUNT
The fixed account is part of Western Reserve's general account. We use
general account assets to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, Western
Reserve has sole discretion over investment of the fixed account's assets.
Western Reserve bears the full investment risk for all amounts contributed to
the fixed account. Western Reserve guarantees that the amounts allocated to the
fixed account will be credited interest daily at a net effective interest rate
of at least 4.0%. We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion. We have no specific formula for
determining interest rates.
Money you place in the fixed account will earn interest compounded daily
at a current interest rate in effect at the time of your allocation. We may
declare current interest rates from time to time. We may declare more than one
interest rate for different money based upon the date of allocation or transfer
to the 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.
16
<PAGE>
New Jersey residents: The fixed account is NOT available to you. You may
not direct or transfer any premiums or cash value to the fixed account. The
fixed account is used solely for Policy loans.
THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of a fund. These subaccounts buy and sell
portfolio shares at net asset value without any sales charge. Any dividends and
distributions from a portfolio are reinvested at net asset value in shares of
that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE FUNDS
The separate account invests in shares of the portfolios. Each portfolio
is an investment division of a fund, which is an open-end management investment
company registered with the SEC. Such registration does not involve supervision
of the management or investment practices or policies of the portfolios by the
SEC.
17
<PAGE>
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
sub-adviser. The investment results of the portfolios, however, may be higher
or lower than those of such other portfolios. We do not guarantee or make any
representation that the investment results of the portfolios will be comparable
to any other portfolio, even those with the same investment adviser or manager.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING A
DESCRIPTION OF RISKS, IN THE FUND PROSPECTUSES. YOU SHOULD READ THE FUND
PROSPECTUSES CAREFULLY.
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- - ----------------- ------------------------ ----------------------------------
<S> <C> <C> <C> <C>
WRL VKAM --> Van Kampen --> Seeks capital appreciation by
EMERGING Asset Management Inc. investing primarily in common
GROWTH stocks of small and medium-
sized companies.
WRL T. ROWE --> T. Rowe Price --> Seeks long-term growth of
PRICE SMALL CAP Associates, Inc. capital by investing primarily in
common stocks of small growth
companies.
WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of
SACHS SMALL CAP Management capital.
WRL PILGRIM --> Pilgrim Baxter & --> Seeks capital appreciation.
BAXTER MID CAP Associates, Ltd.
GROWTH
WRL ALGER --> Fred Alger --> Seeks long-term capital
AGGRESSIVE Management, Inc. appreciation.
GROWTH
WRL THIRD --> EQSF Advisers, Inc. --> Seeks long-term capital
AVENUE VALUE appreciation.
WRL VALUE LINE --> Value Line, Inc. --> Seeks long-term growth of
AGGRESSIVE capital.
GROWTH
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- - --------------- ------------------------- ----------------------------------
<S> <C> <C> <C> <C>
WRL GE --> GE Asset Management --> Seeks long-term growth of
INTERNATIONAL Incorporated* capital.
EQUITY
WRL JANUS --> Janus Capital --> Seeks long-term growth of
GLOBAL Corporation capital in a manner consistent
with the preservation of capital.
WRL GREAT --> Great Companies, L.L.C. --> Seeks long-term growth of
COMPANIES -- capital.
TECHNOLOGY(SM)
WRL JANUS --> Janus Capital --> Seeks growth of capital.
GROWTH Corporation
WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of
SACHS GROWTH Management capital.
WRL GE U.S. --> GE Asset Management --> Seeks long-term growth of
EQUITY Incorporated capital.
WRL GREAT --> Great Companies, L.L.C. --> Seeks long-term growth of
COMPANIES -- capital.
AMERICA(SM)
WRL SALOMON --> Salomon Brothers Asset --> Seeks capital appreciation.
ALL CAP Management Inc
WRL C.A.S.E. --> C.A.S.E. --> Seeks annual growth of capital
GROWTH Management, Inc. through investment in companies
whose management, financial
resources and fundamentals
appear attractive on a scale
measured against each company's
present value.
WRL DREYFUS --> The Dreyfus --> Seeks total investment returns
MID CAP Corporation (including capital appreciation
and income), which consistently
outperform the S&P 400 Mid
Cap Index.
WRL NWQ VALUE --> NWQ Investment --> Seeks to achieve maximum,
EQUITY Management consistent total return with
Company, Inc. minimum risk to principal.
* Effective May 1, 2000, GE Asset Management Incorporated will be the sole sub-adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- - ---------------------------------- ------------------------ ------------------------------------
<S> <C> <C> <C> <C>
WRL T. ROWE --> T. Rowe Price --> Seeks to provide an increasing
PRICE DIVIDEND Associates, Inc. level of dividend income,
GROWTH long-term capital appreciation
and reasonable current income
through investments primarily in
dividend paying stocks.
WRL DEAN ASSET --> Dean Investment --> Seeks preservation of capital and
ALLOCATION Associates competitive investment returns.
WRL LKCM --> Luther King Capital --> Seeks to provide current income,
STRATEGIC Management long-term growth of income and
TOTAL RETURN Corporation capital appreciation.
WRL J.P. MORGAN --> J.P. Morgan Investment --> Seeks long-term total return from
REAL ESTATE Management Inc. investments primarily in equity
SECURITIES securities of real estate
companies. Total return will
consist of realized and unrealized
capital gains and losses plus
income.
WRL FEDERATED --> Federated Investment --> Seeks total return by investing in
GROWTH & INCOME Counseling securities that have defensive
characteristics.
WRL AEGON --> AEGON USA --> Seeks preservation of capital,
BALANCED Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
WRL AEGON --> AEGON USA --> Seeks the highest possible
BOND Investment current income within the
Management, Inc. confines of the primary goal of
insuring the protection of capital.
WRL J.P. MORGAN --> J.P. Morgan Investment --> Seeks to obtain maximum current
MONEY MARKET Management Inc. income consistent with the
preservation of principal and
maintenance of liquidity.
FIDELITY VIP --> Fidelity Management & --> Seeks reasonable income by
EQUITY-INCOME Research Company investing primarily in income-
PORTFOLIO -- producing equity securities.
SERVICE CLASS 2
FIDELITY VIP II --> Fidelity Management & --> Seeks long-term capital apprecia-
CONTRAFUND/registered trademark/ Research Company tion by investing primarily in a
PORTFOLIO -- broad variety of common stocks,
SERVICE CLASS 2 using both growth-oriented and
contrarian disciplines.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- - ------------------ ------------------------ ----------------------------------
<S> <C> <C> <C> <C>
FIDELITY VIP III --> Fidelity Management & --> Seeks capital growth by investing
GROWTH Research Company in a wide range of common
OPPORTUNITIES domestic and foreign stocks, and
PORTFOLIO -- securities convertible into
SERVICE CLASS 2 common stocks.
</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 WRL Fund and manages the WRL Fund in accordance with policies
and guidelines established by the WRL 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 WRL Fund prospectus for more information regarding WRL
Management and the investment sub-advisers.
Fidelity Management & Research Company ("FMR") located at 82 Devonshire
Street, Boston, Massachusetts 02109, serves as investment adviser to the
Fidelity VIP Funds and manages the Fidelity VIP Funds in accordance with
policies and guidelines established by the Fidelity VIP Funds' Board of
Trustees. For certain portfolios, FMR has engaged investment sub-advisers to
provide portfolio management services with regards to foreign investments. FMR
and each sub-adviser are registered investment advisers under the Investment
Advisers Act of 1940, as amended. See the Fidelity VIP Funds prospectuses for
more information regarding FMR 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 funds currently foresee any
such disadvantages, either to variable life insurance policyowners or to
variable annuity contract owners. However, each fund's Board of
Directors/Trustees 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.
21
<PAGE>
If a fund's Board of Directors/Trustees were to conclude that separate
funds should be established for variable life insurance and variable annuity
separate accounts, Western Reserve will bear the attendant expenses, but
variable life insurance policyowners and variable annuity contract owners would
no longer have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from, or substitute the investments that
are held by any subaccount, or that any subaccount may purchase. We will only
add, delete or substitute shares of another portfolio of a 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 a 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. 55.
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).
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<PAGE>
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.
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 select the specified amount for your Policy within the following
guidelines. Our current minimum specified amount for a Policy for issue ages
0-45 is generally $50,000. It declines to $25,000 for issue ages 46-75. We will
generally only issue a Policy to you if you provide sufficient evidence that
the insured meets our insurability standards. 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 insured is over age
75. The insured 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 insured completes all of the medical tests and
examinations that we require.
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
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<PAGE>
will base the premiums and benefits in Policies that we issue in Montana, to
insure residents of that state, on actuarial tables that do not differentiate
on the basis of gender.
Your cost of insurance charge will depend on the insured's rate class. We
currently place insureds into the following rate classes:
/bullet/ ultimate select, non-tobacco use;
/bullet/ select, non-tobacco use;
/bullet/ ultimate standard, tobacco use; and
/bullet/ standard, tobacco use.
We also place 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. We charge lower cost of insurance rates for
insureds who are in an "ultimate class." An ultimate class is only available if
our underwriting guidelines require you to take a blood test because of the
specified amount you have chosen.
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: reduced by all amounts payable under all life insurance applica-
tions 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: --> if not signed by an authorized agent of Western
Reserve; or
--> in the event the application contains any fraud or
material misrepresentation; or
--> 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 insured meets 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 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. 31.
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<PAGE>
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the 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 insured is alive and the Policy
is in force.
/bullet/ Change is effective as of the date that the written notice is
received at our office.
/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 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 insured, then any
contingent beneficiary becomes the beneficiary.
/bullet/ If both the beneficiary and contingent beneficiary die
before the insured, then the death benefit will be paid to
the owner or the owner's estate upon the insured's death.
</TABLE>
<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>
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<PAGE>
<TABLE>
<S> <C>
ASSIGNING THE /bullet/ The owner may assign Policy rights while the insured is
POLICY 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:
--> bound by any assignment unless we receive a
written notice of the assignment;
--> responsible for the validity of any assignment;
--> liable for any payment we made before we
received written notice of the assignment; or
--> bound by any assignment which results in adverse
tax consequences to the owner, insured(s) or
beneficiary(ies).
</TABLE>
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
/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.
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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 $50. 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. 53.
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 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 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 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.
After the no lapse period ends, paying the 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.
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NO LAPSE PERIOD
During the first three Policy years, 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/ you have not increased the specified amount; OR
/bullet/ you have not added any riders; AND
/bullet/ the total amount of the premiums you paid (minus any cash
withdrawals and outstanding loans) is equal to or exceeds:
--> the minimum monthly guarantee premium stated in your Policy,
MULTIPLIED BY
--> the number of months since the Policy date, including the
current month.
PREMIUM LIMITATIONS
Premium payments must be at least $50 if paid monthly and $600 if paid
annually ($1,000 if by wire). We may return premiums less than $50. 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 Premium Charges p. 38). We will accept premium payments
by wire transfer.
If you wish to make payments by wire transfer, 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
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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 ($500 for New Jersey
residents) 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. The
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 a 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 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 periodically review how your cash value is allocated among the
subaccounts and the fixed account because market conditions and your overall
financial objectives may change.
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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 amounts 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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<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 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 will increase or decrease from one
valuation period to the next.
<TABLE>
<S> <C>
THE UNIT VALUE /bullet/ the total value of the portfolio shares held in the
OF ANY subaccount, determined by multiplying the number of
SUBACCOUNT AT portfolio shares owned by the subaccount times the
THE END OF A portfolio's net asset value per share determined at the end
VALUATION of the valuation period; MINUS
PERIOD /bullet/ a deduction for the mortality and expense risk charge;
IS CALCULATED AS: MINUS
/bullet/ the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
AND THE RESULT DIVIDED BY
/bullet/ the number of outstanding units in the subaccount.
</TABLE>
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
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FIXED ACCOUNT VALUE
On the record date, the fixed account value is equal to the cash value
allocated to the fixed account from the WRL J.P. Morgan Money Market
subaccount.
<TABLE>
<S> <C>
THE FIXED ACCOUNT /bullet/ the sum of net premium(s) allocated to the fixed account;
VALUE AT THE END OF PLUS
ANY VALUATION /bullet/ any amounts transferred 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/registered representative of record may make transfers
among the subaccounts or from the subaccounts to the fixed account. We
determine the amount you have available for transfers at the end of the
valuation period when we receive your transfer request at our office. WE MAY
MODIFY OR REVOKE THE TRANSFER PRIVILEGE AT ANY TIME. The following features
apply to transfers under the Policy:
/check mark/ You may make an unlimited number of "non-substantive"
transfers in a Policy year among the subaccounts, although
we do limit "substantive" transfers, as discussed below.
/check mark/ You may make one transfer from the fixed account in a Policy
year (unless you choose dollar cost averaging from the fixed
account).
/check mark/ You may request transfers in writing (in a form we accept),
by fax or by telephone.
/check mark/ There is no minimum amount that must be transferred.
/check mark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/check mark/ We deduct a $10 charge from the amount transferred for each
transfer in excess of 12 transfers in a Policy year.
/check mark/ We consider all transfers made in any one day to be a single
transfer.
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<PAGE>
/check mark/ Transfers resulting from loans, conversion rights,
reallocation of cash value immediately after the record
date, and transfers from the fixed account are NOT treated
as transfers for the purpose of the transfer charge.
/check mark/ Transfers under dollar cost averaging and asset rebalancing
are treated as transfers for purposes of the transfer
charge.
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 us at 1-800-851-9777 or fax your instructions
to 727-299-1648.
Please note the following regarding telephone or fax transfers:
--> We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to be
authentic. You bear the risk of any such loss.
--> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
--> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
--> Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to owners, and/or
tape recording telephone instructions received from owners.
--> We may also require written confirmation of your request.
--> If you do not want the ability to make telephone transfers, you
should notify us in writing.
--> Telephone or fax requests must be received at our office before 4:00
p.m. Eastern time to assure same-day pricing of the transaction.
--> WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF
FAXED TO A NUMBER OTHER THAN 727-299-1648.
--> We will not be responsible for any transmittal problems when you fax
us your request unless you report it to us within five business days
and send us proof of your fax transmittal.
--> We may discontinue this option at any time.
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<PAGE>
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.
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. Depending on when your Policy was issued,* the maximum amount you may
transfer is limited to the greater of:
--> 25% of the amount in the fixed account; or
--> the amount you transferred from the fixed account in the immediately
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.
* If your Policy was issued before September 1, 1994, there is no limit on the
amount that you can transfer from the fixed account. If your Policy was issued
on or after September 1, 1994 (in all states that approved this change), you
are subject to the transfer limitation set forth above.
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.
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.
35
<PAGE>
<TABLE>
<S> <C>
TO START DOLLAR COST --> you must submit a completed form to us at our office
AVERAGING: requesting dollar cost averaging;
--> you must have at least $10,000 in each account from
which we will make transfers;
--> your total transfers each month under dollar cost
averaging must be at least $1,000 ($500 for New York
residents); and
--> 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 --> we receive your request to cancel your participation;
COST AVERAGING --> the value in the accounts from which we make the
WILL TERMINATE IF: transfers is depleted;
--> you elect to participate in the asset rebalancing program;
OR
--> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
We may modify, suspend, or discontinue 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.
36
<PAGE>
<TABLE>
<S> <C>
TO START --> you must submit a completed asset rebalancing request
ASSET REBALANCING: form to us at our office before the maturity date; and
--> 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 --> you elect to participate in the dollar cost averaging
WILL CEASE IF: program;
--> we receive your request to discontinue participation;
--> you make ANY transfer to or from any subaccount other
than under a scheduled rebalancing; or
--> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
You may start and stop 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.
37
<PAGE>
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.
<TABLE>
<S> <C>
SERVICES AND BENEFITS WE /bullet/ the death benefit, cash withdrawal 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 (including
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 transactions,
and paying federal, state and local premium andother 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 CHARGES
Before we allocate the net premiums you make, we will deduct the following
charges.
<TABLE>
<S> <C>
PREMIUM EXPENSE CHARGE /bullet/ This charge equals:
--> 6.0% of premiums during the first ten Policy
years; and
--> 2.5% of premiums thereafter.
/bullet/ This charge compensates us for distribution expenses and
state premium taxes.
</TABLE>
<TABLE>
<S> <C>
PREMIUM COLLECTION /bullet/ This charge equals $2.00 per premium payment.
CHARGE /bullet/ This charge compensates us for premium billing and
collection costs.
/bullet/ We will not increase this charge.
</TABLE>
38
<PAGE>
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.
<TABLE>
<S> <C>
MONTHLY DEDUCTION The total we deduct each month is equal to:
/bullet/ the monthly Policy charge; PLUS
/bullet/ the monthly cost of insurance charge for the Policy; 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 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 administrative expenses
such as recordkeeping, processing death benefit claims and
Policy changes, and overhead costs.
/bullet/ We will not increase this charge.
COST OF INSURANCE CHARGE:
/bullet/ We deduct this charge each month. It varies each month
and is equal to:
--> the death benefit on the Monthiversary; DIVIDED BY
--> 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
--> the cash value on the Monthiversary; MULTIPLIED BY
--> 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. 63).
</TABLE>
39
<PAGE>
We base the cost of insurance rates on the 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 the
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. 23.
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.
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 an 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. If you increase the specified
amount, we deduct an additional surrender charge for the 15 years following the
increase. There is no surrender charge if you wait until the 15th Policy
anniversary to surrender your Policy (assuming the specified amount has not
been increased). 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.
40
<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 the DEFERRED SALES
EQUAL TO: CHARGE; 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 and any later increase in
specified amount in effect at the time of surrender. This charge helps us
recover the underwriting, processing and start-up expenses that we incur in
connection with the Policy and the separate account.
The DEFERRED SALES CHARGE equals:
/bullet/ 26.5% MULTIPLIED BY the total premiums paid up to the guideline
premium shown in your Policy; PLUS
/bullet/ a percentage, which varies depending on the insured's issue age
and gender (see table below), MULTIPLIED BY the total premiums
paid in excess of the guideline premium ("excess premium
charge").
ISSU E AGE RANGE
MALE AND EXCESS PREMIUM
UNISEX* FEMALE CHARGE
0-55 0-62 4.2%
56-63 63-69 3.7%
64-68 70-74 3.1%
69-73 75 2.5%
74-75 2.0%
* The reference to "unisex" is included for purposes of states which
prohibit the use of actuarial tables that distinguish between males
and females to determine premiums and policy benefits for policies
issued on the lives of their residents.
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, Western Reserve will cover
the shortfall from its 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 percentage is 100% for male insureds at issue
ages 0-65 and female insureds at issue ages
41
<PAGE>
0-70 and then declines at the rate of 20% per year until reaching zero at the
end of the 15th Policy year. Percentages for the Protector Plus Program(SM) are
different than those shown below.
SURRENDER CHARGE PERCENTAGES
MALES ISSUE AGES 0 - 65
FEMALES ISSUE AGES 0 - 70
SURRENDER CHARGE PERCENTAGE
END OF POLICY YEAR* PERCENTAGE
- - ------------------------------ ------------
At Issue 100%
1-10 100%
11 80%
12 60%
13 40%
14 20%
15 0%
16+ 0%
* 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.
For insureds with older issue ages, the surrender charge percentage is
less than 100% at the end of the 10th 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
unless you increase the specified amount. See Additional Surrender Charge on
Increases in Specified Amount p. 43.
/bullet/ SURRENDER CHARGE EXAMPLE 1: Assume a male insured purchases the
Policy at issue age 35 for $100,000 of specified amount, paying the
guideline premium of $1,007, and an additional premium amount of $493
in excess of the guideline premium, for a total premium of $1,500 per
year for four years ($6,000 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 $1,007], and = $266.86
(2) 4.2% of premiums paid in excess
of guideline premium
[4.2% x $4,993] = $209.71
(c) APPLICABLE SURRENDER CHARGE = 100%
[(a)$500.00 + (b)($266.86 + $209.71)]
x 100%
SURRENDER CHARGE = [$500.00 + $476.57]
x 100% = $976.57
=======
</TABLE>
42
<PAGE>
/bullet/ SURRENDER CHARGE EXAMPLE 2: Assume the same facts as in Example 1,
including continued premium payments of $1,500 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 $1,007], and = $266.86
(2) [4.2% x $19,993] = $839.71
(c) APPLICABLE SURRENDER CHARGE = 20%
[(a)$500.00 + (b)($266.86 + $839.71)]
x 20%
SURRENDER CHARGE = [$500.00 + $1,106.57] x
20% = $321.31
=======
</TABLE>
ADDITIONAL SURRENDER CHARGE ON INCREASES IN SPECIFIED AMOUNT. If you
increase the specified amount and you surrender your Policy, we will deduct an
additional surrender charge for the 15 Policy years following each increase.
This charge is equal to:
/bullet/ $5.00 MULTIPLIED BY each $1,000 of the specified amount
increase; MULTIPLIED BY
/bullet/ the applicable surrender charge shown in your Policy, with
Policy years commencing on the date of each increase.
The surrender charge helps us 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.
/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/ 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.
43
<PAGE>
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%. Some portfolios also deduct 12b-1 fees from portfolio assets.
See the Portfolio Annual Expense Table on p. 14 in this prospectus, and the
fund prospectuses.
Our affiliate, AFSG, the principal underwriter for the Policies, will
receive the 12b-1 fees deducted from portfolio assets for providing shareholder
support services to the portfolios. We and our affiliates, including the
principal underwriter for the Policies, may receive compensation from the
investment advisers, administrators, and/or distributors (and an affiliate
thereof) of the portfolios in connection with administrative or other services
and cost savings experienced by the investment advisers, administrators or
distributors. It is anticipated that such compensation will be based on assets
of the particular portfolios attributable to the Contract and may be
significant. Some advisers, administrators, distributors or portfolios may pay
us (and our affiliates) more than others.
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. 55).
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.
44
<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, surrender charges, 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.
PROTECTOR PLUS PROGRAM(SM)
A Protector Plus Program(SM) Policy differs from a standard Policy in the
following ways:
/bullet/ the initial premium must be at least $10,000, and at least 90% of
the maximum allowable premium;
/bullet/ our administrative and distribution expenses are lower, so we do
not assess any premium expense charges;
/bullet/ the underwriting process is shorter and simpler;
/bullet/ the cost of insurance charges may be different;
/bullet/ most Protector Plus Program(SM) Policies will be treated as
modified endowment contracts (see Federal Income Tax
Considerations p. 55); and
/bullet/ for Policies issued on and after May 1, 1996, the surrender
charge percentage applies for a shorter time (see below).
SURRENDER CHARGE PERCENTAGE
END OF POLICY YEAR* PERCENTAGE
- - ------------------------------ ------------
At Issue 100%
1-5 100%
6 80%
7 60%
8 40%
9 0
* 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.
The minimum possible specified amount at issue is the amount that a
$10,000 premium will purchase based on the insured's age, gender and rate
class, and certain federal
45
<PAGE>
tax law guidelines. For a larger premium there will be a larger minimum
specified amount. The maximum specified amount depends on the size of the
initial premium payment, and is approximately 111% of the lowest possible
specified amount for that premium. Due to federal tax laws, the amount of
additional premium payments you make may be limited. There are no planned
periodic premiums.
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 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 a contingent
beneficiary. If each beneficiary dies before the 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. 49.
<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 the insured's age or gender. See Our
Right to Contest the Policy p. 59; and Misstatement of Age or Gender p. 59.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the 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 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
--> the cash value on the insured's date of death.
</TABLE>
Under Option A, your death benefit remains level unless the limitation
percentage multiplied by the cash value is greater than the specified amount;
then the death benefit will vary as the cash value varies.
46
<PAGE>
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 insured at the beginning of each Policy year. The following
table indicates the limitation percentages for different ages:
<TABLE>
<CAPTION>
ATTAINED AGE 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 insured's attained age is under 40
and there are no outstanding loans and no withdrawals have been taken. Under
Option A, a Policy with a $50,000 specified amount will generally pay $50,000
in death benefits. However, because the death benefit must be equal to or be
greater than 250% of cash value, any time the cash value of the Policy exceeds
$20,000, the death benefit will exceed the $50,000 specified amount. Each
additional dollar added to the cash value above $20,000 will increase the death
benefit by $2.50.
Similarly, so long as the cash value exceeds $20,000, 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 --> the cash value on the insured's date of death; OR
GREATER OF: /bullet/ the limitation percentage, MULTIPLIED BY
--> the cash value on the 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 insured's attained age is under 40
and there are no outstanding loans. Under Option B, a Policy with a specified
amount of $50,000 will generally pay a death benefit of $50,000 plus cash
value. Thus, a Policy with a cash value of $10,000 will have a death benefit of
$60,000 ($50,000 + $10,000). The death benefit, however, must be at least 250%
of cash value. As a result, if the cash value of the Policy exceeds $33,333,
the death benefit will be greater than the specified amount plus cash value.
Each additional dollar of cash value above $33,333 will increase the death
benefit by $2.50.
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Similarly, any time cash value exceeds $33,333, 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.
/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 is no charge for changing your death benefit option.
/bullet/ There may be adverse federal tax consequences. You should consult
your 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.
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CHANGING THE SPECIFIED AMOUNT
You may increase or decrease the specified amount, subject to certain
conditions. We may limit changes to once each Policy year. A change in
specified amount may affect your cost of insurance charge and you may have
adverse federal income tax consequences. You should consult your tax advisor
before changing your Policy's specified amount.
<TABLE>
<S> <C>
CONDITIONS FOR /bullet/ You may increase the specified amount if:
INCREASING THE SPECIFIED --> your Policy has been in force for one year; and
AMOUNT: --> the insured is under age 75.
/bullet/ You must make your request in writing.
/bullet/ We will require additional evidence of insurability.
/bullet/ The increase in specified amount must be at least $10,000.
/bullet/ An increase in specified amount will take effect on the
Monthiversary on or after we have approved your request.
/bullet/ We reserve the right to decline your request.
/bullet/ You do not need to send an additional premium but you
must have sufficient net surrender value to cover the next
monthly deduction after the increase becomes effective.
/bullet/ If you surrender the Policy, we will charge you an
additional surrender charge on any increase in specified
amount for 15 years after each increase.
/bullet/ IF YOU INCREASE THE SPECIFIED AMOUNT BUT YOU HAVE NOT
PAID SUFFICIENT PREMIUMS TO COVER MONTHLY DEDUCTIONS,
YOUR POLICY WILL LAPSE.
</TABLE>
<TABLE>
<S> <C>
CONDITIONS FOR /bullet/ You must make your request in writing.
DECREASING THE SPECIFIED /bullet/ Your Policy must be in force for three years.
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.
/bullet/ A decrease in specified amount will take effect on the
Monthiversary on or after we receive your written request.
</TABLE>
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. See Settlement
Options p. 61 for information concerning these settlement options.
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SURRENDERS AND CASH WITHDRAWALS
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SURRENDERS
You may make a written request to surrender your Policy for its net
surrender value as calculated at the end of the valuation date on which we
receive your request at our office. The insured must be alive and the Policy
must be in force when you make your written request. A surrender is effective
as of the date when we receive your written request. 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 and an
additional surrender charge for 15 years following each increase in the
specified amount (see Charges and Deductions -- Surrender Charge p. 40). 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. 55.
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 allow only 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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/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. 55).
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. 55.
<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. 60.
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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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 any 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
For Policies issued on or after May 1, 1994,* 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.
* For Policies issued before May 1, 1994, we charge you an annual interest rate
of 7.4%. For the following states, the annual interest rate on a Policy loan is
7.4% for all Policies issued before, and 5.2% for all Policies issued on or
after, the dates indicated: Idaho -- May 24, 1994; Montana -- May 20, 1994;
Rhode Island -- May 19, 1994; Oregon -- June 27, 1994; Minnesota -- December
28, 1994; and Vermont -- February 21, 1996.
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
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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%.
* For Policies issued on or after May 1, 1994. For Policies issued before that
date, we credit interest at the following annual effective rates: 6.0% for
Policies issued before May 1, 1988; and 6.75% for Policies issued on or after
May 1, 1988 but before May 1, 1994.
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 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. You should consult a tax advisor before taking out a
Policy loan (see Federal Income Tax Considerations p. 55).
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 if 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
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<PAGE>
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 for the first three Policy years.
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 deductions. The no lapse period will not extend beyond the
first three Policy years as stated in your Policy. Each month we determine
whether the no lapse period is still in effect.
<TABLE>
<S> <C>
EARLY TERMINATION OF THE /bullet/ The no lapse period coverage will end immediately if you:
NO LAPSE PERIOD --> increase the specified amount;
--> add any riders; or
--> do not pay sufficient premiums.
/bullet/ You must pay total premiums (minus withdrawals and
outstanding loans,) that equal at least:
--> your minimum monthly guarantee premium
(shown in your Policy), MULTIPLIED BY
--> the number of months since the Policy date
(including the current month).
</TABLE>
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, increase the specified
amount or add a rider, you should consider carefully the effect it will have on
the no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 28.
If you increase the specified amount or add a rider after the Policy date,
your no lapse period will end immediately. If increasing the specified amount
or adding a rider would cause your Policy to lapse, we will notify you that the
grace period has started.
New Jersey residents: If the grace period begins during the first three
Policy years, the payment necessary to keep the Policy in force is the lesser
of the amount necessary to (1) satisfy the minimum monthly guarantee premium;
or (2) increase the net surrender value to cover the monthly deduction due.
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;
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<PAGE>
/bullet/ make a minimum premium payment sufficient to provide a net
premium that is large enough to cover:
--> three monthly deductions; and
--> 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 a
Policy issued on the basis of a standard rate class 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 issued on a substandard
basis. 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
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<PAGE>
does not give you investment control over separate account assets, we reserve
the right to modify the Policy as necessary to prevent you from being treated
as the owner of the separate account assets supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance policy for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludable from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by 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 in certain circumstances cause a
Policy to become a MEC. A Protector Plus Program(SM) Policy (discussed on p. 41)
will in most instances be treated as a MEC, however. 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
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<PAGE>
taxable as ordinary income. They will be treated as tax-free recovery
of the owner's investment in the Policy only after all gain has been
distributed. Your investment in the Policy is generally your total
premium payments. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution
that is tax-free.
/bullet/ Loans taken from or secured by (E.G., by assignment) such a
Policy are treated as distributions and taxed accordingly.
/bullet/ A 10% additional federal income tax is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 59 1/2 or are disabled, or where the
distribution is part of a series of substantially equal periodic
payments for your life (or life expectancy) or the joint lives
(or joint life expectancies) of you and the beneficiary.
/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 that are outstanding
after the first 10 Policy years are less clear and a tax advisor should be
consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
Multiple Policies. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includable 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.
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DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such plans and
business uses of the Policy may vary depending on the particular facts and
circumstances of each individual arrangement and business uses of the Policy.
Therefore, if you are contemplating using the Policy in any arrangement the
value of which depends in part on its tax consequences, you should be sure to
consult a tax advisor as to tax attributes of the arrangement. In recent years,
moreover, Congress has adopted new rules relating to life insurance owned by
businesses. Any business contemplating the purchase of a new Policy or a change
in an existing Policy should consult a tax advisor.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. We believe that the
single-sum payment we make under this rider should be fully excludable from the
gross income of the beneficiary, as long as the beneficiary is an insured under
the Policy. You should consult a tax advisor about the consequences of adding
this rider to your Policy, or requesting a single-sum payment.
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.
SPECIAL RULES FOR 403(B) ARRANGEMENTS
If this Policy is purchased by public school systems and certain
tax-exempt organizations for their employees, then the federal, state and
estate tax consequences could differ from those stated in the prospectus. A
competent tax advisor should be consulted in connection with such purchase.
Certain restrictions apply. The Policy must be purchased in connection
with a tax-sheltered annuity described in section 403(b) of the Code. Premiums,
distributions, and other transactions in connection with the Policy must be
administered in coordination with the section 403(b) annuity.
The amount of life insurance that may be purchased on behalf of a
participant in a 403(b) plan is limited. The current cost of insurance for the
net amount at risk is treated under the Code as a "current fringe benefit" and
must be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually.
If the plan participant dies while covered by the 403(b) plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will generally not be taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy.
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Policies owned under these types of plans may be subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), which may impose additional
requirements of Policy loans and other Policy provisions. Plan loans must also
satisfy tax requirements in order to be treated as non-taxable. Plan loan
requirements and provisions may differ from the Policy loan provisions stated
in the prospectus. You should consult a qualified advisor regarding ERISA.
OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime for two years from the Policy date, or if reinstated, for two years
from the date of reinstatement.
SUICIDE EXCLUSION
If the 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, 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 the 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 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 the insured is living and the Policy is in force, the Policy will
mature on the Policy anniversary nearest the insured's 95th birthday. This is
the maturity date. On the maturity date we will pay you the net surrender value
of your Policy.
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<PAGE>
If your Policy was issued before May 1, 1999, 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, 1999 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, we will change
the death benefit to Option A. On each valuation date, we will adjust
the specified amount to equal the cash value, and the limitation
percentage will be 100%. We will not permit you to make additional
premium payments unless it is required to prevent the Policy from
lapsing. We will waive all future monthly deductions; 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 100th
birthday of the insured 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.
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<PAGE>
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 insured dies, the beneficiary may apply
the lump sum death benefit proceeds to one of the same settlement options. If
the regular payment under a settlement option would be less than $20, we will
instead pay the proceeds in one lump sum. We may make other settlement options
available in the future.
Once we begin making payments under a settlement option, you or the
beneficiary will no longer have any value in the subaccounts or the fixed
account. Instead, the only entitlement will be the amount of the regular
payment for the period selected under the terms of the settlement option
chosen. Depending upon the circumstances, the effective date of a settlement
option is the surrender date or the 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 insured's date of death;
/bullet/ the interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 4%);
/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 360 months.
/bullet/ We will stop making payments once we have made all the
payments for the period selected.
</TABLE>
61
<PAGE>
<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 5 or 10
years if the payee dies before the end of the first 5
or 10 years of payments (you may select either a 5
or 10 year payment period); 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 either:
SURVIVOR) --> the full amount made to the payee before the
payee's death; or
--> two-thirds of the amount paid to the payee before
the payee's death. All payments will cease upon the
death of the co-payee.
</TABLE>
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C> <C> <C>
/check mark/ the current cash value /check mark/ any activity since the last report
/check mark/ the current net surrender value /check mark/ projected values
/check mark/ the current death benefit /check mark/ investment experience of each subaccount
/check mark/ any outstanding loans /check mark/ any other information required by law
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
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<PAGE>
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 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 primary insured is the person
insured under the Policy, and the face amount is the level term insurance
amount we pay at death. These riders may not be available in all states.
CHILDREN'S INSURANCE RIDER
This rider provides a face amount on the primary insured's children. Our
current minimum face amount for this rider for issue ages 0-18 is $2,000. The
maximum face amount is $10,000. At the age of 25 or upon the death of the
primary insured, whichever happens first, this rider may be converted to a new
policy with a maximum face amount of up to five times the face amount of the
rider. We will pay a death benefit once we receive proof that the insured child
died while both the rider and coverage were in force for that child. If the
primary insured dies while the rider is in force, we will terminate the rider
31 days after the death, and we will offer a separate life insurance policy to
each insured child.
ACCIDENTAL DEATH BENEFIT RIDER
Our current minimum face amount for this rider for issue ages 15-59 is
$10,000. The maximum face amount available for this rider is $150,000 (up to
150% of specified amount).
Subject to certain limitations, we will pay a face amount if the primary
insured's death results solely from accidental bodily injury where:
/bullet/ the death is caused by external, violent, and accidental means;
/bullet/ the death occurs within 90 days of the accident; and
/bullet/ the death occurs while the rider is in force.
The rider will terminate on the earliest of:
/bullet/ the Policy anniversary nearest the primary insured's 70th
birthday;
/bullet/ the date the Policy terminates; or
/bullet/ the Monthiversary when the rider terminates at the owner's
request.
OTHER INSURED RIDER
This rider insures the spouse or life partner and/or dependent children of
the primary insured. We will pay the rider's face amount when we receive proof
of the other insured's
63
<PAGE>
death. On any Monthiversary while the rider is in force, you may replace it
with a new policy on the other insured's life (without evidence of
insurability).
<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: other insured's 80th birthday;
/bullet/ the new policy is any permanent insurance plan that we
currently offer;
/bullet/ subject to the minimum specified amount required 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 other insured's rate
class under the rider.
</TABLE>
DISABILITY WAIVER RIDER
Subject to certain conditions, we will waive the Policy's monthly
deductions while you are disabled. This rider may be purchased if your issue
age is 15-55 years of age. We must receive proof that:
/bullet/ you are totally disabled;
/bullet/ the rider was in force when you became disabled;
/bullet/ you became disabled before the anniversary nearest your 60th
birthday; and
/bullet/ you are continuously disabled for at least six months.
We will not waive any deduction which becomes due more than one year before we
receive written notice of your claim.
DISABILITY WAIVER AND INCOME RIDER
This rider has the same benefits as the Disability Waiver Rider, but adds
a monthly income benefit for up to 120 months. This rider may be purchased if
your issue age is 15-55 years of age. The minimum income amount for this rider
is $10. The maximum income amount is the lesser of 0.2% of your specified
amount or $300 per month.
PRIMARY INSURED RIDER ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR PLUS")
Under the PIR and the PIR Plus, we provide term insurance coverage on a
different basis from the coverage in your Policy.
64
<PAGE>
<TABLE>
<S> <C>
FEATURES OF /bullet/ the rider increases the Policy's death benefit by the rider's
PIR AND PIR face amount;
PLUS: /bullet/ the PIR may be purchased from issue ages 0-70;
/bullet/ the PIR Plus may be purchased from issue ages 18-70;
/bullet/ the PIR terminates when the insured turns 90, and the PIR
Plus terminates when the insured turns 85;
/bullet/ the minimum purchase amount for the PIR and PIR Plus is
$25,000. There is no maximum purchase amount;
/bullet/ we do not assess any additional surrender charge for PIR
and PIR Plus;
/bullet/ generally PIR and PIR Plus coverage costs less than the
insurance coverage under the Policy, but has no cash
value;
/bullet/ you may cancel or reduce your rider coverage without
decreasing your Policy's specified amount; and
/bullet/ you may generally decrease your specified amount without
reducing your rider coverage.
</TABLE>
It may cost you less to reduce your PIR or PIR Plus coverage than to
decrease your Policy's specified amount, because we do not deduct a surrender
charge in connection with your PIR or PIR Plus. It may cost you more to keep a
higher specified amount, because the specified amount may have a cost of
insurance that is higher than the cost of the same amount of coverage under
your PIR or PIR Plus.
You should consult your registered representative to determine if you
would benefit from PIR or PIR Plus. We may discontinue offering PIR or PIR Plus
at any time. We may also modify the terms of these riders for new policies.
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 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.
The maximum terminal illness death benefit we will pay is equal to:
/bullet/ the death benefit available under the Policy at the insured's
death; PLUS
65
<PAGE>
/bullet/ the benefit available under any PIR or PIR Plus 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 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.
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.
66
<PAGE>
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 T. Rowe Price Small Cap .................... 38.49% N/A N/A N/A N/A 05/03/1999
WRL Goldman Sachs Small Cap .................... 17.82% N/A N/A N/A N/A 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth .............. 78.00% N/A N/A N/A N/A 05/03/1999
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 Goldman Sachs Growth ....................... 17.50% N/A N/A N/A N/A 05/03/1999
WRL GE U.S. Equity ............................. 22.76% N/A N/A N/A 18.41% 01/02/1997
WRL Salomon All Cap ............................ 15.57% N/A N/A N/A N/A 05/03/1999
WRL C.A.S.E. Growth ............................ 18.80% N/A N/A 16.41% 33.84% 05/01/1995
WRL Dreyfus Mid Cap ............................ 7.20% N/A N/A N/A N/A 05/03/1999
WRL NWQ Value Equity ........................... 10.76% N/A N/A 8.73% 7.95% 05/01/1996
WRL T. Rowe Price Dividend Growth .............. (7.40)% N/A N/A N/A N/A 05/03/1999
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 J.P. Morgan Real Estate Securities ......... (11.31)% N/A N/A N/A (3.77)% 05/01/1998
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.
Because WRL Great Companies -- America(SM), WRL Great Companies --
Technology(SM), WRL Value Line Aggressive Growth portfolios and Fidelity VIP
Equity-Income Portfolio -- Service Class 2, Fidelity VIP II
Contrafund/registered trademark/ Portfolio -- Service Class 2 and Fidelity VIP
III Growth Opportunities Portfolio -- Service Class 2 had not commenced
operations as of December 31, 1999, the above chart does not reflect rates of
return for these portfolios.
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 prospectuses, which accompany this prospectus.
67
<PAGE>
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 1990. The separate account 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 elected death benefit Option A. The illustrations are based
on the historical investment experience of the subaccount indicated as of the
last valuation date prior to January 1 of the year after the subaccount began
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 insured age 35. The 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 death assume benefit Option A
was selected based on an annual premium of $2,000 and a specified amount of
$165,000 for a male age 35, non-tobacco use, ultimate select rate class.
68
<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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,735 $ 1,711 $ 456 $ 432
1989 ..................................... 3,903 3,843 2,539 2,479
1990 ..................................... 8,028 7,896 6,581 6,449
1991 ..................................... 9,474 9,297 7,943 7,766
1992 ..................................... 17,544 17,200 15,928 15,585
1993 ..................................... 19,354 18,955 17,654 17,255
1994 ..................................... 21,509 21,043 19,725 19,259
1995 ..................................... 20,888 20,410 19,021 18,542
1996 ..................................... 32,686 31,933 30,734 29,982
1997 ..................................... 39,952 39,030 37,917 36,995
1998 ..................................... 48,331 47,230 46,635 45,535
1999 ..................................... 81,415 79,587 80,093 78,265
2000 ..................................... 131,338 128,421 130,423 127,506
</TABLE>
* For each year 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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,455 $ 1,433 $ 175 $ 153
1989 ..................................... 3,230 3,176 1,867 1,813
1990 ..................................... 5,458 5,357 4,010 3,910
1991 ..................................... 7,385 7,230 5,853 5,699
1992 ..................................... 10,536 10,300 8,920 8,684
1993 ..................................... 12,770 12,466 11,071 10,767
1994 ..................................... 16,061 15,660 14,278 13,876
1995 ..................................... 16,169 15,741 14,301 13,873
1996 ..................................... 21,516 20,943 19,565 18,992
1997 ..................................... 22,764 22,154 20,728 20,118
1998 ..................................... 26,215 25,527 24,519 23,831
1999 ..................................... 29,971 29,193 28,648 27,870
2000 ..................................... 30,171 29,386 29,256 28,471
</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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,628 $ 1,604 $ 348 $ 325
1989 ..................................... 3,350 3,296 1,987 1,933
1990 ..................................... 5,266 5,169 3,818 3,722
1991 ..................................... 7,243 7,092 5,712 5,561
1992 ..................................... 9,163 8,954 7,548 7,339
1993 ..................................... 10,910 10,643 9,210 8,943
1994 ..................................... 12,601 12,273 10,818 10,490
1995 ..................................... 14,440 14,042 12,572 12,174
1996 ..................................... 16,596 16,132 14,645 14,181
1997 ..................................... 18,751 18,225 16,715 16,189
1998 ..................................... 21,064 20,487 19,368 18,791
1999 ..................................... 23,454 22,819 22,132 21,497
2000 ..................................... 25,765 25,068 24,850 24,153
</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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 2,147 $ 2,120 $ 867 $ 841
1995 ..................................... 3,684 3,629 2,321 2,266
1996 ..................................... 6,425 6,316 4,977 4,869
1997 ..................................... 10,141 9,951 8,610 8,419
1998 ..................................... 13,777 13,499 12,161 11,883
1999 ..................................... 19,771 19,354 18,071 17,655
2000 ..................................... 36,238 35,462 34,455 33,678
</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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,426 $ 1,404 $ 146 $ 125
1996 ..................................... 4,417 4,350 3,054 2,986
1997 ..................................... 7,066 6,947 5,618 5,499
1998 ..................................... 10,407 10,212 8,875 8,680
1999 ..................................... 16,322 15,999 14,707 14,383
2000 ..................................... 36,504 35,773 34,805 34,074
</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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,541 $ 1,519 $ 262 $ 239
1996 ..................................... 3,869 3,809 2,506 2,445
1997 ..................................... 6,205 6,097 4,757 4,649
1998 ..................................... 9,400 9,217 7,868 7,685
1999 ..................................... 11,899 11,649 10,284 10,033
2000 ..................................... 14,928 14,595 13,228 12,895
</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 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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 2,198 $ 2,171 $ 918 $ 891
1997 ..................................... 4,130 4,070 2,767 2,707
1998 ..................................... 7,038 6,924 5,591 5,476
1999 ..................................... 12,739 12,512 11,207 10,980
2000 ..................................... 24,047 23,603 22,431 21,988
</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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,892 $1,867 $ 612 $ 587
1997 ..................................... 3,937 3,877 2,573 2,514
1998 ..................................... 6,370 6,262 4,923 4,815
1999 ..................................... 8,517 8,352 6,986 6,821
2000 ..................................... 9,392 9,189 7,776 7,573
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
73
<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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,980 $1,954 $ 700 $ 674
1997 ..................................... 3,935 3,876 2,571 2,512
1998 ..................................... 6,820 6,706 5,372 5,258
1999 ..................................... 8,554 8,390 7,022 6,858
2000 ..................................... 9,547 9,343 7,931 7,727
</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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $ 1,887 $1,862 $ 607 $ 582
1997 ..................................... 3,799 3,741 2,435 2,377
1998 ..................................... 6,239 6,132 4,791 4,684
1999 ..................................... 8,265 8,103 6,734 6,572
2000 ..................................... 10,012 9,796 8,396 8,180
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
74
<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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,848 $1,823 $ 568 $ 543
1998 ..................................... 3,908 3,849 2,544 2,485
1999 ..................................... 5,551 5,454 4,103 4,006
2000 ..................................... 9,473 9,289 7,942 7,757
</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
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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $2,010 $1,984 $ 730 $ 704
1999 ..................................... 4,383 4,319 3,019 2,955
2000 ..................................... 6,996 6,882 5,549 5,434
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
75
<PAGE>
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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,976 $1,950 $ 696 $ 671
1999 ..................................... 3,331 3,278 1,967 1,915
2000 ..................................... 5,237 5,143 3,790 3,696
</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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,678 $1,654 $ 398 $ 374
1999 ..................................... 3,640 3,583 2,277 2,220
2000 ..................................... 6,472 6,360 5,024 4,912
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
76
<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 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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 ..................................... $1,435 $1,413 $ 155 $ 133
2000 ..................................... 3,458 3,402 2,095 2,038
</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 J.P.
Morgan Real Estate Securities subaccount would have affected benefits for a
Policy dated on the last valuation date prior to January 1, 1999. 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 REAL ESTATE SECURITIES
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate 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>
2000 ..................................... $1,486 $1,464 $207 $185
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
Because the WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T.
Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap subaccounts did not
commence operations until May 3, 1999, and the Fidelity VIP Equity-Income --
Service Class 2, Fidelity VIP II Contrafund/registered trademark/ -- Service
Class 2, Fidelity VIP III Growth Opportunities -- Service Class 2, WRL Great
Companies -- America(SM), WRL Great Companies -- Technology(SM), and WRL Value
Line Aggressive Growth subaccounts did not commence operations until May 1,
2000, there are no hypothetical illustrations for these subaccounts.
77
<PAGE>
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);
--> 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;
--> 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:
--> certificates of deposit;
--> savings accounts and U.S. Treasuries;
--> certain interest rate and inflation indices (E.G., the
Consumer Price Index); or
--> indices measuring the performance of a defined group of
securities recognized by investors as representing a
particular segment of the securities markets (E.G., Donoghue
Money Market Institutional Average, Lehman Brothers
Corporate Bond Index, or Lehman Brothers Government Bond
Index).
WESTERN RESERVE'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the funds or their portfolios, or to their
performance.
78
<PAGE>
ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. The sales commission
payable to Western Reserve agents or other registered representatives may vary
with the sales agreement, but it is not expected to be greater than:
/bullet/ 65% of all premiums you make during the first Policy year, PLUS
/bullet/ 2.50% of all premiums you make during Policy years 2 through 10.
We will pay an additional sales commission of up to 0.50% 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.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds
shares held for the Policies as compensation for providing certain shareholder
support services. AFSG will also receive an additional fee based on the value
of shares of the Fidelity VIP Funds held for the Policies as compensation for
providing certain recordkeeping services.
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 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
79
<PAGE>
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 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 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.
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
80
<PAGE>
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.
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>
81
<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
Actuary and Chief WRL Series Fund, Inc. (1993 -
Financial Officer present); Director, 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 Corporate Counsel, and Group
Vice President -- Compliance Vice President - Compliance
(1998 - present); Senior Vice
President, Secretary, General
Counsel and Group Vice
President - Compliance (1996 -
1998), Senior Vice President,
Secretary, and General Counsel
(1990 - 1996) of Western
Reserve; Group Vice President -
Compliance and Corporate
Counsel (1996 - present) of
AUSA Life Insurance Company,
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
and Controller (1987 - present), Treasurer (1997
- present) of Western Reserve;
Treasurer and Chief Financial
Officer of WRL Series Fund, Inc.
(1997 - present).
</TABLE>
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
82
<PAGE>
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.
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.
83
<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 86 on a Policy for an insured who is a
35 year old male in the ultimate select, non-tobacco use rate class, annual
premiums of $2,000, a $165,000 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 87 is based on the same factors as those on page
86, 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 0.92% of the portfolios' average daily net assets; and (3) all
applicable premium expense charges and cash value charges. The 0.92% average
portfolio expense level assumes an equal allocation of amounts among the 29
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.
Because the WRL Great Companies -- America(SM), WRL Great Companies --
Technology(SM), WRL Value Line Aggressive Growth portfolios and Fidelity VIP III
Growth Opportunities Portfolio -- Service Class 2, Fidelity VIP II
Contrafund/registered trademark/ Portfolio -- Service Class 2, and Fidelity VIP
Equity-Income Portfolio -- Service Class 2 had not commenced operations as of
December 31, 1999, the estimated average annual portfolio expense level
reflects estimated expenses for each of these portfolios for 2000.
During 1999, WRL Management undertook to pay those normal operating
expenses of certain WRL 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 WRL Fund
84
<PAGE>
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 page 14 of this prospectus.
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 1.82%, the gross
annual investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.82%, 4.18%, and 10.18%.
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 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.
85
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type A
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30(AGE 65) 139,522 165,000 165,000 348,521
40(AGE 75) 253,680 165,000 165,000 827,042
50(AGE 85) 439,631 * 248,581 2,145,501
60(AGE 95) 742,526 * 376,214 5,358,318
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS) 0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 1,535 1,637 1,740 255 358 461
2 3,037 3,339 3,654 1,674 1,976 2,290
3 4,505 5,105 5,755 3,058 3,658 4,308
4 5,941 6,940 8,066 4,410 5,408 6,535
5 7,335 8,835 10,597 5,720 7,220 8,982
6 8,686 10,793 13,370 6,986 9,094 11,671
7 9,992 12,814 16,408 8,208 11,030 14,625
8 11,254 14,900 19,739 9,386 13,033 17,871
9 12,450 17,034 23,372 10,499 15,082 21,421
10 13,592 19,226 27,351 11,557 17,190 25,315
15 18,768 31,508 54,289 18,768 31,508 54,289
20 22,496 45,761 97,915 22,496 45,761 97,915
30(AGE 65) 27,411 84,869 285,673 27,411 84,869 285,673
40(AGE 75) 23,366 143,650 772,937 23,366 143,650 772,937
50(AGE 85) * 236,744 2,043,334 * 236,744 2,043,334
60(AGE 95) * 372,489 5,305,265 * 372,489 5,305,265
</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 rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the funds. 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 funds 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 current fund prospectuses.
86
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type A
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30(AGE 65) 139,522 165,000 165,000 333,963
40(AGE 75) 253,680 * 165,000 772,361
50(AGE 85) 439,631 * 165,000 1,942,432
60(AGE 95) 742,526 * 218,708 4,583,036
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS) 0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 1,512 1,614 1,716 233 334 437
2 2,986 3,285 3,597 1,623 1,922 2,233
3 4,419 5,011 5,654 2,971 3,564 4,206
4 5,809 6,793 7,904 4,278 5,262 6,373
5 7,155 8,632 10,367 5,540 7,016 8,751
6 8,456 10,527 13,061 6,757 8,828 11,362
7 9,709 12,478 16,009 7,926 10,695 14,225
8 10,915 14,489 19,236 9,048 12,621 17,369
9 12,070 16,556 22,770 10,119 14,605 20,819
10 13,177 18,686 26,645 11,141 16,650 24,609
15 18,199 30,637 52,919 18,199 30,637 52,919
20 21,468 44,177 95,247 21,468 44,177 95,247
30(AGE 65) 18,340 74,834 273,740 18,340 74,834 273,740
40(AGE 75) * 107,094 721,833 * 107,094 721,833
50(AGE 85) * 142,060 1,849,936 * 142,060 1,849,936
60(AGE 95) * 216,542 4,537,659 * 216,542 4,537,659
</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 the different investment
rates for the funds. 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 funds 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 current fund prospectuses.
87
<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 1998. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$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.
88
<PAGE>
[GRAPHIC OMITTED]
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.]
89
<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
WRL00011-5/2000
90
<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.
[GRAPHIC OMITTED]
PricewaterhouseCoopers LLP
Tampa, Florida
February 16, 2000
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
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.
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
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.
93
<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.
94
<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.
95
<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.
96
<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.
97
<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.
98
<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.
99
<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.
100
<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.
101
<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.
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
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.
103
<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.
104
<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.
105
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
J.P. MORGAN WRL WRL WRL
REAL ESTATE GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE
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.
106
<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.
107
<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.
108
<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% 63.0% 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.
109
<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.
110
<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.
111
<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.
112
<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% 1.0% 0.77%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
113
<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 ................................... . 5.0% (0.81)% (0.28)% 8.27% 5.3 % 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.
114
<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.
115
<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:
SUBACCOUNT FORMERLY
- - --------------------------------- ---------------------------
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
The Financial Statements reflect a full twelve month period for each year
reported on, except as follows:
SUBACCOUNT INCEPTION DATE
- - ------------------------------------------------ ---------------
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
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:
SUBACCOUNT CONTRIBUTION UNITS
- - ----------------------------------- -------------- --------
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
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.
116
<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):
PURCHASES PROCEEDS
OF FROM SALES
SUBACCOUNT SECURITIES OF SECURITIES
- - ---------------------------------------- ------------ --------------
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
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.
117
<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
118
<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.
119
<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.
120
<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.
121
<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.
122
<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.
123
<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
124
<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.
125
<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
126
<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.
127
<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
128
<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.
129
<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>
130
<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>
131
<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.
132
<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.
133
<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.
134
<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
135
<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)
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>
136
<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.
137
<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.
138
<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.
139
<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:
140
<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.
141
<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.
142
<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 ..................... 1,383 310 -- 1,073
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 ..................... 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 ..................... 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>
143
