As filed with the Securities and Exchange Commission on May 1, 2000
Registration File Nos. 333-68367/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
570 Carillon Parkway
St. Petersburg, Florida 33716
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Senior Vice President, General Counsel and Assistant Secretary
Western Reserve Life Assurance Co. of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
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Title of Securities Being Registered: Units of interest in the separate account
under flexible premium deferred variable life policies.
It is proposed that this filing will become effective (check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
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on May 1, 2000, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on , pursuant to paragraph (a) of Rule 485
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P R O S P E C T U S
MAY 1, 2000
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WRL FREEDOM NAVIGATORSM
issued by
WRL Series Life Account
by
Western Reserve Life Assurance Co.
of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
1-800-851-9777
(727) 299-1800
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MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
JOINT SURVIVORSHIP MODIFIED SINGLE 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 (VIP);
Variable Insurance Products (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 OFFENCE.
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TABLE OF CONTENTS
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Glossary ......................................................... 1
Policy Summary ................................................... 4
Risk Summary ..................................................... 10
Portfolio Annual Expense Table ................................... 13
Western Reserve and the Fixed Account ............................ 15
Western Reserve .............................................. 15
The Fixed Account Options .................................... 15
The Separate Account and the Portfolios .......................... 16
The Separate Account ......................................... 16
The Funds .................................................... 16
Addition, Deletion, or Substitution of Investments ........... 20
Your Right to Vote Portfolio Shares .......................... 21
The Policy ....................................................... 21
Purchasing a Policy .......................................... 21
Underwriting Standards ....................................... 22
When Insurance Coverage Takes Effect ......................... 22
Ownership Rights ............................................. 24
Policy Split Option .......................................... 26
Canceling a Policy ........................................... 27
Premiums ......................................................... 28
Initial Premium .............................................. 28
Additional Premiums .......................................... 28
Allocating Premiums .......................................... 29
Policy Values .................................................... 30
Cash Value ................................................... 30
Net Surrender Value .......................................... 31
Subaccount Value ............................................. 31
Subaccount Unit Value ........................................ 31
Fixed Account Value .......................................... 32
Transfers ........................................................ 32
General ...................................................... 32
Standard Fixed Account Transfers ............................. 34
Conversion Rights ............................................ 34
Standard Dollar Cost Averaging ............................... 34
Fixed DCA Account ............................................ 35
Asset Rebalancing Program .................................... 36
Third Party Asset Allocation Services ........................ 37
Charges and Deductions ........................................... 37
Premium Deductions ........................................... 38
Monthly Deduction ............................................ 38
Daily Charge ................................................. 39
Surrender Charge ............................................. 41
Transfer Charge .............................................. 41
Taxes ........................................................ 41
Portfolio Expenses ........................................... 41
Guaranteed Minimum Death Benefit Rider Charge ................ 42
Death Benefit .................................................... 42
Death Benefit Proceeds ....................................... 42
Death Benefit ................................................ 43
Effects of Partial Withdrawals on the Death Benefit .......... 44
Guaranteed Minimum Death Benefit Rider (the "Rider") ......... 44
This Policy is not available in the State ofNew York.
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Changing the Specified Amount ..................................... 44
Payment Options ................................................... 45
Surrenders and Partial Withdrawals .................................... 45
Surrenders ........................................................ 45
Partial Withdrawals ............................................... 45
Loans ................................................................. 47
General ........................................................... 47
Interest Rate Charged ............................................. 48
Loan Reserve Interest Rate Credited ............................... 48
Preferred Loans ................................................... 48
Effect of Policy Loans ............................................ 48
Policy Lapse and Reinstatement ........................................ 49
Lapse ............................................................. 49
Reinstatement ..................................................... 49
Federal Income Tax Considerations ..................................... 50
Tax Status of the Policy .......................................... 50
Tax Treatment of Policy Benefits .................................. 51
Special Rules for 403(b) Arrangements ............................. 53
Other Policy Information .............................................. 54
Our Right to Contest the Policy ................................... 54
Suicide Exclusion ................................................. 54
Misstatement of Age or Gender ..................................... 55
Modifying the Policy .............................................. 55
Benefits at Maturity .............................................. 55
Payments We Make .................................................. 55
Reports to Owners ................................................. 56
Records ........................................................... 56
Policy Termination ................................................ 56
IMSA .................................................................. 56
Performance Data ...................................................... 57
Rates of Return ................................................... 57
Hypothetical Illustrations Based on Subaccount Performance ........ 58
Other Performance Data in Advertising Sales Literature ............ 69
Western Reserve's Published Ratings ............................... 69
Additional Information ................................................ 70
Sale of the Policies .............................................. 70
Legal Matters ..................................................... 70
Legal Proceedings ................................................. 70
Variations in Policy Provisions ................................... 70
Experts ........................................................... 70
Financial Statements .............................................. 71
Additional Information about Western Reserve ...................... 71
Western Reserve's Directors and Officers .......................... 72
Additional Information about the Separate Account ................. 74
Appendix A--Illustrations ............................................. 75
Appendix B--Wealth Indices of Investments in the U.S. Capital Market .. 81
Appendix C--Surrender Charge Table .................................... 83
Index to Financial Statements ......................................... 85
WRL Series Life Account ........................................... 86
Western Reserve Life Assurance Co. of Ohio ........................ 105
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GLOSSARY
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accounts The options to which you can allocate your money. The accounts include the
standard fixed account, the fixed DCA account and the subaccounts in the
separate account.
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attained age The age of the person insured on his or her last birthday before the Policy
date, plus the number of completed years since the Policy date.
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beneficiary(ies) The person or persons you select to receive the death benefit from this Policy.
You name the primary beneficiary and contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the fixed account
options. If there is a Policy loan outstanding, the cash value includes any
amounts held in our fixed account to secure the Policy loan.
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daily charge The amount we deduct each valuation date from assets in the subaccounts as
part of the calculation of the unit value for each subaccount.
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death benefit The amount we will pay to the beneficiary on the insured's (or surviving
proceeds insured's) death. We will reduce the death benefit proceeds by the amount of
any outstanding loan amount (including any interest you owe on the Policy
loan(s)), and any due and unpaid monthly deductions.
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fixed account A set of options to which you may allocate premium and cash value. We
options guarantee that any amounts you allocate to the fixed account options will earn
interest at a declared rate. The fixed account options are the standard fixed
account and the fixed dollar cost averaging account ("fixed DCA account").
The standard fixed account may not be available in all states.
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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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in force While coverage under the Policy is active and the insured's life remains
insured.
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initial premium The amount you must pay before insurance coverage begins under this Policy.
The initial premium is shown on the schedule page of your Policy.
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insured(s) The person or persons whose lives are insured by this Policy.
(joint insureds)
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Joint Policy A Policy that pays the death benefit to the beneficiary on the death of the
last-to-die of the two named insureds.
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</TABLE>
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lapse When life insurance coverage ends because you do not have enough cash
value in the Policy to pay the monthly deduction, the surrender charge and
any outstanding loan amount (including any interest you owe on Policy
loan(s)), and you have not made a sufficient payment by the end of a grace
period. The Policy will not lapse if you have purchased the Guaranteed
Minimum Death Benefit rider and the rider is in effect.
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loan amount The total amount of all outstanding Policy loans, including both principal and
interest due.
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loan reserve A part of the general account to which amounts are transferred as collateral
for Policy loans.
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maturity date The Policy anniversary following the insured's (or younger joint insured's)
100th birthday, if the insured (or either joint insured) is living and the Policy
is still in force. It is the date when life insurance coverage under this Policy
ends. You may continue coverage, at your option, under the Policy's extended
maturity date benefit provision.
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Monthiversary This is the day of each month when we determine monthly Policy charges
and deduct them from cash value. It is the same date each month as the
Policy date. If there is no valuation date in the calendar month that coincides
with the Policy date, the Monthiversary is the next valuation date.
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monthly The monthly Policy charge based on the Policy's separate account and fixed
deduction accounts assets, plus the monthly cost of insurance (if any), plus the monthly
charge for any riders added to the Policy.
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monthly Policy The charge deducted from the cash value (less the loan amount) on each
charge Monthiversary.
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net surrender The amount we will pay you if you surrender the Policy while it is in force.
value The net surrender value on the date you surrender is equal to: the cash value,
minus any surrender charge, and minus any outstanding loan amount
(including any interest you owe on Policy loan(s)).
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office Our administrative office and mailing address is P.O. Box 5068, Clearwater,
Florida 33758-5068. Our street address is 570 Carillon Parkway,
St. Petersburg, Florida 33716. Our phone number is 1-800-851-9777.
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Policy date The date when our underwriting process is complete, full life insurance
coverage goes into effect, we issue the Policy, and we begin to deduct the
daily charge and the monthly deduction. The Policy date is shown on the
schedule page of your Policy. It is also the date when, depending on the laws
of the state governing your Policy (usually the state where you live), we
allocate your premium either to the reallocation account or to the subaccounts
and fixed account options you selected on your application. We measure
Policy months, years, and anniversaries from the Policy date.
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portfolio One of the separate investment portfolios of a fund.
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premiums All payments you make under the Policy other than loan repayments.
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reallocation The standard fixed account.
account
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</TABLE>
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reallocation date The date shown on the schedule page of your Policy when we reallocate any
premium (plus interest) held in the reallocation account to the subaccounts
and fixed account options you selected on your application. We place your
premium in the reallocation account only if your state requires us to return
the full premium in the event you exercise your free-look right. In those
states the reallocation date is the Policy date, plus the number of days in your
state's free-look period, plus five days. In all other states, the reallocation date
is the Policy date.
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separate account The WRL Series Life Account. It is a separate investment account that is
divided into subaccounts. We established the separate account to receive and
invest premiums under the Policy and other variable life insurance policies
we issue.
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specified amount The death benefit under the Policy, as shown on the Policy's schedule page.
The specified amount varies by the insured's (or joint insured's) age, gender
and rate class. Any partial withdrawal proportionately decreases the specified
amount.
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subaccount A subdivision of the separate account that invests exclusively in shares of one
investment portfolio of a fund.
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surrender charge If, during the first nine Policy years, you fully surrender the Policy, we will
deduct a surrender charge from the cash value.
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surviving insured The joint insured who remains alive after the other joint insured has died.
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termination When the insured's (or either of the joint insured's) life is no longer insured
under the Policy.
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valuation date Each day the New York Stock Exchange is open for trading. Western Reserve
is open for business whenever the New York Stock Exchange is open.
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valuation period The period of time over which we determine the change in the value of the
subaccounts. Each valuation period begins at the close of normal trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern time on each
valuation date) and ends at the close of normal trading of the New York
Stock Exchange on the next valuation date.
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we, us, our Western Reserve Life Assurance Co. of Ohio.
(Western
Reserve)
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written notice The written notice you must sign and send us to request or exercise your
rights as owner under the Policy. To be complete, it must: (1) be in a form
we accept, (2) contain the information and documentation that we determine
we need to take the action you request, and (3) be received at our office.
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you, your The person(s) who owns the Policy, and who may exercise all rights under
(owner(s) or the Policy while the insured (or either or both joint insureds) are living. If
policyowner(s)) two owners are named, the Policy will be owned jointly and the consent of
each owner will be required to exercise ownership rights.
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POLICY SUMMARY WRL FREEDOM NAVIGATORSM
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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 NavigatorSM is a modified single premium variable life
insurance policy. You may purchase it either as a single life or a Joint
Policy. A Joint Policy insures two lives with a death benefit payable on the
death of the surviving insured. Joint insureds may be both male, both female or
male and female. The insured will be the surviving insured of the joint
insureds stated in the Policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for the insured(s) named in the Policy.
However, purchasing this Policy involves certain risks. (See Risk Summary p.
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 options and on other Policy features. Please consult your agent
and refer to your Policy for details.
PREMIUMS
/bullet/ If the insured (or joint insureds) qualifies for simplified
underwriting, conditional life insurance coverage begins as soon as
you complete an application and pay an initial premium of at least
$20,000. Once we determine that the insured (or joint insureds) meets
our underwriting requirements, full insurance coverage begins and we
will issue your Policy and begin to deduct monthly and daily
insurance charges from your premium. This date is the Policy date. On
that date, we will allocate your premium to either the reallocation
account or to the subaccounts and fixed account options, depending on
the state in which you live.
/bullet/ If the insured qualifies for simplified underwriting, the maximum
premium you can pay at the time of your application is:
-- $50,000 (for ages 35-49)
-- $100,000 (for ages 50-80)
Other limits apply for Joint Policies and Policies with full underwriting.
/bullet/ Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may
return the Policy during this period and receive a refund. Depending
on your state of residence, we will either allocate your premium to
the accounts you indicated on your application, or we will place your
premium in the reallocation account until the reallocation date. See
Reallocation Account p. 30.
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/bullet/ We will accept additional premiums only in certain limited
circumstances.
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED
ACCOUNT OPTIONS
/bullet/ From the initial premium: None
/bullet/ From additional premiums: None
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to any of the
subaccounts of the WRL Series Life Account, a separate account. Each subaccount
invests exclusively in one investment portfolio of 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:
WRL SERIES FUND, INC.
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- WRL VKAM Emerging Growth - WRL Great Companies -- AmericaWM
- 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 - WRL LKCM Strategic Total Return
- WRL Janus Global - WRL J.P. Morgan Real Estate Securities
- WRL Great Companies -- Technology - WRL Federated Growth & Income
- WRL Janus Growth - WRL AEGON Balanced
- WRL Goldman Sachs Growth - WRL AEGON Bond
- WRL GE U.S. Equity - WRL J.P. Morgan Money Market
</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 OPTIONS. You may also direct the money in your Policy to the
fixed account options--the standard fixed account option and the fixed dollar
cost averaging ("fixed DCA") account option. Money you place in the standard
fixed account option will earn interest at current interest rates declared from
time to time. The interest rate will equal at least 3.0%.
At the time you purchase the Policy, you may place the entire initial
premium into the fixed DCA account. Money you place in the fixed DCA account
will earn interest at an
5
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annual rate of at least 3.0%. Money will be transferred out of the fixed DCA
account in six equal monthly installments and placed in the standard fixed
account and the subaccounts of your choice. The standard fixed account may not
be available in all states.
CASH VALUE
/bullet/ Cash value equals the sum of your Policy's value in the subaccounts
and the fixed account options. If there is a loan outstanding, the
cash value includes any amounts held in our standard 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 options, the charges deducted and any other Policy
transactions (such as 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 Policy charge(s), the surrender charge and/or any outstanding
loan amount (including interest you owe on any Policy loan(s)). The
Policy will not lapse if you have purchased the Guaranteed Minimum
Death Benefit Rider and the Rider is in effect.
TRANSFERS
/bullet/ You can transfer cash value among the subaccounts and the standard
fixed account. We charge a $10 transfer processing fee for each
transfer after the first 12 transfers in a Policy year.
/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 standard fixed
account, and we must receive your request within 30 days after a
Policy anniversary, unless you select dollar cost averaging from the
standard fixed account. The amount of your transfer cannot be more
than:
--> 25% of the value in the standard fixed account; OR
--> the amount transferred from the standard fixed account in the
preceding Policy year.
CHARGES AND DEDUCTIONS
/bullet/ MONTHLY POLICY CHARGE: Deducted from your cash value (reduced by the
loan amount) on the Policy date and on each Monthiversary. The
monthly Policy charge pays for Policy administrative expenses and the
cost of providing death benefits under the Policy. The monthly Policy
charge will vary with the gender of the insured(s), the number of
insureds, and the number of Policy years you have owned the Policy.
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/bullet/ DAILY CHARGE: Deducted from the unit value of each subaccount, at an
annual rate equal to 0.50%, on each valuation date.
/bullet/ COST OF INSURANCE CHARGE: We reserve the right to charge a monthly
cost of insurance charge. See Cost of Insurance Charge p. 40. We do
not currently assess a cost of insurance charge. If, in the future,
we assess a cost of insurance charge, then we will waive the
surrender charge.
/bullet/ SURRENDER CHARGE: Deducted when a full surrender occurs during the
first nine Policy years. We deduct a declining surrender charge of up
to 9.75% of your initial premium if you surrender your Policy or if
your Policy lapses during the first nine Policy years.
/bullet/ TRANSFER FEE: We deduct $10 for each transfer in excess of 12 per
Policy year.
/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. 13. See also the fund prospectuses.
/bullet/ RIDER CHARGES: If you select the Guaranteed Minimum Death Benefit
Rider at application, we will deduct a charge from your cash value
(less any outstanding Policy loan) each month equal to:
--> .02% MULTIPLIED BY the total subaccount values; PLUS
--> .02% MULTIPLIED BY the fixed account value.
LOANS
/bullet/ You may take a loan against the Policy for amounts up to 90% of the
cash value, less any surrender charge and any outstanding loan
amount.
/bullet/ The minimum loan amount is generally $500.
/bullet/ You may request a loan by calling us or by writing or faxing us
written instructions.
/bullet/ We currently charge 6.0% interest annually, payable in arrears, on
any outstanding loan amount; a lower rate applies to any preferred
loans.
/bullet/ We currently permit preferred loans to be taken anytime. You may
borrow an amount equal to the cash value less total premiums paid,
less any outstanding loan amount. We currently charge a 3.0%
preferred loan rate. THIS RATE IS NOT GUARANTEED.
/bullet/ To secure the loan, we transfer a portion of your cash value to a
loan reserve account, which is part of our general account. You will
earn at least 3.0% interest on amounts in the loan reserve account.
/bullet/ Federal income taxes and a penalty tax may apply to loans you make
against the Policy.
/bullet/ If you take a loan, we will terminate any Guaranteed Minimum Death
Benefit rider.
/bullet/ There are risks involved in taking a Policy loan. See Risk Summary
p. 10.
.
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DEATH BENEFIT
/bullet/ So long as the Policy does not lapse, the death benefit is the
greater of:
--> the current specified amount; or
--> the product of: the Policy's cash value on the date of the
insured's (or surviving insured's) death MULTIPLIED BY the
limitation percentage shown on page 43 of this prospectus.
/bullet/ We will reduce the death benefit proceeds by the amount of any
outstanding Policy loan(s) (including any interest you owe on Policy
loan(s)), and any due and unpaid charges.
/bullet/ We determine your Policy's specified amount based on:
--> the initial premium you pay; and
--> the insured's (or joint insureds') age, gender and rate class.
/bullet/ You may not increase or decrease the specified amount.
/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.
/bullet/ If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the
Rider is in effect, and if the net surrender value on any
Monthiversary is not sufficient to cover the monthly deduction on
that day, then insurance coverage will be provided under this Rider
and no grace period will begin, so long as no Policy loans have been
taken under the Policy. If a death benefit is payable under the
provisions of this Rider, then we guarantee to provide a death
benefit as follows:
(1) During the first 15 Policy years, or before the Policy anniversary
following the insured's (or younger joint insured's) 75th birthday, if
sooner, the minimum death benefit payable will be the greater of:
/bullet/ the current specified amount; or
/bullet/ the product of: the Policy's cash value on the date of the
insured's (or surviving insured's) death MULTIPLIED BY the
limitation percentage shown on page 43.
(2) After the first 15 Policy years, or on or after the Policy anniversary
following the insured's (or younger joint insured's) 75th birthday, if
sooner, the minimum death benefit payable will be the initial premium,
reduced, on a dollar-for-dollar basis, by any partial withdrawals.
(3) The minimum death benefit will never be less than $1,000.
If you take a Policy loan, the Guaranteed Minimum Death Benefit Rider will
terminate and your Policy could lapse.
/bullet/ A partial withdrawal will reduce the specified amount by the amount
of the withdrawal multiplied by the ratio of the initial specified
amount to the initial premium.
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PARTIAL WITHDRAWALS AND SURRENDERS
/bullet/ You may take one withdrawal of cash value per Policy year after the
first Policy year.
/bullet/ We do not assess any charges for partial withdrawals.
/bullet/ The amount of the withdrawal is limited to your Policy's earnings
which we compute as:
the cash value, MINUS any outstanding Policy loans, MINUS any interest you
owe on Policy loans, and MINUS total premiums paid.
/bullet/ A partial withdrawal reduces the current specified amount (the
minimum death benefit) by:
amount of withdrawal X initial specified amount
initial premium
/bullet/ A partial withdrawal does not void a Guaranteed Minimum Death Benefit
Rider, but it reduces the death benefit we would pay, as described
above.
/bullet/ You cannot take a partial withdrawal if it will reduce the specified
amount below $1,000.
/bullet/ Federal income taxes and a penalty tax may apply to partial
withdrawals and surrenders.
/bullet/ You may fully surrender the Policy at any time before the insured's
(or surviving insured's) death or the maturity date. You will receive
the net surrender value (cash value, minus any surrender charge,
minus any Policy loans outstanding, and minus any interest you owe on
Policy loans). The surrender charge will apply during the first nine
Policy years.
INQUIRIES
If you need more information, please contact us at:
Western Reserve Life
P.O. Box 5068
Clearwater, Florida 33758-5068
1-800-851-9777
www.westernreserve.com
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RISK SUMMARY
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INVESTMENT If you invest your cash value in one or more subaccounts,
RISK you will be subject to the risk that investment performance
could be unfavorable and that the cash value of your Policy
would decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND
YOUR POLICY COULD LAPSE. If you select the fixed account
options, your cash value in the fixed account options are
credited with a declared rate of interest, but you assume a
risk that the rate may decrease, although it will never be
lower than a guaranteed minimum annual effective rate of
3.0%.
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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.
A Policy lapse will have adverse tax consequences. See
Federal Income Tax Considerations p. 50 and Policy Lapse and
Reinstatement p. 49.
You may not reinstate your Policy after it has lapsed unless
you completed the Policy application and had your Policy
delivered to you in a state which permits reinstatement. If
so, then you may reinstate this Policy within five years
after it has lapsed if the insured (or joint insureds) meets
the insurability requirements and you pay the amount we
require.
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TAX RISK It is reasonable to conclude that the Policy will generally
(INCOME TAX be deemed a life insurance policy under federal tax law, so
AND MEC) that the death benefit paid to the beneficiary will not be
subject to federal income tax. However, the Policy has
certain innovative features that are not addressed in
existing legal interpreta- tions and there is, therefore,
some risk that the Policy might not be deemed a life
insurance policy under federal tax law. If the Policy is not
so treated, annual increases in the Policy's cash value will
be subject to federal income tax each year. Even if the
Policy is treated as a life insurance policy under federal
tax laws, the Policy will, in most situations, be treated as
a modified endowment contract ("MEC") under those laws. If a
Policy is treated as a MEC, partial withdrawals, surrenders
and loans will be taxable as ordinary income to the extent
of its earnings in the Policy. In addition, a 10% penalty
tax may be imposed on partial withdrawals, surrenders and
loans taken before you reach age 591/2. If a Policy is not
treated as a MEC, partial surrenders and withdrawals will
not be subject to tax to the extent of your investment in
the Policy. 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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10
<PAGE>
LIMITS ON The Policy permits you to take only one partial withdrawal
PARTIAL during any 12-month period after the first Policy year has
WITHDRAWALS been completed. The amount you may withdraw is limited to
earnings. We calculate earnings as cash value, reduced by
any outstanding loan amount (including any interest due on
Policy loans) and any premiums paid.
A partial withdrawal will reduce the cash value, so it will
increase the risk that the Policy will lapse
A partial withdrawal will reduce the minimum death benefit
(the current specified amount) and the minimum death benefit
under the Guaranteed Minimum Death Benefit Rider by:
amount of withdrawal X initial specified amount
------------------------
initial premium
This reduction may be significant. However, in no event will
any withdrawal reduce the minimum death benefit under the
Guaranteed Minimum Death Benefit Rider below $1,000.
Federal income taxes and a penalty tax may apply to partial
withdrawals and surrenders.
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LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from
the subaccounts and fixed account options and place that
amount in the loan reserve as collateral. We then credit a
fixed interest rate of at least 3.0% to the loan collateral.
As a result, the loan collateral does not participate in the
investment results of the subaccounts nor does it receive
the current interest rates credited to the fixed account
options. The longer the loan is outstanding, the greater the
effect is likely to be. Depending on the investment results
of the subaccounts and the interest rates credited to the
fixed account, the effect could be favorable or unfavorable.
We also charge interest on Policy loans at a rate of 6.0%
payable in arrears. Interest is added to the amount of the
loan to be repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds by the amount of the
outstanding loan, plus any interest you owe on Policy loans.
A Policy loan will terminate the Guaranteed Minimum Death
Benefit Rider.
A Policy loan could make it more likely that a Policy would
lapse. There is a risk that if the loan and unfavorable
investment experience reduce your net surrender value, then
the Policy will lapse, resulting in adverse tax
consequences. You will have a 61-day grace period to submit
a sufficient pay- ment to avoid the Policy's termination
without value and the end of insurance coverage. As
mentioned in Risk of Lapse on p.10, you may only reinstate
your Policy if your Policy was delivered to you in a state
which permits reinstatement.
11
<PAGE>
If a loan from a Policy that 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. 50.
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EFFECTS OF THE The surrender charge under this Policy will reduce your cash
SURRENDER value if you sur- render your Policy in the first nine
CHARGE 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 cash value
(reduced by the surrender charge and reduced by outstanding
loans and interest you owe) to measure whether you Policy
will remain in force or enter a grace period.
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COMPARSON 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 premium
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will
vary with the investment performance of the amounts you
place in the subaccounts. In addition, the cash value and
net surrender value will always vary with the investment
experience of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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ILLUSTRATIONS The 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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12
<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 -- TechnologySM(6) 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 -- AmericaSM(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 receive advance written notice if a Rule
12b-1 fee is to be deducted. See the WRL Fund prospectus for more details.
13
<PAGE>
(2) 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 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") recovers 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 -- TechnologySM 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 -- AmericaSM 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>
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
14
<PAGE>
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 options under the Policy.
Western Reserve intends to sell this Policy in all states (except New York) and
the District of Columbia.
THE FIXED ACCOUNT OPTIONS
The fixed account is part of Western Reserve's general account. We use
general account assets to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, Western
Reserve has sole discretion over the investment of the fixed account's assets.
Western Reserve bears the full investment risk for all amounts contributed to
the fixed account. Western Reserve guarantees that the amounts allocated to the
fixed account options will be credited interest daily at a net effective
interest rate of at least 3.0%. We will determine any interest rate credited in
excess of the guaranteed rate at our sole discretion. We have no specific
formula for determining interest rates. If you allocate your initial premium to
the fixed account options, then we will credit the interest from the date we
receive the premium.
THE STANDARD FIXED ACCOUNT. Money you place into the standard fixed
account option will earn interest compounded daily at a current interest rate
in effect at the time of your allocation. The interest rate is guaranteed never
to be less than 3.0% per year. We may declare current interest rates from time
to time. We may declare more than one interest rate for different money based
upon the date of allocation or transfer to the standard fixed account. The
standard fixed account may not be available in all states.
We allocate amounts from the standard fixed account for partial
withdrawals, transfers to the subaccounts, or monthly deduction charges on a
last-in, first-out basis ("LIFO") for the purpose of crediting interest.
THE FIXED DCA ACCOUNT. At the time you purchase the Policy, you may place
your entire initial premium into the fixed DCA account. Money you place into
the fixed DCA account will earn interest at an annual rate of at least 3.0%. We
may declare current interest rates from time to time. Money will be transferred
out of the fixed DCA account in six equal monthly installments and placed in
the standard fixed account and the subaccounts of your choice. See Fixed DCA
Account p. 35.
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<PAGE>
THE FIXED ACCOUNT OPTIONS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT
OPTIONS.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of 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.
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
16
<PAGE>
portfolios may have investment objectives and policies similar to other
portfolios that are managed by the same investment adviser or manager. The
investment results of the portfolios, however, may be higher or lower than
those of such other portfolios. We do not guarantee or make any representation
that the investment results of the portfolios will be comparable to any other
portfolio, even those with the same investment adviser or sub-adviser.
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 capital
PRICE SMALL CAP Associates, Inc. by investing primarily in common
stocks of small growth companies.
WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of capital.
SACHS SMALL CAP Management
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 capital.
AGGRESSIVE
GROWTH
WRL GE --> GE Asset Management --> Seeks long-term growth of capital.
INTERNATIONAL Incorporated
EQUITY
WRL JANUS --> Janus Capital --> Seeks long-term growth of capital
GLOBAL Corporation in a manner consistent with the
preservation of capital.
WRL GREAT --> Great Companies, L.L.C. --> Seeks long-term growth of capital
COMPANIES --
TECHNOLOGYSM
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- ---------------- ------------------------- ------------------------------------
<S> <C> <C> <C> <C>
WRL JANUS --> Janus Capital --> Seeks growth of capital.
GROWTH Corporation
WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of capital.
SACHS GROWTH Management
WRL GE U.S. --> GE Asset Management --> Seeks long-term growth of capital.
EQUITY Incorporated
WRL GREAT --> Great Companies, L.L.C. --> Seeks long-term growth of capital.
COMPANIES --
AMERICASM
WRL SALOMON --> Salomon Brothers --> Seeks capital appreciation.
ALL CAP Asset 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.
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 Associ- --> Seeks preservation of capital and
ALLOCATION ates 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.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- ---------------------------------- ------------------------ -------------------------------------
<S> <C> <C> <C> <C>
WRL J.P. MORGAN --> J.P. Morgan Investment --> Seeks long-term total return from
REAL ESTATE Management Inc. investments primarily in equity
SECURITIES securities of real estate companies.
Total return will consist of
realized and unrealized capital
gains and losses plus income.
WRL 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 current
BOND Investment income within the confines of the
Management, Inc. 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.
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 common
SERVICE CLASS 2 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
19
<PAGE>
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 insurance companies, including Western
Reserve or its affiliates, establish to support variable annuity contracts and
variable life insurance policies. It is possible that, in the future, it may
become disadvantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the portfolios simultaneously.
Neither we nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policyowners or to variable annuity contract owners.
However, 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.
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
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<PAGE>
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. 50.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, a prospective owner must submit a completed
application and an initial premium to us. You may also send the application and
initial premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
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<PAGE>
Our address for applications submitted by World Marketing Alliance
distribution systems is:
Western Reserve
P.O. Box 628069
Orlando, Florida 32862-8069
Everyone else should submit applications to:
Western Reserve
P.O. Box 628078
Orlando, Florida 32862-8078
We determine the specified amount for a Policy based on the initial
premium paid and other characteristics of the proposed insured (or joint
insureds), such as age, gender and rate class. We base the minimum initial
premium for your Policy on the guideline single premium established under
federal tax laws given the age, gender and rate class of the insured (or joint
insured). We currently require a minimum initial premium of $20,000.
We use different underwriting standards (simplified, expanded) in relation
to the Policy. We can provide you with details as to these underwriting
standards when you apply for a Policy. We must receive evidence of insurability
that satisfies our underwriting standards before we will issue a Policy.
Generally, for simplified underwriting for a single life Policy we will issue a
Policy only for an insured between the ages of 35 to 80; for a Joint Policy,
the minimum age for both insureds is 45 and the difference between the joint
insureds' ages cannot be greater than 20 years. The joint insureds must be
spouses or expanded underwriting will be required. To issue a Policy for an
insured (or joint insureds) between the ages of 18 to 34 and 81 to 90, we will
use expanded underwriting. We reserve the right to reject an application for
any reason permitted by law.
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age. Montana prohibits our use of actuarial tables that distinguish between
males and females to determine premiums and policy benefits for policies issued
on the lives of its residents. Therefore, we will base the premiums and
benefits in Policies that we issue in Montana, to insure residents of that
state, on actuarial tables that do not differentiate on the basis of gender.
Your cost of insurance charge will depend on the insured's (or each joint
insured's) rate class. We currently place insureds (or each joint insured) into
one of the following rate classes:
/bullet/ select, non-tobacco use; and
/bullet/ standard, tobacco use.
We generally charge higher rates for insureds who use tobacco.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the insured
(or joint insureds) is alive and in the same condition of health as described
in the application when the Policy is delivered to the owner, and if the
initial premium required under the Policy as issued is paid.
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<PAGE>
CONDITIONAL INSURANCE COVERAGE. If you pay the initial premium listed in
the conditional receipt attached to the application, and we deliver the
conditional receipt to you, the insured (or joint insureds) will have
conditional insurance coverage under the terms of the conditional receipt.
Conditional insurance coverage is void if the check or draft sent to pay the
initial premium is not honored when we first present it for payment.
<TABLE>
<S> <C>
THE AMOUNT OF /bullet/ the specified amount applied for; or
CONDITIONAL INSURANCE /bullet/ $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all other life insurance
applications that the insured (or joint insureds) has in force or
pending with us.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ as soon as you complete an application and pay an initial
COVERAGE BEGINS: premium of at least $20,000, if the insured (or joint
insureds) qualifies for simplified underwriting; or
/bullet/ on the later of:
--> the date of your application; or
--> the date the insured (or joint insureds) completes
all of the medical tests and examinations that we
require,
if the insured (or joint insureds) does not qualify for simplified
underwriting.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date we determine the insured (or joint insureds) has
COVERAGE TERMINATES satisfied our underwriting requirements (the Policy date);
AUTOMATICALLY ON THE 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 Policy, amount, riders and/or the
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 initial premium to the applicant at the address
shown on the application.
</TABLE>
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<PAGE>
<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;
--> in the event the application contains any fraud or
material misrepresentation; or
--> if, on the date of the conditional receipt, the
proposed insured (or joint insureds) is under 18
years 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 (or joint insured) commits suicide. In this
case, Western Reserve's liability will be limited to return of
the initial premium paid with the application.
</TABLE>
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured (or joint insureds) meets our underwriting
requirements and you have paid the initial premium, full insurance coverage
will begin and we will begin to take the monthly and daily insurance charges
from your premium. This date is the Policy date. On the Policy date, we will
allocate your initial premium, minus the monthly deductions and daily charges,
to the subaccounts and fixed account options you elected on your application,
provided you live in a state that does not require a refund of full premium
during the free-look period. If your state requires us to return the full
premium in the event you exercise your free-look right, we will place your
premium in the reallocation account until the reallocation date. While held in
the reallocation account, the initial premium will be credited with interest at
the current standard fixed account rate. See Reallocation Account p. 30.
On any day we credit premiums or transfer cash value to a subaccount, we
will convert the dollar amount of the premium (or transfer) into subaccount
units at the unit value for that subaccount, determined at the end of the day
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. 30.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. If two owners
are named, the Policy will be owned jointly, and each owner's consent will be
required to exercise ownership rights. The owner is the insured unless the
application specifies a different person as the insured. If the owner dies
before the insured (or surviving insured, if a Joint Policy) 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.
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<PAGE>
<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 (or surviving insured)
is alive and the Policy is in force.
/bullet/ Change is effective as of the date that the written notice is
accepted by us.
/bullet/ Changing the owner does not automatically change the
beneficiary.
/bullet/ Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
/bullet/ Changing the owner may have tax consequences. You
should consult a tax advisor before changing the owner.
/bullet/ We are not liable for payments we made before we
received the written notice at our office.
</TABLE>
<TABLE>
<S> <C>
CHOOSING THE /bullet/ The owner(s) designates the beneficiary (the person to
BENEFICIARY receive the death benefit when the insured or surviving
insured dies) in the application.
/bullet/ If the owner(s) 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 or surviving
insured, then any contingent beneficiary becomes the
beneficiary.
/bullet/ If both the beneficiary and contingent beneficiary die
before the insured (or surviving insured, if a Joint Policy)
then the death benefit will be paid to the owner or the
owner's estate upon the insured's (or surviving insured's,
if a Joint Policy) death.
</TABLE>
<TABLE>
<S> <C>
CHANGING THE /bullet/ The owner(s) changes the beneficiary by providing written
BENEFICIARY notice to us at our office.
/bullet/ Change is effective as of the date the owner(s) 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(s) may assign Policy rights while the insured
POLICY (or either or both joint insureds) is 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(s) retains any ownership rights that are not
assigned.
/bullet/ Assignee may not change the owner(s) 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/ We are not:
--> bound by any assignment unless we receive a
written notice of the assignment;
--> responsible for the validity of any assignment;
--> liable for any payment we made before we
received written notice of the assignment; or
--> any assignment which results in adverse tax
consequences to the owner, insured(s) or
beneficiary(ies).
/bullet/ Assigning the Policy may have tax consequences. You
should consult a tax advisor before assigning the Policy.
</TABLE>
POLICY SPLIT OPTION
For a Joint Policy, as long as you provide us with sufficient evidence
that the joint insureds meet our insurability standards, you may request that
the Policy, not including any riders, be split (the "Split Option") into two
new individual fixed account life insurance policies, one on the life of each
joint insured, if one of the three events listed below occurs. You may request
this Split Option by giving us written notice within 90 days after:
/bullet/ the enactment or effective date (whichever is later) of a change
in the federal estate tax laws that would reduce or eliminate the
unlimited marital deduction;
/bullet/ the date of entry of a final decree of divorce of the joint
insureds; or
/bullet/ written confirmation of a dissolution of a business partnership of
which the joint insureds were partners.
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<TABLE>
<S> <C>
CONDITIONS FOR EXERCISING /bullet/ If more than one person owns the Policy, each owner must
SPLIT OPTION: agree to the split.
/bullet/ The initial specified amount for each new policy cannot be
more than 50% of the Policy's specified amount, excluding
the face amount of any riders.
/bullet/ The new policies will be subject to our minimum and
maximum specified amounts and issue ages for the plan of
insurance you select.
/bullet/ You must obtain our approval before you can exercise the
Split Option if one of the joint insureds is older than the
new policy's maximum issue age when you request the
Split Option.
</TABLE>
Cash value and indebtedness under the Policy will be allocated equally to
each of the new policies. If one joint insured does not meet our insurability
requirements, we will pay you half of the Policy's net surrender value and
issue only one new policy covering the joint insured that meets our
insurability requirements; or you may cancel the Split Option and keep the
Policy in force on both joint insureds.
We will base the premiums for the new policies on each joint insured's
attained age and premium rate class which we determine based on the current
evidence of insurability submitted for each joint insured. Premiums will be
payable as of the Policy date for each new policy. The Policy date for each new
policy will be the monthly anniversary after we receive your written request to
exercise the Split Option. The owner and beneficiary for the new policies will
be those named in the Policy, unless you specify otherwise. Any new premium you
pay to the new policies will be subject to the normal charges, if any, of the
new policies at the time you pay the premium.
Exercising the Split Option may result in a taxable event. Moreover, the
new life insurance policies received if you exercise the Split Option may not
be treated as life insurance policies for federal income tax purposes, or, if
so treated, may be treated as MECs, even if the original Policy was not. (See
Federal Income Tax Considerations p. 50.) You should consult a tax advisor
before exercising the Split Option.
CANCELING A POLICY
You may cancel a Policy during the "free-look period" by returning it to
our office, to one of our branch offices or to the agent who sold you the
Policy. The free-look period expires 10 days after you receive the Policy. In
some states you may have more than 10 days. If you decide to cancel the Policy
during the free-look period, we will treat the Policy as if it had never been
issued. We will pay the refund, without interest, within seven days after we
receive the returned Policy at our office. The amount of the refund will be:
/bullet/ any monthly deductions or other charges we deducted from amounts
allocated to the subaccounts and the fixed account options; PLUS
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/bullet/ your cash value in the subaccounts and the fixed account options
on the date we (or our agent) receive the returned Policy at our
office, except that the amount allocated to the fixed DCA account
will be treated as if it had been allocated to the standard fixed
account.
If any state law prohibits the calculation above, we will refund, without
interest, the total of all premiums paid for the Policy. See Allocating
Premiums p. .
PREMIUMS
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INITIAL PREMIUM
The initial premium for a given specified amount depends on a number of
factors including the age, gender, and rate class of the proposed insured(s).
For a given initial premium, we will specify the exact specified amount that
you must purchase. For a Joint Policy, we will provide the specified amount at
the time of application based upon the specific ages, gender, and rate classes
of the proposed joint insureds.
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
We currently require a minimum initial premium of $20,000. If you want to
qualify for simplified underwriting, the maximum premium you can pay at the
time of your application is $50,000 (for ages 35-49) and $100,000 (for ages
50-80). Other limits apply for Joint Policies and Policies with full
underwriting. We reserve the right to modify these requirements and premium
amounts at any time.
TAX-FREE EXCHANGES ("1035 EXCHANGES"). We will accept part or all of your
initial premium money from one or more contracts insuring the same insured that
qualify for tax-free exchanges undersection 1035 of the Internal Revenue Code.
If you contemplate such an exchange, you should consult a competent tax advisor
to learn the potential tax effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 Exchange before we determine your Policy's specified
amount.
ADDITIONAL PREMIUMS
You will have limited flexibility to add additional premiums to the Policy
since we require that the initial premium equal the maximum amount that can be
applied to the
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Policy at issue. In general, you may not pay any additional premiums on the
Policy for several years in order for the Policy to continue to qualify as a
life insurance policy as defined in federal tax laws and regulations. At the
time the Policy allows for the payment of additional premiums, we reserve the
right to limit or refund any premium if:
/bullet/ the amount is below our current minimum additional premium
requirement;
/bullet/ the premium would increase the death benefit by more than the
amount of the premium; or
/bullet/ accepting the premium would disqualify the Policy as a life
insurance policy as defined in federal tax laws and regulations.
You may pay premiums by any method we deem acceptable. We will treat any
payment you make as a loan repayment unless you clearly mark it as a premium
payment. 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.
ALLOCATING PREMIUMS
You must instruct us on how to allocate your premium (minus insurance
charges) among the subaccounts and the fixed account options according to the
following rules:
/bullet/ allocation percentages must be in whole numbers;
/bullet/ if you select the fixed DCA account, you must put your entire
initial premium into the fixed DCA account at the time of your
application; and
/bullet/ if you select standard dollar cost averaging, you must put at
least $5,000 into the WRL J.P. Morgan Money Market subaccount.
Generally, we will not allow you to pay additional premiums except in
certain limited circumstances. If we do allow you to pay additional premiums,
you may change the allocation instructions for such additional premium payments
without charge by writing us or calling us at 1-800-851-9777. 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. In the future, we may decide that the minimum amount you can allocate
to a particular subaccount is 10% of a premium payment (currently not
required).
Whenever you direct money into a subaccount, we will credit your Policy
with the number of units for that subaccount that can be bought for the dollar
payment. We price each subaccount unit using the unit value determined at the
end of the day after the closing of the regular 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 p. 30. Your cash value will vary with the investment experience of the
subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR AMOUNTS YOU
ALLOCATE TO THE SUBACCOUNTS.
You should review periodically how your cash value is allocated among the
subaccounts and the fixed account options because market conditions and your
overall financial objectives may change.
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REALLOCATION ACCOUNT. If your state requires us to return your initial
premium in the event you exercise your free-look right, we will allocate the
initial premium to the reallocation account on the Policy date shown on the
schedule page in your Policy. While held in the reallocation account, your
premium will earn interest at the current rates for the standard fixed account.
The premium will remain in the reallocation account for the number of days in
your state's free-look period plus five days. This is the reallocation date.
Please contact your agent for details concerning the free-look period for your
state.
On the first valuation date on or after the reallocation date, we will
reallocate all cash value from the reallocation account to the subaccounts and
fixed account options you selected on the application. If you requested either
fixed DCA or standard dollar cost averaging, we will reallocate the cash value
to either the fixed DCA account or the WRL J.P. Morgan Money Market subaccount
respectively, on the reallocation date.
For states which do not require full refund of the initial premium, the
reallocation date is the same as the Policy date and we will allocate your
initial premium on the Policy date to the subaccounts and the fixed account
options in accordance with the instructions you gave us on your application.
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 options, 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 options.
/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 standard fixed account
to secure any outstanding Policy loan.
</TABLE>
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<PAGE>
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); MINUS
EQUALS: /bullet/ any interest you owe on any Policy loan(s).
</TABLE>
SUBACCOUNT VALUE
Each subaccount's value is the cash value in that subaccount. At the end
of any valuation period, the subaccount's value is equal to the number of units
that the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
<TABLE>
<S> <C>
THE NUMBER OF /bullet/ the initial units purchased at unit value on the Policy date;
UNITS IN ANY PLUS
SUBACCOUNT ON /bullet/ units purchased with additional 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 partial withdrawal by the unit value for
that subaccount next determined at the end of the valuation period on which the
premium, transfer request or cash withdrawal request is received at our office.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value may increase or decrease from one
valuation period to the next.
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<PAGE>
<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 by 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 charge equal to the daily net assets of the subaccount
IS CALCULATED AS: multiplied by the daily equivalent of the daily charge;
MINUS
/bullet/ the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
AND THE RESULT DIVIDED BY
/bullet/ the number of outstanding units in the subaccount.
</TABLE>
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
FIXED ACCOUNT VALUE
On the Policy date, the fixed account value is equal to the premiums
allocated to the fixed account options, minus the portion of the first monthly
deduction(s) taken from the fixed account options.
<TABLE>
<S> <C>
THE FIXED ACCOUNT /bullet/ the premium(s) allocated to the fixed account options; PLUS
VALUE AT THE END OF /bullet/ any amounts transferred from a subaccount to the standard
ANY VALUATION fixed account; PLUS
PERIOD IS EQUAL TO: /bullet/ total interest credited to the fixed account options; MINUS
/bullet/ amounts charged to pay for monthly deductions as they are
due; MINUS
/bullet/ amounts withdrawn from the fixed account to pay for
partial withdrawals; MINUS
/bullet/ amounts transferred from the fixed account to a
subaccount.
</TABLE>
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:
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<PAGE>
--> 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.
--> You may make one transfer from the standard fixed account per Policy
year.
--> You may request transfers in writing (in a form we accept), by fax or
by telephone.
--> There is no minimum amount that must be transferred.
--> There is no minimum amount that must remain in a subaccount after a
transfer.
--> We deduct a $10 charge from the amount transferred for the 13th and
each additional transfer in a Policy year.
--> We consider all transfers made in any one day to be a single
transfer.
--> Transfers resulting from loans, conversion rights, standard and fixed
dollar cost averaging, asset rebalancing, and transfers from the
fixed account are NOT treated as transfers for the purpose of the
transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from the WRL
J.P. Morgan Money Market, during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations or a series of movements between portfolios.
We will not limit non-substantive transfers.
Your Policy as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-851-9777 or fax your instructions to
727-299-1648.
Please note the following regarding telephone or fax transfers:
--> 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.
33
<PAGE>
--> 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.
We will process any transfer request we receive at our office before the
NYSE closes (usually 4:00 p.m. Easterm time) using the subaccount unit value
determined at the end of that session of the NYSE. If we receive the transfer
request after the NYSE closes, we will process the request using the subaccount
unit value determined at the close of the next regular business session of the
NYSE.
STANDARD FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the standard fixed account.
We reserve the right to require that you make the transfer request in writing.
We must receive the transfer request no later than 30 days after a Policy
anniversary. We will make the transfer at the end of the valuation date on
which we receive the written request. The maximum amount you may transfer is
limited to the greater of:
--> 25% of the amount in the standard fixed account; or
--> the amount you transferred from the standard fixed account in the
immediately prior Policy year (excluding transfers from the fixed
DCA account).
CONVERSION RIGHTS
If, within two years of your Policy date, you transfer all of your
subaccount values to the standard fixed account, then we will not charge you a
transfer fee, even if applicable. You must make your request in writing.
STANDARD DOLLAR COST AVERAGING
Standard dollar cost averaging is an investment strategy designed to
reduce the 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 they are high. We make
no guarantee that dollar cost averaging will result in a profit or protect you
against a loss.
Under standard dollar cost averaging, we automatically transfer a set
dollar amount from the WRL J.P. Morgan Money Market subaccount to one or more
subaccounts that you choose. At the beginning of dollar cost averaging, you
must choose the time period (12, 24
34
<PAGE>
or 36 months) over which the entire amount will be transferred in equal monthly
installments. We will make the transfers monthly as of the end of the valuation
date starting on the first Monthiversary after the Policy date or reallocation
date. We will make the first transfer in the month after we receive your
request, provided that we receive the form by the 25th day of the month.
<TABLE>
<S> <C>
TO START STANDARD DOLLAR --> you must submit a completed form to us at our office
COST AVERAGING: requesting standard dollar cost averaging;
--> you must have at least $5,000 in the WRL J.P. Morgan
Money Market subaccount;
--> the monthly amount transferred will be determined by
dividing the total amount to be transferred by the number
of months in the period chosen (12, 24 or 36 months);
and
--> interest accrued on the cash value in the WRL J.P.
Morgan Money Market subaccount during the term of
dollar cost averaging will be transferred in the last month
of the standard dollar cost averaging term.
</TABLE>
You may request standard dollar cost averaging to begin at any time, except
that you cannot begin standard dollar cost averaging if you have an active
fixed DCA account. There is no charge for standard dollar cost averaging.
Transfers under standard dollar cost averaging do NOT count as transfers for
purposes of the transfer charge.
<TABLE>
<S> <C>
STANDARD DOLLAR COST --> we receive your request to cancel your participation;
AVERAGING WILL --> the value in the WRL J.P. Morgan Money Market
TERMINATE IF: subaccount is depleted;
--> you elect to participate in the asset rebalancing program;
OR
--> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
We may modify, suspend, or discontinue standard dollar cost averaging at
any time.
FIXED DCA ACCOUNT
To be eligible for fixed dollar cost averaging, you must elect the fixed
DCA account on your application and put your entire initial premium into the
fixed DCA account. Money you place in the fixed DCA account will earn interest
at rates we declare from time to time. Money will be transferred out of the
fixed DCA account in six equal monthly installments with the first transfer
starting on the first Monthiversary after the Policy date or reallocation date.
Interest accrued on the initial premium will be transferred in the last month
of the fixed DCA account term. Money in the fixed DCA account may be
transferred entirely to other subaccounts or the standard fixed account after
one month.
There is no charge for participating in the fixed DCA account. Transfers
from the fixed DCA account do NOT count as transfers for purposes of the
transfer charge.
35
<PAGE>
We reserve the right to stop offering the fixed DCA account at any time
for any reason. We may offer a higher 30-day interest rate guaranteed for one
month. If you exercise your free-look right and you reside in a state which
requires us to return your premium, then we will return your full initial
premium, but without any interest. But if you reside in a state which requires
us to return cash value, then we will treat your initial premium as if it had
been allocated to the standard fixed account.
<TABLE>
<S> <C>
FIXED DOLLAR COST /bullet/ we receive written notice from you instructing us to cancel
AVERAGING WILL END IF: the program;
/bullet/ you elect to participate in the asset rebalancing program;
or
/bullet/ you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts 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 standard fixed account, the standard dollar cost averaging
program and the fixed DCA account are not available for this program. This
program does not guarantee gains. A subaccount may still have losses.
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. You may modify your allocations
quarterly. Once we receive the asset rebalancing request form, we will effect
the initial rebalancing of cash value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. We will
credit the amounts transferred at the unit value next determined on the dates
the transfers are made. If a day on which rebalancing would ordinarily occur
falls on a day on which the NYSE is closed, rebalancing will occur on the next
day the NYSE is open.
To start asset rebalancing, you must submit a completed asset rebalancing
request form to us at our office before the maturity date. There is no charge
for the asset rebalancing program. Reallocations under the asset rebalancing
program will count as transfers for purposes of the transfer charge.
36
<PAGE>
<TABLE>
<S> <C>
ASSET REBALANCING IS NOT --> you elect to participate in the fixed DCA account;
PERMITTED OR WILL CEASE IF: --> you elect to participate in the standard dollar cost
averaging program;
--> we receive your request to discontinue participation;
--> you make ANY transfer to or from any subaccount other
than under a scheduled rebalancing; or
--> you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
You may start and stop participation in the asset rebalancing program at
any time; but we may restrict your right to re-enter the program to once each
Policy year. If you wish to resume the asset rebalancing program, you must
complete a new request form. We may modify, suspend, or discontinue the asset
rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES
NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY
TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM
ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF
POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT
ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR
ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve
does not currently charge you any additional fees for providing these support
services. Western Reserve reserves the right to discontinue providing
administrative and support services to owners utilizing independent third
parties who provide investment allocation and transfer recommendations.
CHARGES AND DEDUCTIONS
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the service and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
<TABLE>
<S> <C>
SERVICES AND /bullet/ the death benefit, cash and loan benefits;
BENEFITS WE /bullet/ investment options, including premium allocations;
PROVIDE UNDER /bullet/ administration of elective options;
THE POLICY: /bullet/ the distribution of reports to owners.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
COSTS AND /bullet/ costs associated with processing and underwriting
EXPENSES 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 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
and other taxes and fees.
</TABLE>
<TABLE>
<S> <C>
RISKS WE ASSUME: /bullet/ that the charges we 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 DEDUCTIONS
We deduct no charges from premiums before allocating the premiums to the
separate account and the fixed account options according to your instructions.
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We subtract any outstanding loan amount from the cash value
before calculating the charge. We deduct this charge from your Policy's value
in each subaccount and the fixed account in accordance with the current premium
allocation instructions. If the value of any account is insufficient to pay
that account's portion of the monthly deduction, we will take the monthly
deduction on a pro rata basis from all accounts (I.E., in the same proportion
that the value in each subaccount and the fixed account bears to the total cash
value on the Monthiversary). Because portions of the monthly deduction can vary
monthly, the monthly deduction will also vary.
38
<PAGE>
<TABLE>
<S> <C>
THE MONTHLY DEDUCTION IS /bullet/ the monthly Policy charge based on your Policy's separate
EQUAL TO: account assets; PLUS
/bullet/ the monthly Policy charge based on your Policy's fixed
account assets; PLUS
/bullet/ the monthly cost of insurance charge for the Policy, if any;
PLUS
/bullet/ the monthly charge for any benefits provided by riders
attached to the Policy (currently, only the Guaranteed
Minimum Death Benefit Rider).
MONTHLY POLICY CHARGE:
/bullet/ Based on your Policy's separate account assets, this
charge is equal to:
--> the separate account monthly deduction charge
(see table below) divided by 12; MULTIPLIED BY
--> the sum of the Policy's subaccount values on
the Monthiversary.
/bullet/ Based on your Policy's fixed account assets, this
charge is equal to:
--> the fixed account monthly deduction charge
(see table below) divided by 12; MULTIPLIED BY
--> the fixed account value on the Monthiversary,
minus any outstanding Policy loan(s).
/bullet/ This charge compensates us for administrative
expenses such as recordkeeping, processing death
benefit claims and Policy changes, mortality
expenses and overhead costs.
/bullet/ This charge varies for each Policy based on the
Policy year, the insured's gender, and whether the
Policy is issued on a single life or a joint and last
survivor basis.
</TABLE>
DAILY CHARGE
<TABLE>
<S> <C>
THE DAILY CHARGE IS /bullet/ On each valuation date, we deduct a daily charge at the
EQUAL TO: annual rate of 0.50% from your Policy's assets in the
subaccounts as part of the calculation of the unit value for
each subaccount.
/bullet/ This charge compensates us for certain mortality and
expense risks we assume.
</TABLE>
39
<PAGE>
The monthly Policy charge and the daily charge for single life and Joint
Policies are as follows:
<TABLE>
<CAPTION>
SINGLE LIFE POLICY MALE/UNISEX FEMALE
POLICY YEARS POLICY YEARS POLICY YEARS POLICY YEARS
1-10 11+ 1-10 11+
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT DAILY CHARGE
CHARGES (from unit value) .50% .50% .50% .50%
(annual rate)
MONTHLY
POLICY CHARGE
(as a % of separate
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.50% 1.50% 2.35% 1.35%
FIXED ACCOUNT MONTHLY
CHARGES POLICY CHARGE
(annual rate) (as a % of fixed
account assets) 2.00% 1.00% 1.85% .85%
TOTAL 2.00% 1.00% 1.85% .85%
</TABLE>
<TABLE>
<CAPTION>
JOINT POLICY POLICY YEARS 1-10 POLICY YEARS 11+
<S> <C> <C> <C>
SEPARATE ACCOUNT CHARGES DAILY CHARGE (from unit value) .50% .50%
(annual rate)
MONTHLY POLICY CHARGE (as 1.50% .50%
a % of separate account assets)
TOTAL 2.00% 1.00%
FIXED ACCOUNT CHARGES MONTHLY POLICY CHARGE (as 1.50% .50%
(annual rate) a % of fixed account assets)
TOTAL 1.50% .50%
</TABLE>
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly cost of
insurance charge based on the amount of risk for this Policy. The charge would
depend on a number of variables (age, gender, rate class, specified amount,
cash value) that would cause it to vary from Policy to Policy and from
Monthiversary to Monthiversary. Currently, we do not assess this charge and we
do not intend to assess this charge in the future, although we reserve the
right to do so. Should we begin to assess this charge in the future, we will
waive any surrender charge upon the surrender of this Policy. See Surrender
Charge p. 41.
The GUARANTEED maximum monthly cost of insurance rates are based on the
gender, age, plan of insurance, and risk class of the insured(s). These rates
will not exceed those shown in your Policy's Table of Guaranteed Maximum Life
Insurance Rates.
We currently place insureds into standard (tobacco use) and select
(non-tobacco use) rate classes. The GUARANTEED rates are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or
Non-Tobacco Mortality Rates ("1980 CSO
40
<PAGE>
Tables"). Cost of insurance rates for an insured in a non-tobacco use class are
less than or equal to rates for an insured of the same age and gender in a
tobacco use class.
The Policies are based on mortality tables that distinguish between males
and females. As a result, the Policy may pay different benefits to men and
women of the same age and rate class. We also offer Policies based on unisex
mortality tables if required by state law.
SURRENDER CHARGE
If you surrender your Policy completely during the first nine years, we
deduct a surrender charge from your cash value and pay the remaining cash value
(less any outstanding loan amounts) to you. There is no surrender charge if you
wait until the ninth Policy anniversary to surrender your Policy. The payment
you receive is called the net surrender value. The surrender charge is 9.75% of
the initial premium if you surrender your Policy before the end of the first
Policy year and then declines gradually to 0% after the ninth Policy year. The
rate at which the surrender charge declines depends on the insured's (or joint
insureds') age, gender and whether you have purchased a single life or a Joint
Policy. See Appendix C, Surrender Charge Table, for a schedule of the surrender
charges by age, year, gender and Policy type.
If we begin to assess a cost of insurance charge on Policies as noted
above, we will waive all future surrender charges.
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, dollar
cost averaging, and transfers from the fixed account do NOT count
as transfers for purposes of assessing this charge.
/bullet/ We will not increase this charge.
TAXES
We currently do not make any deductions for taxes from the separate
account. We may do so in the future if such taxes are imposed by federal or
state agencies.
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. Some portfolios also deduct 12b-1 fees from
portfolio assets.
41
<PAGE>
These fees and expenses currently range from 0.44% to 1.20%. See the Portfolio
Annual Expense Table on page 13 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 Policy and may be significant.
Some advisers, administrators, distributors or portfolios may pay us (and our
affiliates) more than others.
GUARANTEED MINIMUM DEATH BENEFIT RIDER CHARGE
If you select the Guaranteed Minimum Death Benefit Rider at application,
then we will deduct from your Policy's cash value (less any outstanding Policy
loan) a monthly charge on the Policy date and each Monthiversary thereafter.
The monthly charge will be equal to:
/bullet/ 0.02% MULTIPLIED BY the sum of your Policy's subaccount values,
if any, on the valuation date of each Monthiversary; PLUS
/bullet/ 0.02% MULTIPLIED BY your Policy's fixed account value on the
valuation date of each monthly deduction.
DEATH BENEFIT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on a Policy once we receive satisfactory proof of the insured's (or surviving
insured's, if a Joint Policy) death. We may require return of the Policy. We
will pay the death benefit proceeds to the primary beneficiary(ies), if living,
or to a contingent beneficiary. If each beneficiary dies before the insured (or
surviving insured, if a Joint Policy) 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. 45.
42
<PAGE>
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the death benefit (described below); MINUS
PROCEEDS EQUAL: /bullet/ any monthly deductions due if the insured (or surviving
insured, if a Joint Policy) dies during the grace period (if
applicable) (see Policy Lapse and Reinstatement p. 49);
MINUS
/bullet/ any outstanding Policy loan amount on the date of death;
MINUS
/bullet/ any interest you owe on Policy loan(s).
</TABLE>
If all or part of the death benefit proceeds are paid in one sum, we will
pay interest on this sum as required by applicable state law from the date we
receive due proof of the insured's (or surviving insured's) death to the date
we make payment.
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's (or joint insured's, if a
Joint Policy) age or gender. See Our Right to Contest the Policy p. 54; and
Misstatement of Age or Gender p. 55.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured (or surviving insured if a
Joint Policy) dies.
<TABLE>
<S> <C>
THE DEATH BENEFIT /bullet/ the current specified amount; or
IS THE GREATER OF: /bullet/ the product of: the Policy's cash value on the date of the
insured's (or surviving insured's, if a Joint Policy) death
MULTIPLIED BY the "limitation percentage," shown below.
</TABLE>
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the
attained age of the insured (or younger joint insured, if a Joint Policy) at
the beginning of each Policy year. The following table indicates the limitation
percentages for different ages:
ATTAINED AGE
(YOUNGER INSURED,
IF JOINT POLICY) LIMITATION PERCENTAGE
40 and under 250%
41 to 45 250% minus 7% for each age over age 40
46 to 50 215% minus 6% for each age over age 45
51 to 55 185% minus 7% for each age over age 50
56 to 60 150% minus 4% for each age over age 55
61 to 65 130% minus 2% for each age over age 60
66 to 70 120% minus 1% for each age over age 65
71 to 75 115% minus 2% for each age over age 70
76 to 90 105%
91 to 94 105% minus 1% for each age over age 90
95 and older 100%
43
<PAGE>
EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT
A partial withdrawal will reduce the specified amount by an amount equal
to the amount of the partial withdrawal multiplied by the ratio of the initial
specified amount to the initial premium. For an example, see Partial
Withdrawals p. 45.
GUARANTEED MINIMUM DEATH BENEFIT RIDER (THE "RIDER")
If you purchase the Rider at the time you apply for the Policy and the
Rider is in effect upon the insured's (or surviving insured's, if a Joint
Policy) date of death, we guarantee to provide a death benefit as follows:
--> If the net surrender value on any Monthiversary is not sufficient to
cover the monthly Policy charge on such day, then coverage will be
provided as indicated below, and no grace period will begin, so long
as no Policy loans have been taken under the Policy;
--> If a death benefit is payable under the provisions of this Rider,
then we guarantee to provide a death benefit as follows:
/bullet/ During the first 15 Policy years, or before the Policy
anniversary following the insured's (or younger joint
insured's) 75th birthday, if sooner, the minimum death benefit
we will pay is the amount described under Death Benefit above;
/bullet/ After the first 15 Policy years, or on or after the Policy
anniversary following the insured's (or younger joint
insured's) 75th birthday, if sooner, the minimum death benefit
we will pay is the initial premium, reduced, on a
dollar-for-dollar basis, by any partial withdrawals.
/bullet/ However, in no event will the minimum death benefit ever be
less than $1,000.
<TABLE>
<S> <C>
THE GUARANTEED /bullet/ the date the Policy terminates;
MINIMUM DEATH BENEFIT /bullet/ the date any Policy loan is taken; or
RIDER WILL TERMINATE ON /bullet/ the Monthiversary on which this Rider is terminated by
THE EARLIEST OF: written request from the owner.
</TABLE>
This Rider may only be purchased at the time you purchase the Policy.
There is a charge for this Rider. This Rider is not available in all states.
See Guaranteed Minimum Death Benefit Rider Charge p. 41.
CHANGING THE SPECIFIED AMOUNT
You may not increase or decrease the specified amount on your Policy. A
partial withdrawal will reduce the specified amount and may have tax
consequences. If you need a higher specified amount, you must apply for a
second policy.
44
<PAGE>
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. Information
concerning these settlement options is available on request. None of these
options vary with the investment performance of a separate account.
SURRENDERS AND PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 (or surviving insured, if a
Joint Policy) must be alive and the Policy must be in force when you make 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. A surrender is effective as of the date when we receive your written
request. You will incur a surrender charge if you surrender the Policy during
the first nine Policy years. See Charges and Deductions -- Surrender Charge p.
41 . Once you surrender your Policy, all coverage and other benefits under it
cease and cannot be reinstated. We will normally pay you the net surrender value
in a lump sum within seven days unless you request other arrangements. A
surrender may have tax consequences. See Federal Income Tax Considerations p.
50.
PARTIAL WITHDRAWALS
After the first Policy year, you may request a partial withdrawal of a
portion of your cash value subject to certain conditions.
45
<PAGE>
<TABLE>
<S> <C>
PARTIAL /bullet/ You must make your partial 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 will only allow one partial withdrawal during a
12-month period.
/bullet/ The most you can request is the Policy's earnings. We
calculate earnings as the cash value MINUS total outstanding
loans, MINUS any interest you owe on the Policy loans,
and MINUS total premiums paid.
/bullet/ You may not take a partial withdrawal if it will reduce the
specified amount below $1,000.
/bullet/ You may specify the subaccount(s) and the standard 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 partial withdrawal request within
seven days following the valuation date we receive the
request.
/bullet/ There is no charge for taking a partial withdrawal.
/bullet/ A partial withdrawal may have tax consequences. See
Federal Income Tax Considerations p. 50.
</TABLE>
A partial withdrawal will reduce the cash value (and the initial premium
payable under the Rider) by the amount of the partial withdrawal and will
reduce the current specified amount by an amount equal to the amount of the
partial withdrawal multiplied by the ratio of the initial specified amount to
the initial premium. A partial withdrawal will also reduce the specified amount
payable under the Rider by an amount equal to the amount of the partial
withdrawal multiplied by the ratio of the initial specified amount to the
initial premium.
An example of a partial withdrawal's effect on the specified amount is
shown below.
EXAMPLE: A Policy with a specified amount of $200,000 on a male standard
(age 35) paid a single premium of $48,920. The ratio of the initial specified
amount to the initial premium is 4.09 (I.E., 200,000 divided by 48,920). If a
$19,000 partial withdrawal is taken after the first Policy year, the specified
amount will be reduced by $77,710 (I.E., 4.09 multiplied by $19,000).
46
<PAGE>
LOANS
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GENERAL
After the Policy date (as long as the Policy is in force) you may borrow
money from us using the Policy as the only security for the loan. Taking a loan
will terminate the Guaranteed Minimum Death Benefit Rider, if elected. See
Guaranteed Minimum Death Benefit Rider p. 44. A loan that is taken from, or
secured by, a Policy may have tax consequences. See Federal Income Tax
Considerations p. 50.
<TABLE>
<S> <C>
POLICY LOANS ARE /bullet/ you must 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 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. 55.
You may request a loan by telephone by calling us at 1-800-851-9777. If
the loan amount you request exceeds $50,000 or if the address of record has
been changed within the past 10 days, we may reject your request. If you do not
want the ability to request a loan by telephone, you should notify us in
writing. You will be required to provide certain information for identification
purposes when you request a loan by telephone. We may ask you to provide us
with written confirmation of your request. We will not be liable for processing
a loan request if we believe the request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY AS LOAN REPAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUM PAYMENTS.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. We will also make this comparison any
time you repay all or part of the loan, or make a request to borrow an
additional amount. At each such time, if the amount of
47
<PAGE>
the outstanding loan exceeds the amount in the loan reserve, we will withdraw
the difference from the subaccounts and the standard fixed account and transfer
it to the loan reserve, in the same manner as when a loan is made. If the
amount in the loan reserve exceeds the amount of the outstanding loan, we will
withdraw the difference from the loan reserve and transfer it to the
subaccounts and the standard fixed account in the same manner as current
premiums are allocated. No charge will be imposed for these transfers, and
these transfers are NOT treated as transfers in calculating the transfer
charge. We reserve the right to require the transfer to the fixed account if
the loans were originally transferred from the fixed account.
INTEREST RATE CHARGED
The annual interest rate you may pay on a Policy loan is 6.0% and is
payable in arrears on each Policy anniversary. Loan interest that is unpaid
when due will be added to the amount of the loan on each Policy anniversary and
will bear interest at the same rate.
LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of at least 3.0%. We may credit a higher rate, but we are
not obligated to do so.
PREFERRED LOANS
At any time after the Policy date, you may borrow against the Policy up to
an amount that is equal to the cash value MINUS total premiums paid, LESS any
outstanding loan amounts (including any interest owed on the Policy loan(s)).
Such a loan is called a preferred loan. We will charge interest on a preferred
loan at an annual rate of 3.0%, payable in arrears. THIS RATE IS NOT
GUARANTEED. Any existing loan, other than a preferred loan, is not eligible for
a preferred loan rate. Amounts in the loan reserve securing preferred loans
accrue interest at the same annual rate as other loans. Consult a tax advisor
before taking a preferred loan because such a loan may have adverse tax
consequences. We reserve the right to modify or discontinue the preferred loan
feature.
EFFECT OF POLICY LOANS
A Policy loan reduces the death benefit proceeds and net surrender value
by the amount of any outstanding loan plus interest you owe on the loans.
Repaying the loan causes the death benefit proceeds and net surrender value to
increase by the amount of the repayment. As long as a loan is outstanding, we
hold an amount equal to the loan in the loan reserve. This amount is not
affected by the separate account's investment performance and may not be
credited with the interest rates accruing on the fixed account options. Amounts
transferred from the separate account to the loan reserve will affect the value
in the separate account because we credit such amounts with an interest rate
declared by us rather than a rate of return reflecting the investment results
of the separate account. Taking a Policy loan will cause a Guaranteed Minimum
Death Benefit Rider to terminate.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not
48
<PAGE>
achieved. A Policy loan may also have possible adverse tax consequences that
could occur if a Policy lapses with loans outstanding (see Federal Income Tax
Considerations p. 50). You should consult a tax advisor before taking out a
Policy loan.
We will notify you (and any assignee of record) if the sum of your loans
plus any interest you owe on the loans is more than the net surrender value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
We will accept 1035 Exchanges where the policy from another company has an
outstanding policy loan of no more than 40% of the policy's cash value
transferred to our Policy. We intend to treat these as preferred loan amounts.
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may lapse (terminate without value) if the net surrender value
on any Monthiversary is less than the monthly deductions due on that day. A
lapse might also occur if unfavorable investment experience, loans and partial
withdrawals cause a decrease in the net surrender value.
The monthly deductions may exceed the net surrender value if:
/bullet/ we begin to impose monthly cost of insurance charges; or
/bullet/ the sum of all outstanding Policy loans plus accrued loan
interest exceeds the net surrender value.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and to any assignee of record.
The notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the GRACE PERIOD. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
Generally, you may not reinstate this Policy after it has lapsed. See
Reinstatement below.
If you purchase the Rider, then no grace period will begin (and the Policy
will not lapse) provided that there have been no Policy loans. See Guaranteed
Minimum Death Benefit Rider p. 44.
REINSTATEMENT
You may not reinstate your Policy if it lapses unless you completed the
Policy application and had your Policy delivered to you in a state which
permits reinstatement. If so, then we will reinstate a lapsed Policy within
five years from the date of lapse (and prior to the maturity date). To
reinstate the Policy you must:
49
<PAGE>
/bullet/ submit a written application for reinstatement;
/bullet/ provide evidence of insurability satisfactory to us;
/bullet/ make a payment that is large enough to cover:
--> any monthly deductions due at the time of termination and
upon reinstatement; plus
--> one monthly deduction in advance; plus
--> repayment of outstanding loans plus unpaid interest.
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. The reinstatement date for your Policy
will be the 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, it is reasonable to
conclude that the Policy should generally satisfy the applicable Code
requirements. Because of certain innovative features of the Policies and the
absence of pertinent interpretations of the Code requirements, there is,
however, less certainty about the application of such requirements to the
Policy. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as flexibility to allocate premiums and cash
values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not
50
<PAGE>
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. IN MOST SITUATIONS, THE POLICIES WILL BE
CLASSIFIED AS MECS. There are, however, certain limited situations where a
Policy may not be classified as a MEC. If you do not want your Policy to be
classified as a MEC, you should consult a tax advisor to determine the
circumstances, if any, under which your Policy would 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 partial withdrawals, will be
treated first as distributions of gain taxable as ordinary
income. They will be treated as tax-free recovery of the owner's
investment in the Policy only after all gain has been
distributed. Your investment in the Policy is generally your
total premium payments. When a distribution is taken from the
Policy, your investment in the Policy is reduced by the amount of
the distribution that is tax-free.
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/bullet/ Loans taken from or secured by (E.G., by assignment) such a
Policy are treated as distributions and taxed accordingly.
/bullet/ A 10% additional federal income tax is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 591/2 or are disabled, or where the
distribution is part of a series of substantially equal periodic
payments for your life (or life expectancy) or the joint lives
(or joint life expectancies) of you and 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 preferred loans are less clear
and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
Multiple Policies. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includable in the owner's income when a taxable
distribution occurs.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
POLICY LOANS. If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding indebtedness will be
taxed as if it were a distribution.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar
52
<PAGE>
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans and business uses of the Policy may
vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. Therefore, if you are
contemplating using the Policy in any arrangement the value of which depends in
part on its tax consequences, you should be sure to consult a tax advisor as to
tax attributes of the arrangement. In recent years, moreover, Congress has
adopted new rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Policy or a change in an existing Policy
should consult a tax advisor.
TAX TREATMENT OF POLICY SPLIT. If you purchase a Joint Policy, the Policy
Split Option permits you to split the Policy into two new individual life
insurance policies upon the occurrence of a divorce of the joint insureds,
certain changes in federal estate tax law, or a dissolution of a business
partnership of which the joint insureds were partners. (See Policy Split Option
p. 26.) A Policy split could have adverse tax consequences. For example, it is
not clear whether a Policy split will be treated as a nontaxable exchange under
sections 1031 through 1043 of the Code. If a Policy split is not treated as a
nontaxable exchange, a split could result in the recognition of taxable income
in an amount up to any gain in the Policy at the time of the split. It is also
not clear whether the individual policies that result from a Policy split would
in all circumstances be treated as life insurance policies for federal income
tax purposes and, if so treated, whether the individual policies would be
classified as MECs. Before you exercise your rights under the Policy Split
Option, you should consult a competent tax advisor regarding the possible
consequences of a Policy split.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legal developments and their effect on the Policy.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the owner may have generation skipping transfer tax consequences under
federal tax law. The individual situation of each owner or beneficiary will
determine the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed and how ownership or receipt of Policy
proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.
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.
53
<PAGE>
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.
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 (or joint insureds) in the application or in a supplemental
application. Therefore, if you make any material misrepresentation of a fact in
the application (or any supplemental application), then we may contest the
Policy's validity or may resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime (or while both joint insureds are still alive) for two years from the
Policy date, or if reinstated (if permitted by state law), for two years from
the date of reinstatement. If you purchased a Joint Policy, at the end of the
second Policy year, we will send you a notice asking you whether either joint
insured has died. We can still contest the Policy's validity even if you do not
notify us that a joint insured has died and even if the Policy is still in
force.
SUICIDE EXCLUSION
If the insured (or either joint insured) commits suicide, while sane or
insane, within two years of the Policy date (or two years from the
reinstatement date; if the Policy lapses and is reinstated), then the Policy
will terminate and our total liability, including the Rider, is limited to an
amount equal to the total premiums paid, less any outstanding loans and less
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any partial withdrawals. We will pay this amount to the beneficiary in one sum.
If the Policy lapsed, we will measure the suicide period from the reinstatement
date (if permitted by state law).
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured (or either joint insured) was stated
incorrectly in the application or any supplemental application, then the death
benefit will be adjusted based on what the 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 with notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If the insured (or either joint insured) is living and the Policy is in
force, the Policy will mature on the Policy anniversary following the insured's
(or younger joint insured's) 100th birthday. This is the maturity date. On the
maturity date we will pay you the net surrender value of your Policy.
We will extend the maturity date if your Policy is still in force on the
maturity date. Any riders in force on the scheduled maturity date will
terminate on that date and will not be extended. Interest on any outstanding
Policy loans will continue to accrue during the period for which the maturity
date is extended. You must submit a written request for the extension between
90 and 180 days prior to the maturity date. We will automatically extend the
maturity date until the next Policy anniversary. You must submit a written
request, between 90 and 180 days before each subsequent Policy anniversary,
stating that you wish to extend the maturity date for another Policy year.
If you extend the maturity date on each valuation date, we will adjust the
specified amount to equal the cash value, and the limitation percentage will be
100%. We will not permit you to make additional premium payments unless it is
required to prevent the Policy from lapsing. We will waive all future monthly
deductions.
The tax consequences of extending the maturity date beyond the 100th
birthday of the insured (or a joint insured) are uncertain. You should consult
a tax advisor as to those consequences.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written notices and/or due proofs of death at our
office. However, we can postpone such payments if:
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/bullet/ the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by
the SEC; OR
/bullet/ the SEC permits, by an order, the postponement for the protection
of policyowners; OR
/bullet/ the SEC determines that an emergency exists that would make the
disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, partial withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, partial withdrawals, death
benefit proceeds, or surrenders from the fixed account for up to six months.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C> <C> <C>
/check mark/ the current cash value /check mark/ any activity since the last report
/check mark/ the current net surrender value /check mark/ investment experience of each subaccount
/check mark/ the current death benefit /check mark/ any other information required by law
/check mark/ any outstanding loans
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account options.
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 (or surviving /bullet/ the date the Policy is surrendered.
insured) dies;
</TABLE>
IMSA
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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
56
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practices to become a member of IMSA. The IMSA logo in our sales literature
shows our ongoing commitment to these standards.
PERFORMANCE DATA
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RATES OF RETURN
This section shows the historical investment experience of the portfolios
based on the portfolios' historical investment experience. This information
does not represent or project future investment performance.
We base the rates of return that we show below on each portfolio's actual
investment performance. We deduct investment management fees and direct fund
expenses. The rates are actual average annual 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 daily charge, the monthly
deduction or the surrender charge). IF THESE CHARGES WERE DEDUCTED, PERFORMANCE
WOULD BE SIGNIFICANTLY LOWER. These rates of return are not estimates,
projections or guarantees of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
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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 -- AmericaSM, WRL Great Companies --
TechnologySM, WRL Value Line Aggressive Growth Portfolios, 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.
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 2000. The separate account commenced operations on October 2, 1986. The
rates of return below show the actual
58
<PAGE>
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 without the Guaranteed Minimum Death
Benefit Rider on the last valuation date prior to January 1 of the year after
the subaccount began operations. 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 cash value and net surrender value of the
Policy, we provide hypothetical illustrations for a hypothetical insured. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE HYPOTHETICAL INSURED COULD HAVE HELD THE POLICY DURING THE
PERIOD ILLUSTRATED. These illustrations do not represent what may happen in the
future.
The amounts we show for cash values and net surrender values take into
account all charges and deductions from the Policy, the separate account, and
the portfolios. For each subaccount, we base one illustration on the guaranteed
cost of insurance rates and one on the current cost of insurance rates for a
single life Policy for a hypothetical male insured age 35. The insured's age,
gender and rate class, amount and timing of premium payments, withdrawals, and
loans would affect individual Policy benefits. These illustrations are also
available for a Joint Policy and would be different if based on a Joint Policy.
For each subaccount, the illustrations below assume the Policy was
purchased without the Rider based on an initial premium of $30,000 and a
specified amount of $147,487 for a male age 35, select, non-tobacco use, rate
class.
59
<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 the
premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $ 32,449 $ 32,244 $ 29,524 $ 29,319
1989 ..................................... 37,540 37,086 34,690 34,236
1990 ..................................... 53,833 52,943 51,058 50,168
1991 ..................................... 52,386 51,333 49,686 48,633
1992 ..................................... 81,639 79,728 79,239 77,328
1993 ..................................... 81,493 79,313 79,393 77,213
1994 ..................................... 82,634 80,140 80,834 78,340
1995 ..................................... 73,893 71,405 72,693 70,205
1996 ..................................... 106,021 102,074 105,421 101,474
1997 ..................................... 121,971 116,991 121,971 116,991
1998 ..................................... 141,225 134,943 141,225 134,943
1999 ..................................... 228,814 217,783 228,814 217,783
2000 ..................................... 359,898 341,181 359,898 341,181
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
60
<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 the
premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $27,603 $27,411 $24,678 $24,486
1989 ..................................... 29,001 28,583 26,151 25,733
1990 ..................................... 32,429 31,726 29,654 28,951
1991 ..................................... 33,592 32,629 30,892 29,929
1992 ..................................... 38,938 37,561 36,538 35,161
1993 ..................................... 40,556 38,866 38,456 36,766
1994 ..................................... 44,844 42,697 43,044 40,897
1995 ..................................... 40,699 38,481 39,499 37,281
1996 ..................................... 48,820 45,826 48,220 45,226
1997 ..................................... 47,680 44,446 47,680 44,446
1998 ..................................... 51,270 47,442 51,270 47,442
1999 ..................................... 55,211 50,722 55,211 50,722
2000 ..................................... 52,787 48,124 52,787 48,124
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
61
<PAGE>
The following example shows how the hypothetical net return of the WRL
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 the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $30,593 $30,393 $27,668 $27,468
1989 ..................................... 31,558 31,142 28,708 28,292
1990 ..................................... 33,269 32,606 30,494 29,831
1991 ..................................... 34,745 33,819 32,045 31,119
1992 ..................................... 35,664 34,468 33,264 32,068
1993 ..................................... 35,835 34,373 33,735 32,273
1994 ..................................... 35,806 34,067 34,006 32,267
1995 ..................................... 36,121 34,065 34,921 32,865
1996 ..................................... 37,130 34,688 36,530 34,088
1997 ..................................... 38,031 35,180 38,031 35,180
1998 ..................................... 39,426 36,093 39,426 36,093
1999 ..................................... 40,880 37,018 40,880 37,018
2000 ..................................... 42,137 37,722 42,137 37,722
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Janus Global subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1993. This example assumes that the
premium and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL JANUS GLOBAL
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1994 ..................................... $ 39,512 $ 39,289 $ 36,587 $ 36,364
1995 ..................................... 38,632 38,224 35,782 35,374
1996 ..................................... 46,364 45,654 43,589 42,879
1997 ..................................... 57,761 56,657 55,061 53,957
1998 ..................................... 66,898 65,406 64,498 63,006
1999 ..................................... 84,824 82,648 82,724 80,548
2000 ..................................... 141,542 137,426 139,742 135,626
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
62
<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
the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... $ 27,106 $ 26,916 $ 24,181 $ 23,991
1996 ..................................... 38,806 38,284 35,956 35,434
1997 ..................................... 44,994 44,171 42,219 41,396
1998 ..................................... 53,294 52,099 50,594 49,399
1999 ..................................... 71,377 69,542 68,977 67,142
2000 ..................................... 142,815 138,666 140,715 136,566
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
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 the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... $29,103 $28,907 $26,178 $25,982
1996 ..................................... 35,383 34,917 32,533 32,067
1997 ..................................... 39,687 38,942 36,912 36,167
1998 ..................................... 47,163 46,046 44,463 43,346
1999 ..................................... 50,430 49,014 48,030 46,614
2000 ..................................... 55,120 53,341 53,020 51,241
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
63
<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 the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $ 40,383 $ 40,157 $ 37,458 $ 37,232
1997 ..................................... 43,501 43,063 40,651 40,213
1998 ..................................... 52,714 51,973 49,939 49,198
1999 ..................................... 76,445 75,134 73,745 72,434
2000 ..................................... 126,010 123,453 123,610 121,053
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
Dean Asset Allocation subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that the premium and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $35,137 $34,924 $32,212 $31,999
1997 ..................................... 39,210 38,765 36,360 35,915
1998 ..................................... 44,586 43,866 41,811 41,091
1999 ..................................... 47,107 46,135 44,407 43,435
2000 ..................................... 43,352 42,246 40,952 39,846
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
64
<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 the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $36,645 $36,429 $33,720 $33,504
1997 ..................................... 39,899 39,460 37,049 36,610
1998 ..................................... 48,506 47,754 45,731 44,979
1999 ..................................... 48,747 47,792 46,047 45,092
2000 ..................................... 45,426 44,327 43,026 41,927
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
AEGON Balanced subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that the
premium and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL AEGON BALANCED
Male Issue Age 35, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $35,051 $34,839 $32,126 $31,914
1997 ..................................... 37,851 37,416 35,001 34,566
1998 ..................................... 43,226 42,512 40,451 39,737
1999 ..................................... 45,081 44,123 42,381 41,423
2000 ..................................... 45,297 44,113 42,897 41,713
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
65
<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 the
premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 ..................................... $34,378 $34,168 $31,453 $31,243
1998 ..................................... 38,566 38,120 35,716 35,270
1999 ..................................... 38,542 37,891 35,767 35,116
2000 ..................................... 50,310 49,217 47,610 46,517
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL GE
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 the
premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $37,160 $36,942 $34,235 $34,017
1999 ..................................... 44,531 44,060 41,681 41,210
2000 ..................................... 51,427 50,679 48,652 47,904
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
66
<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 the
premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $36,583 $36,367 $33,658 $33,442
1999 ..................................... 33,972 33,581 31,122 30,731
2000 ..................................... 35,766 35,135 32,991 32,360
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL GE
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
the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $31,452 $31,250 $28,527 $28,325
1999 ..................................... 34,618 34,181 31,768 31,331
2000 ..................................... 42,187 41,424 39,412 38,649
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
67
<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
the premium 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, $30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1999 ..................................... $27,256 $27,065 $24,331 $24,140
2000 ..................................... 30,761 30,321 27,911 27,471
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
The following example shows how the hypothetical net return of the WRL
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, 30,000 Single Premium
($147,487 Specified Amount, Non-Tobacco Use, Select Class)
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
2000 ..................................... $28,156 $27,963 $25,231 $25,038
</TABLE>
* For each year shown, benefits and values reflect only single premium paid.
Because the WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend
Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter
Mid Cap Growth and WRL Dreyfus Mid Cap subaccounts did not commence operations
until May 3, 1999, and the WRL Great Companies -- America,SM WRL Great
Companies -- Technology,(SM) WRL Value Line Aggressive Growth subaccounts,
Fidelity VIP Equity-Income -- Service Class 2, Fidelity VIP II
Contrafund/registered trademark/ -- Service Class 2 and Fidelity VIP III Growth
Opportunities -- Service Class 2 subaccounts did not commence operations until
May 1, 2000, there are no hypothetical illustrations for these subaccounts.
68
<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.
69
<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 NE, Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. The maximum sales
commission payable to Western Reserve agents or other registered
representatives will be approximately 7.65% of the initial premium. In
addition, certain production, persistency and managerial bonuses may be paid.
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 in order to comply with different state laws. These variations may
include restrictions on Policy reinstatement, use of the fixed account and
different interest rates charged and credited on Policy loans. Please refer to
your Policy, since any variations will be included in your Policy or in riders
or endorsements attached to your Policy.
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
70
<PAGE>
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 Western Reserve's financial
statements only as bearing upon Western Reserve's ability to meet its
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 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.
71
<PAGE>
WESTERN RESERVE'S DIRECTORS AND OFFICERS
We are governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of our directors.
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
<S> <C> <C>
John R. Kenney Chairman of the Board and Chairman of the Board, and
570 Carillon Parkway Chief Executive Officer President of WRL Series Fund,
St. Petersburg, Florida 33716 Inc. (1993 - present); Chairman
of the Board of IDEX Mutual
Funds (1990 - present); Chair-
man of the Board of WRL
Investment Management, Inc.
(1996 - present); and Chairman
of the Board of WRL Investment
Services, Inc. (1996 - present).
Jerome C. Vahl Director and President Executive Vice President (1998 -
570 Carillon Parkway 1999), Vice President (1995 -
St. Petersburg, Florida 33716 1998), Assistant Vice President
(1994 - 1995) of Western
Reserve; Vice President and
Manager Corporate Projects
(1991 - 1996), and Manager Tax
and Technical (1986 - 1991) of
AEGON USA, Inc.
Jack E. Zimmerman Director Trustee, IDEX Mutual Funds
507 St. Michel Circle (1987 - present); retired from
Kettering, Ohio 45429 Martin Marietta (1993).
Lyman H. Treadway Director Retired Consultant.
30195 Chagrin Blvd., Ste. 210N
Cleveland, Ohio 44124
James R. Walker Director Self-employed, Public
3320 Office Park Dr. Accountant (1996 - present);
Dayton, Ohio 45439 Partner, Walker-Davis C.P.A.'s,
Dayton, Ohio (1990 - 1995).
</TABLE>
72
<PAGE>
The following table gives the name, address and principal occupation during the
past five years of the principal officers of Western Reserve (other than
officers listed above as directors).
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
<S> <C> <C>
Alan M. Yaeger* Executive Vice President, Executive Vice President, WRL
Actuary and Chief Series Fund, Inc. (1993 -
Financial Officer present); Director of WRL
Investment Management, Inc.
(1996 - present); Director of
WRL Investment Services, Inc.
(1996 - present).
William H. Geiger* Senior Vice President, Secretary, Senior Vice President, Secretary,
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.
73
<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 and its
affiliates, AUSA Life Insurance Company, Inc. and PFL Life Insurance Company,
as well as for other purposes permitted by law. The separate account is
registered with the SEC as a unit investment trust under the 1940 Act and
qualifies as a "separate account" within the meaning of the federal securities
laws.
74
<PAGE>
APPENDIX A -- ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age, would change over time if the single premium was paid
and the return on the assets in the subaccounts was a uniform gross annual rate
(before any expenses) of 0%, 6% or 12%. The tables illustrate Policy values
that would result based on assumptions that you pay the initial premium
indicated and you do not take any partial withdrawals or Policy loans. The
values under the Policy will be different from those shown even if the returns
averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout
the years shown.
We based the illustration on page 77 on a Policy for an insured who is a
35 year old male in the select, non-tobacco use rate class, initial premium of
$30,000 and a $147,487 initial specified amount and the Policy's death benefit
without the Guaranteed Minimum Death Benefit Rider. The illustration on that
page also assumes cost of insurance charges based on our CURRENT cost of
insurance rates.
The illustration on page 78 is based on the same factors as those on page
77, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
We based the illustration on page 79 on a Policy for joint insureds who
are a 55 year old male and a 55 year old female in the select, non-tobacco use
rate class, initial premium of $30,000, a $109,579 initial specified amount and
the Policy's death benefit without the Guaranteed Minimum Death Benefit Rider.
The illustration on that page also assumes cost of insurance charges based on
our CURRENT cost of insurance rates.
The illustration on page 80 is based on the same factors as those on page
79, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
For the CURRENT cost of insurance illustrations, we do not currently
assess any additional cost of insurance charge and we do not intend to assess
this charge in the future, although we reserve the right to do so.
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.50% of the average net assets of the subaccounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.92% of the portfolios' average daily net assets; and (3) all
applicable cash value charges using the current monthly Policy charge. The
0.92% average portfolio expense level assumes an equal allocation of amounts
among the 29 subaccounts.
Taking into account the monthly Policy charge, the daily charge and the
assumed average portfolio expense levels, the gross annual investment return
rates of 0%, 6% and
75
<PAGE>
12% are equivalent to net annual investment return rates as described in the
chart below for a Policy assuming CURRENT cost of insurance charges. For a
Policy assuming GUARANTEED cost of insurance charges, the net annual investment
return rates will be further reduced.
<TABLE>
<CAPTION>
Gross Rates of Return 0% 6% 12%
- ------------------------- ------------------- ----------------- --------------------
Equivalent Net Annual Investment Return Rates
--------------------------------------------------------------
1-10 11+ 1-10 11+ 1-10 11+
For Years: -------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
SINGLE LIFE:
- Male/Unisex ..... .... -3.39% -2.42% 2.49% 3.52% 8.37% 9.46%
- Female .......... .... -3.25% -2.27% 2.64% 3.67% 8.53% 9.62%
----- ----- ---- ---- ---- ----
JOINT LIFE .............. -2.91% -1.93% 3.00% 4.04% 8.91% 10.01%
----- ----- ---- ---- ---- -----
</TABLE>
We used actual annual 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 -- AmericaSM, WRL Great Companies --
TechnologySM, and WRL Value Line Aggressive Growth portfolios, 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 normal operating expenses of
certain WRL portfolios that exceeded a certain stated percentage of those
portfolios' average daily net assets. WRL Management has undertaken until at
least April 30, 2001 to pay expenses to the extent normal total operating
expenses of certain portfolios of the WRL Fund exceed a stated percentage of
the portfolio's average daily net assets. For details on these expense limits,
the amounts reimbursed by WRL Management during 1999, and the expense ratios
without reimbursements, see the Portfolio Annual Expense Table on page 13 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%.
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.
76
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Initial Specified Amount $147,487 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS*
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 149,042
15 62,368 147,487 147,487 201,673
20 79,599 147,487 147,487 260,720
25 101,591 147,487 147,487 349,976
30 129,658 147,487 147,487 501,132
35 165,480 147,487 147,487 749,393
40 211,200 147,487 147,487 1,087,163
45 269,550 147,487 147,487 1,677,873
50 344,022 147,487 162,189 2,638,872
55 439,069 147,487 192,993 4,150,281
60 560,376 147,487 220,899 6,278,685
65 715,197 147,487 260,250 9,777,019
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS* ASSUMING HYPOTHETICAL GROSS*
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C>
1 28,988 30,752 32,517 26,063 27,827 29,592
2 28,010 31,523 35,244 25,160 28,673 32,394
3 27,065 32,314 38,201 24,290 29,539 35,426
4 26,152 33,124 41,405 23,452 30,424 38,705
5 25,270 33,955 44,879 22,870 31,555 42,479
6 24,417 34,806 48,643 22,317 32,706 46,543
7 23,593 35,679 52,724 21,793 33,879 50,924
8 22,797 36,573 57,146 21,597 35,373 55,946
9 22,028 37,491 61,940 21,428 36,891 61,340
10 21,285 38,431 67,136 21,285 38,431 67,130
15 18,849 45,730 105,588 18,849 45,730 105,588
20 16,692 54,415 166,063 16,692 54,415 166,063
25 14,782 64,749 261,176 14,782 64,749 261,176
30 13,091 77,047 410,764 13,091 77,047 410,764
35 11,593 91,680 646,028 11,593 91,680 646,028
40 10,266 109,092 1,016,040 10,266 109,092 1,016,040
45 9,091 129,812 1,597,975 9,091 129,812 1,597,975
50 8,051 154,466 2,513,211 8,051 154,466 2,513,211
55 7,129 183,803 3,952,648 7,129 183,803 3,952,648
60 6,314 218,712 6,216,520 6,314 218,712 6,216,520
65 5,591 260,250 9,777,019 5,591 260,250 9,777,019
</TABLE>
*For the equivalent net annual investment return rates, see p. 58.
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.
77
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Initial Specified Amount $147,487 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS**
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 147,487 147,487 147,487
2 33,075 147,487 147,487 147,487
3 34,729 147,487 147,487 147,487
4 36,465 147,487 147,487 147,487
5 38,288 147,487 147,487 147,487
6 40,203 147,487 147,487 147,487
7 42,213 147,487 147,487 147,487
8 44,324 147,487 147,487 147,487
9 46,540 147,487 147,487 147,487
10 48,867 147,487 147,487 147,487
15 62,368 147,487 147,487 186,924
20 79,599 147,487 147,487 236,477
25 101,591 147,487 147,487 310,934
30 129,658 * 147,487 435,959
35 165,480 * 147,487 636,270
40 211,200 * 147,487 901,180
45 269,550 * * 1,365,067
50 344,022 * * 2,084,645
55 439,069 * * 3,133,930
60 560,376 * * 4,569,604
65 715,197 * * 7,115,679
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS** ASSUMING HYPOTHETICAL GROSS**
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C>
1 28,788 30,547 32,306 25,863/dagger/ 27,622/dagger/ 29,381/dagger/
2 27,604 31,098 34,800 24,754/dagger/ 28,248/dagger/ 31,950/dagger/
3 26,443 31,649 37,493 23,668/dagger/ 28,874/dagger/ 34,718/dagger/
4 25,304 32,201 40,403 22,604/dagger/ 29,501/dagger/ 37,703/dagger/
5 24,185 32,751 43,549 21,785/dagger/ 30,351/dagger/ 41,149/dagger/
6 23,080 33,296 46,948 20,980/dagger/ 31,196/dagger/ 44,848/dagger/
7 21,988 33,836 50,622 20,188/dagger/ 32,036/dagger/ 48,822/dagger/
8 20,906 34,368 54,595 19,706/dagger/ 33,168/dagger/ 53,395/dagger/
9 19,832 34,892 58,894 19,232/dagger/ 34,292/dagger/ 58,294/dagger/
10 18,762 35,404 63,546 18,762 35,404 63,546
15 14,107 39,707 97,866 14,107 39,707 97,866
20 8,497 43,687 150,622 8,497 43,687 150,622
25 752 46,418 232,040 752 46,418 232,040
30 * 46,241 357,343 * 46,241 357,343
35 * 39,596 548,509 * 39,596 548,509
40 * 18,217 842,224 * 18,217 842,224
45 * * 1,300,064 * * 1,300,064
50 * * 1,985,376 * * 1,985,376
55 * * 2,984,696 * * 2,984,696
60 * * 4,524,360 * * 4,524,360
65 * * 7,115,679 * * 7,115,679
</TABLE>
/dagger/The net surrender value shown would in fact be equal to the cash value
since, under the terms of the Policy, the surrender charge will be waived if a
cost of insurance charge were to be deducted.
*In the absence of an additional payment, the Policy would lapse.
**For the equivalent net annual investment return rates, see p. 58.
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.
78
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
<TABLE>
<S> <C>
Initial Specified Amount $109,579 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS*
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 109,579 109,579 109,579
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 132,033
20 79,599 109,579 109,579 196,396
25 101,591 109,579 109,579 310,786
30 129,658 109,579 109,579 501,170
35 165,480 109,579 114,691 808,180
40 211,200 109,579 134,600 1,253,612
45 269,550 109,579 162,595 2,001,544
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS* ASSUMING HYPOTHETICAL GROSS*
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C>
1 29,133 30,907 32,680 26,208 27,982 29,755
2 28,292 31,841 35,599 25,442 28,991 32,749
3 27,475 32,803 38,779 24,700 30,028 36,004
4 26,681 33,794 42,243 23,981 31,094 39,543
5 25,910 34,815 46,016 23,510 32,415 43,616
6 25,162 35,868 50,127 23,062 33,768 48,027
7 24,435 36,951 54,604 22,635 35,151 52,804
8 23,729 38,068 59,482 22,529 36,868 58,282
9 23,044 39,219 64,795 22,444 38,619 64,195
10 22,378 40,404 70,583 22,378 40,404 70,583
15 20,319 49,295 113,822 20,319 49,295 113,822
20 18,450 60,144 183,548 18,450 60,144 183,548
25 16,752 73,379 295,987 16,752 73,379 295,987
30 15,211 89,527 477,304 15,211 89,527 477,304
35 13,812 109,229 769,695 13,812 109,229 769,695
40 12,541 133,267 1,241,200 12,541 133,267 1,241,200
45 11,387 162,595 2,001,544 11,387 162,595 2,001,544
</TABLE>
*For the equivalent net annual investment return rates, see p. 58.
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.
79
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
HYPOTHETICAL ILLUSTRATIONS
MALE AND FEMALE ISSUE AGES 55
<TABLE>
<S> <C>
Initial Specified Amount $109,579 Select, Non-Tobacco Use Class
Initial Premium $30,000 Death Benefit Without Rider
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS**
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% 6% 12%
<S> <C> <C> <C> <C>
1 31,500 109,579 109,579 109,579
2 33,075 109,579 109,579 109,579
3 34,729 109,579 109,579 109,579
4 36,465 109,579 109,579 109,579
5 38,288 109,579 109,579 109,579
6 40,203 109,579 109,579 109,579
7 42,213 109,579 109,579 109,579
8 44,324 109,579 109,579 109,579
9 46,540 109,579 109,579 109,579
10 48,867 109,579 109,579 109,579
15 62,368 109,579 109,579 129,646
20 79,599 109,579 109,579 191,373
25 101,591 * 109,579 300,098
30 129,658 * 109,579 474,714
35 165,480 * * 738,244
40 211,200 * * 1,107,490
45 269,550 * * 1,768,242
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS** ASSUMING HYPOTHETICAL GROSS**
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% 6% 12% 0% 6% 12%
<S> <C> <C> <C> <C> <C> <C>
1 29,129 30,902 32,675 26,204/dagger/ 27,977/dagger/ 29,750/dagger/
2 28,274 31,823 35,581 25,424/dagger/ 28,973/dagger/ 32,731/dagger/
3 27,432 32,759 38,734 24,657/dagger/ 29,984/dagger/ 35,959/dagger/
4 26,598 33,710 42,158 23,898/dagger/ 31,010/dagger/ 39,458/dagger/
5 25,771 34,674 45,874 23,371/dagger/ 32,274/dagger/ 43,474/dagger/
6 24,946 35,648 49,909 22,846/dagger/ 33,548/dagger/ 47,809/dagger/
7 24,116 36,628 54,288 22,316/dagger/ 34,828/dagger/ 52,488/dagger/
8 23,275 37,609 59,042 22,075/dagger/ 36,409/dagger/ 57,842/dagger/
9 22,413 38,584 64,204 21,813/dagger/ 37,984/dagger/ 63,604/dagger/
10 21,521 39,546 69,812 21,521 39,546 69,812
15 17,072 46,193 111,764 17,072 46,193 111,764
20 8,555 51,449 178,853 8,555 51,449 178,853
25 * 51,344 285,808 * 51,344 285,808
30 * 35,345 452,109 * 35,345 452,109
35 * * 703,090 * * 703,090
40 * * 1,096,525 * * 1,096,525
45 * * 1,768,242 * * 1,768,242
</TABLE>
/dagger/The net surrender value shown would in fact be equal to the cash value
since, under the terms of the Policy, the surrender charge will be waived if a
cost of insurance charge were to be deducted.
*In the absence of an additional payment, the Policy would lapse.
**For the equivalent net annual investment return rates, see p. 58.
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.
80
<PAGE>
APPENDIX B -- WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information below graphically depicts the growth of $1.00 invested in
large company stocks, small company stocks, long-term government bonds,
Treasury bills, and hypothetical asset returning the inflation rate over the
period from the end of 1925 to the end of 1999. All results assume reinvestment
of dividends on stocks or coupons on bonds and no taxes. Transaction costs are
not included, except in the small stock index starting in 1982.
Each of the cumulative index values is initialized at $1.00 at year-end
1925. The graph illustrates that large company stocks and small company stocks
have the best performance over the entire 74-year period: investments of $1.00
in these assets would have grown to $2,845.63 and $6,640.79, respectively, by
year-end 1999. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$40.22.
The lowest-risk strategy over the past 74 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1926 - 1999 period.
81
<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.]
82
<PAGE>
APPENDIX C
SURRENDER CHARGE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MALE AND UNISEX (SINGLE LIFE)
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.84% 4.00% 2.00% 0.00%
76 9.75% 9.50% 9.25% 9.00% 8.00% 6.69% 5.49% 4.00% 2.00% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.89% 6.30% 5.18% 4.00% 2.00% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.44% 5.95% 4.89% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.03% 5.61% 4.62% 3.87% 2.00% 0.00%
80 9.75% 9.50% 9.25% 8.65% 6.64% 5.31% 4.36% 3.66% 2.00% 0.00%
81 9.75% 9.50% 9.25% 8.18% 6.28% 5.02% 4.12% 3.46% 2.00% 0.00%
82 9.75% 9.50% 9.25% 7.74% 5.94% 4.75% 3.90% 3.26% 2.00% 0.00%
83 9.75% 9.50% 9.25% 7.33% 5.62% 4.49% 3.68% 3.07% 2.00% 0.00%
84 9.75% 9.50% 9.25% 6.94% 5.32% 4.24% 3.47% 2.88% 2.00% 0.00%
85 9.75% 9.50% 9.15% 6.58% 5.03% 4.00% 3.25% 2.67% 2.00% 0.00%
86 9.75% 9.50% 8.68% 6.22% 4.75% 3.75% 3.02% 2.46% 1.99% 0.00%
87 9.75% 9.50% 8.21% 5.87% 4.46% 3.49% 2.78% 2.22% 1.76% 0.00%
88 9.75% 9.50% 7.75% 5.52% 4.15% 3.21% 2.51% 1.96% 1.51% 0.00%
89 9.75% 9.50% 7.28% 5.14% 3.82% 2.90% 2.22% 1.68% 1.25% 0.00%
90 9.75% 9.50% 6.78% 4.72% 3.45% 2.56% 1.90% 1.39% 0.99% 0.00%
</TABLE>
FEMALE (SINGLE LIFE)
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-78 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
79 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.75% 4.00% 2.00% 0.00%
80 9.75% 9.50% 9.25% 9.00% 8.00% 6.56% 5.32% 4.00% 2.00% 0.00%
81 9.75% 9.50% 9.25% 9.00% 7.70% 6.08% 4.93% 4.00% 2.00% 0.00%
82 9.75% 9.50% 9.25% 9.00% 7.14% 5.63% 4.56% 3.77% 2.00% 0.00%
83 9.75% 9.50% 9.25% 8.75% 6.62% 5.22% 4.22% 3.47% 2.00% 0.00%
84 9.75% 9.50% 9.25% 8.13% 6.15% 4.83% 3.89% 3.18% 2.00% 0.00%
85 9.75% 9.50% 9.25% 7.55% 5.69% 4.46% 3.57% 2.90% 2.00% 0.00%
86 9.75% 9.50% 9.25% 7.00% 5.26% 4.10% 3.26% 2.62% 2.00% 0.00%
87 9.75% 9.50% 9.19% 6.48% 4.84% 3.75% 2.95% 2.33% 1.84% 0.00%
88 9.75% 9.50% 8.51% 5.97% 4.43% 3.39% 2.63% 2.03% 1.55% 0.00%
89 9.75% 9.50% 7.84% 5.46% 4.01% 3.02% 2.29% 1.72% 1.27% 0.00%
90 9.75% 9.50% 7.18% 4.95% 3.58% 2.64% 1.94% 1.41% 1.01% 0.00%
</TABLE>
83
<PAGE>
JOINT AND LAST SURVIVOR PLAN: AGE IS BASED ON THE OLDER OF THE INSUREDS
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------------------------------------------------------
AGE 1 2 3 4 5 6 7 8 9 10+
- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00%
75 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
76 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
77 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
78 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
79 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00%
80 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
81 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
82 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
83 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
84 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00%
85 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
86 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
87 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
88 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
89 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
90 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
</TABLE>
The percentage on any date other than an 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.
84
<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
85
<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
86
<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.
87
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
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.
88
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
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.
89
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
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.
90
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL 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.
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
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.
92
<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.
93
<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.
94
<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.
95
<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.
96
<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.
97
<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.
98
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
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.
99
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
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.
100
<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.
101
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
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.
102
<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.
<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.
<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
105
<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.
106
<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.
107
<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.
108
<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.
109
<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.
110
<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
111
<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.
112
<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 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
113
<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)
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.
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.
114
<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)
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 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
115
<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)
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.
116
<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>
117
<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>
118
<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.
119
<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:
Unrealized
-------------------
December 31
-------------------
1999 1998
--------- -------
Unrealized gains ............. $1,995 $ 579
Unrealized losses ............ (26) (36)
------ -----
Net unrealized gains ......... $1,969 $ 543
====== =====
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.
120
<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.
121
<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 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.
122
<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
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>
123
<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.
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
124
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
7. DIVIDEND RESTRICTIONS--(CONTINUED)
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. 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
125
<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)
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.
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
126
<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)
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:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1998
------------------- ------------------
Total Capital
and Surplus Net Income/Loss
------------------- ------------------
<S> <C> <C>
Amounts reported in Annual Statement ............. $148,038 $ 528
Adjustment to federal income tax benefit ......... (4,458) (4,458)
-------- --------
Amounts reported herein .......................... $143,580 $ (3,930)
======== ========
</TABLE>
127
<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.
128
<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.
129
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force ........ $63,040,741 $11,297,250 $ -- $51,743,494 0.0%
=========== =========== ========== =========== ===
Premiums:
Individual life ............... $ 604,628 $ 20,972 $ -- $ 583,656 0.0%
Group life and health ......... 1,383 310 -- 1,073 0.0
Annuity ....................... 1,142,254 37,729 -- 1,104,525 0.0
----------- ----------- ---------- ----------- ---
$ 1,748,265 $ 59,011 $ -- $ 1,689,254 0.0%
=========== =========== ========== =========== ===
YEAR ENDED DECEMBER 31, 1998
Life insurance in force ........ $51,064,173 $ 9,862,460 $ -- $41,201,713 0.0%
=========== =========== ========== =========== ===
Premiums:
Individual life ............... $ 493,633 $ 19,512 $ -- $ 474,121 0.0%
Group life and health ......... 1,691 220 461 1,932 23.8
Annuity ....................... 850,428 55,587 -- 794,841 0.0
----------- ----------- ---------- ----------- ----
$ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03%
=========== =========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ........ $40,221,361 $ 6,776,447 $2,692,822 $36,137,736 7.5%
=========== =========== ========== =========== ====
Premiums:
Individual life ............... $ 395,361 $ 4,910 $ -- $ 390,452 0.0%
Group life and health ......... 1,761 231 2,389 3,918 61.0
Annuity ....................... 822,149 -- -- 822,149 0.0
----------- ----------- ---------- ----------- ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
=========== =========== ========== =========== ====
</TABLE>
130
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e) (2) (A)
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify certain
persons against certain payments incurred by such persons. The following
excerpts contain the substance of these provisions.
Ohio General Corporation Law
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
II-1
<PAGE>
(a) Any claim, issue, or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section
is not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such
action, suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with
II-2
<PAGE>
deliberate intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
Second Amended Articles of Incorporation of Western Reserve
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys'
II-3
<PAGE>
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in sections (1) and (2) of this article, or in defense
of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under sections (1) and (2) of this article,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this article,
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination
II-4
<PAGE>
that a written undertaking need not be submitted to the corporation shall in no
way affect the entitlement of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such person
may also be an agent of this corporation. The corporation may indemnify such
named fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
Amended Code of Regulations of Western Reserve
ARTICLE V
Indemnification of Directors and Officers
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
II-5
<PAGE>
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 133 pages
The undertaking to file reports
Representation pursuant to Section 26(e) (2) (A)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Sutherland Asbill & Brennan LLP
(b) Ernst & Young LLP
(c) PricewaterhouseCoopers LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western Reserve
establishing the Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement (2)
(b) Amendment to Master Service and Distribution Compliance
Agreement (5)
(c) Form of Broker/Dealer Supervisory and Service Agreement
(5)
(d) Principal Underwriting Agreement (5)
(e) First Amendment to Principal Underwriting Agreement (5)
(4) Not Applicable
(5) Specimen Modified Single Premium Variable Life Insurance
Policies (6)
(a) Individual Policy Form (VL10)(6)
(b) Joint Policy Form (JL10)(6)
(c) Guaranteed Minimum Death Benefit Rider (GDB01) (7)
(d) Dollar Cost Averaging Endorsement (ESI02) (7)
(e) Asset Rebalancing Program Endorsement (ESI04) (7)
(f) Preferred Loan Endorsement (ESI01) (7)
(6) (a) Second Amended Articles of Incorporation of Western
Reserve (2)
(b) Amended Code of Regulations (By-Laws) of Western
Reserve (2)
(c) Certificate of First Amendment to the Second Amended
Articles of Incorporation of Western Reserve (8)
II-6
<PAGE>
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (1)
(b) Sub-Advisory Agreement (1)
(c) Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
Western Reserve Life Assurance Co. of Ohio dated
June 14, 1999 9/
(d) Amendment No.1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund 10/
(e) Participation Agreement Among Variable Insurance
Products Fund II, Fidelity Distributors Corporation and
Western Reserve Life Assurance Co. of Ohio dated
June 14, 1997 9/
(f) Amendment No.1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund II 10/
(g) Participation Agreement Among Variable Insurance
Products Fund III, Fidelity Distributors Corporation
and Western Reserve Life Assurance Co. of Ohio dated
June 14, 1999 9/
(h) Amendment No. 1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund III 10/
(9) Not Applicable
(10) Application for Modified Single Premium Variable Life
Insurance Policy (7)
(11) Memorandum describing issuance, transfer and redemption
procedures (7)
2. See Exhibit 1.A.
3. Opinion of counsel as to the legality of the securities being
registered (7)
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining
to the securities being registered (7)
7. Consent of Thomas E. Pierpan, Esq. (7)
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
11. (a) Powers of Attorney (3)
(b) Power of Attorney - James R. Walker (4)
____________________
(1) This exhibit was previously filed on Post-Effective Amendment No. 28 to
Form S-6 Registration Statement dated April 28, 1997 (File No. 33-507)
and is incorporated herein by reference.
(2) This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No.
33-49556) and is incorporated herein by reference.
(3) This exhibit was previously filed on Post-Effective Amendment No. 16 to
Form S-6 Registration Statement dated April 21, 1998 (File No.
33-31140) and is incorporated herein by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 13 to
Form S-6 Registration Statement dated December 24, 1996 (File No.
33-31140) and is incorporated herein by reference.
II-7
<PAGE>
(5) This exhibit was previously filed on Post-Effective Amendment No. 4 to
Form S-6 Registration Statement dated April 21, 1999 (File No.
333-23359) and is incorporated herein by reference.
(6) This exhibit was previously filed on the Initial Registration Statement
on Form S-6 dated December 4, 1998 (File No. 333-68367) and is
incorporated herein by reference.
(7) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement dated June 11, 1999 (File No. 33-68367)
and is incorporated herein by reference.
(8) This exhibit was previously filed on Post-Effective Amendment No. 5 to
Form S-6 Registration Statement dated April 19, 2000 (File No.
333-23359) and is incorporated herein by reference.
(9) This exhibit was previously filed on the Initial Registration Statement
to Form S-6 dated September 23, 1999 (File No. 333-57681) and is
incorporated herein by reference.
(10) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form N-4 Registration Statement dated April 10, 2000 (File No.
333-93169) and is incorporated herein by reference.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL
Series Life Account certifies that it meets all requirements for effectiveness
of this Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
City of St. Petersburg, County of Pinellas, Florida on this 26th day of April,
2000.
(SEAL) WRL SERIES LIFE ACCOUNT
------------------------------------
Registrant
WESTERN RESERVE LIFE ASSURANCE CO.
OF OHIO
------------------------------------
Depositor
ATTEST:
/s/ Thomas E. Pierpan By: /s/ John R. Kenney
- ------------------------ -----------------------
Thomas E. Pierpan John R. Kenney
Senior Vice President, General Chairman of the Board and
Counsel and Assistant Secretary Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature and Title DATE
- ------------------- ----
/s/ John R. Kenney April 26, 2000
- ---------------------------------------
John R. Kenney, Chairman of the
Board and Chief Executive Officer
/s/ Allan J. Hamilton April 26, 2000
- ---------------------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ Alan M. Yaeger April 26, 2000
- ---------------------------------------
Alan M. Yaeger, Executive Vice
President, Actuary and Chief
Financial Officer*
- ---------------
*Principal Financial Officer
<PAGE>
/s/ Jerome C. Vahl April 26, 2000
- ---------------------------------------
Jerome C. Vahl, Director and President
/s/ James R. Walker April 26, 2000
- ---------------------------------------
James R. Walker, Director **/
/s/ Lyman H. Treadway April 26, 2000
- -------------------------------
Lyman H. Treadway, Director **/
/s/ Jack E. Zimmerman April 26, 2000
- -------------------------------
Jack E. Zimmerman, Director **/
**/ /s/ Thomas E. Pierpan
- ----------------------------------
Signed by: Thomas E. Pierpan
As Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
Exhibit 8
Consent of Sutherland Asbill & Brennan LLP
<PAGE>
S.A.B. Letterhead
April 24, 2000
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Life Account
570 Carillon Parkway
St. Petersburg, Florida 33716
RE: WRL Series Life Account
WRL Freedom Navigator
File No. 333-68367
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the prospectus for the WRL Freedom Navigator contained in
Post-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File
No. 333-68367) of the WRL Series Life Account filed by Western Reserve Life
Assurance Co. of Ohio with the Securities and Exchange Commission. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
Exhibit 9
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 18, 2000, with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in Post-Effective Amendment No. 1 to the Registration Statement (Form
S-6 No. 333-68367) and related Prospectus of WRL Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 24, 2000
Exhibit 10
Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-6 of our
report dated February 16, 2000, relating to the financial statements and
financial highlights of the sub-accounts constituting the WRL Series Life
Account, which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 24, 2000
