As filed with the Securities and Exchange Commission on April 21, 1999
Registration No. 333-24959
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Post-Effective
Amendment No. 64 [X]
(Check appropriate box or boxes)
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WRL SERIES ANNUITY ACCOUNT
(Exact Name of Registrant)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
570 Carillon Parkway
St. Petersburg, Florida 33716
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(727) 299-1800
-----------------------------------
Thomas E. Pierpan, Esq.
Vice President, Assistant Secretary and Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
It is proposed that this filing will become effective (check appropriate space)
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on MAY 1, 1999, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on DATE, pursuant to paragraph (a) of Rule 485
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<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM WEALTH CREATOR/registered trademark/
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
MAY 1, 1999
This prospectus gives you important information about the WRL Freedom
Wealth Creator/registered trademark/, a flexible payment variable annuity.
Please read this prospectus and the mutual fund prospectus before you invest
and keep them for future reference. This Contract is available to individuals
as well as to certain groups and individual retirement plans.
You can put your money into 24 investment choices: a fixed account and 23
subaccounts of the WRL Series Annuity Account. Money you put in a subaccount is
invested exclusively in a single mutual fund portfolio. Your investments in the
portfolios are not guaranteed. You could lose your money. Money you direct into
the fixed account earns interest at a rate guaranteed by Western Reserve.
The 23 portfolios we currently offer through the subaccounts under this
Contract are:
WRL SERIES FUND, INC.
<TABLE>
<S> <C>
WRL Janus Growth (formerly, Growth) WRL Dean Asset Allocation (formerly, Tactical
Asset Allocation)
WRL Janus Global (formerly, Global) WRL C.A.S.E. Growth (formerly, C.A.S.E. Growth)
WRL Alger Aggressive Growth (formerly, Aggressive Growth) WRL GE/Scottish Equitable International Equity
(formerly, International Equity)
WRL VKAM Emerging Growth (formerly, Emerging Growth) WRL GE U.S. Equity (formerly, U.S. Equity)
WRL AEGON Balanced (formerly, Balanced) WRL Goldman Sachs Growth
WRL AEGON Bond (formerly, Bond) WRL Goldman Sachs Small Cap
WRL LKCM Strategic Total Return (formerly, Strategic Total Return) WRL T. Rowe Price Dividend Growth
WRL Federated Growth & Income (formerly, Growth & Income) WRL T. Rowe Price Small Cap
WRL J.P. Morgan Money Market (formerly, Money Market) WRL Salomon All Cap
WRL J.P. Morgan Real Estate Securities (formerly, Real Estate Securities) WRL Pilgrim Baxter Mid Cap Growth
WRL Third Avenue Value (formerly, Third Avenue Value) WRL Dreyfus Mid Cap
WRL NWQ Value Equity (formerly, Value Equity)
</TABLE>
If you would like more information about the WRL Freedom Wealth
Creator/registered trademark/, you can obtain a free copy of the Statement of
Additional Information (SAI) dated May 1, 1999. Please call us at
1-800-851-9777 or write us at: Western Reserve, P.O. Box 9051, Clearwater,
Florida 33758-9051. A registration statement, including the SAI, has been filed
with the Securities and Exchange Commission (SEC) and is incorporated herein by
reference. The SEC maintains a web site (HTTP://WWW.SEC.GOV) that contains the
prospectus, the SAI, material incorporated by reference and other information.
The table of contents of the SAI is included at the end of this prospectus.
PLEASE NOTE THAT THE CONTRACT AND THE MUTUAL FUNDS:
/bullet/ ARE NOT BANK DEPOSITS
/bullet/ ARE NOT FEDERALLY INSURED
/bullet/ ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
/bullet/ ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
/bullet/ INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PREMIUM
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
DEFINITIONS OF SPECIAL TERMS ............................... 1
SUMMARY .................................................... 3
ANNUITY CONTRACT FEE TABLE ................................. 8
EXAMPLES ................................................... 10
1. THE ANNUITY CONTRACT .................................. 11
Other Contracts ....................................... 11
2. ANNUITY PAYMENTS (THE INCOME PHASE) ................... 12
Annuity Payment Options ............................... 12
Fixed Annuity Options ................................. 13
Variable Annuity Options .............................. 14
3. PURCHASE .............................................. 14
Contract Issue Requirements ........................... 14
Purchase Payments ..................................... 15
Initial Purchase Requirements ......................... 15
Additional Purchase Payments .......................... 15
Maximum Annual Purchase Payments ...................... 15
Allocation of Purchase Payments ....................... 16
Annuity Value ......................................... 16
Accumulation Units .................................... 16
4. INVESTMENT CHOICES .................................... 16
The Separate Account .................................. 16
The Fixed Account ..................................... 18
Transfers ............................................. 18
Dollar Cost Averaging Program ......................... 19
Asset Rebalancing Program ............................. 19
Telephone or Fax Transactions ......................... 20
Third Party Investment Services ....................... 20
5. EXPENSES .............................................. 21
Mortality and Expense Risk Charge ..................... 21
Annual Contract Charge ................................ 21
Transfer Charge ....................................... 21
Loan Processing Fee ................................... 22
Fee for Changes in Your Purchase Payment .............. 22
Allocations ........................................... 22
Premium Taxes ......................................... 22
Federal, State and Local Taxes ........................ 22
Withdrawal Charge ..................................... 22
Portfolio Management Fees ............................. 24
Reduced Charges and Expenses to Employees ............. 24
6. TAXES ................................................. 24
Annuity Contracts in General .......................... 24
Qualified and Non-Qualified Contracts ................. 25
Withdrawals -- Non-Qualified Contracts ................ 25
Multiple Contracts .................................... 26
Diversification and Distribution Requirements ......... 26
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Withdrawals -- Qualified Contracts .................................. 26
Withdrawals -- 403(b) Contracts ..................................... 26
Net Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) ......... 27
Partial Withdrawals and Surrenders .................................. 27
Taxation of Death Benefit Proceeds .................................. 27
Annuity Payments .................................................... 28
Transfers, Assignments or Exchanges of Contracts .................... 28
Possible Tax Law Changes ............................................ 28
7. ACCESS TO YOUR MONEY ................................................ 29
Surrenders and Withdrawals .......................................... 29
Delay of Payment and Transfers ...................................... 30
Systematic Partial Withdrawals ...................................... 30
Contract Loans for Qualified Contracts .............................. 31
8. PERFORMANCE ......................................................... 32
9. DEATH BENEFIT ....................................................... 33
When We Pay A Death Benefit ......................................... 33
When We Do Not Pay A Death Benefit .................................. 34
Amount of Death Benefit ............................................. 35
Alternate Payment Elections ......................................... 36
10. OTHER INFORMATION ................................................... 36
Ownership ........................................................... 36
Assignment .......................................................... 37
Western Reserve Life Assurance Co. of Ohio .......................... 37
The Separate Account ................................................ 37
Voting Rights ....................................................... 38
Distribution of the Contracts ....................................... 38
Non-Participating Contract .......................................... 38
Variations in Contract Provisions ................................... 38
Year 2000 Readiness Disclosure ...................................... 39
IMSA ................................................................ 39
Legal Proceedings ................................................... 39
Financial Statements ................................................ 40
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............. 40
APPENDIX A -- CONDENSED FINANCIAL INFORMATION ............................ 41
APPENDIX B -- HISTORICAL PERFORMANCE DATA ................................ 48
</TABLE>
ii
<PAGE>
DEFINITIONS OF SPECIAL TERMS
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<TABLE>
<S> <C>
accumulation The period between the Contract date and the maturity date while the
period Contract is in force.
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accumulation An accounting unit of measure used to calculate subaccount values during the
unit value accumulation period.
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annuitant The person named in the application, or as subsequently changed, to receive
annuity payments. The annuitant may be changed as provided in the
Contract's death benefit provisions and annuity provision.
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annuity value The sum of the separate account value and the fixed account value.
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annuity unit An accounting unit of measure used to calculate annuity payments from the
value subaccounts after the maturity date.
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attained age The issue age, which is annuitant's age on the birthday nearest the Contract
date, plus the number of completed Contract years.
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beneficiary(ies) The person(s) entitled to receive the death benefit proceeds under the
Contract.
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cash value The annuity value less any applicable premium taxes and any withdrawal
charge.
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Code The Internal Revenue Code of 1986, as amended.
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Contract date The later of the date on which the initial purchase payment is received and
the date that the properly completed application is received at Western
Reserve's administrative office.
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fixed account An allocation option under the Contract, other than the separate account, that
provides for accumulation of purchase payments, and options for annuity
payments on a fixed basis. For Contracts issued in the States of Mas-
sachusetts, New Jersey and Washington, the fixed account is used solely for
Contract loans and is not available for allocation of purchase payments or
transfers.
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fixed account During the accumulation period, a Contract's value allocated to the fixed
value account.
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fund(s) WRL Series Fund, Inc., an investment company which is registered with the
U.S. Securities and Exchange Commission. We reserve the right to add other
registered investment companies to the Contract in the future.
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in force Condition under which the Contract is active and the owner is entitled to
exercise all rights under the Contract.
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maturity date The date on which the accumulation period ends and annuity payments begin.
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</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
non-qualified Contracts issued other than in connection with retirement plans. Non-qualified
Contracts Contracts do not qualify for special federal income tax treatment under the
Code.
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owner (you, The person(s) entitled to exercise all rights under the Contract. The annuitant
your) is the owner unless the application states otherwise, or unless a change of
ownership is made at a later time.
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portfolio A separate investment portfolio of the fund.
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purchase Amounts paid by an owner or on the owner's behalf to Western Reserve as
payments consideration for the benefits provided by the Contract. When we use the
term "purchase payment" in this prospectus, it has the same meaning as "net
purchase payment" in the Contract, which means the purchase payment less
any applicable premium taxes.
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qualified Contracts issued in connection with retirement plans that qualify for special
Contracts federal income tax treatment under the Code.
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separate account WRL Series Annuity Account, a separate account composed of subaccounts
established to receive and invest purchase payments not allocated to the fixed
account.
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separate account During the accumulation period, a Contract's value in the separate account,
value which equals the total value in each subaccount during the accumulation
period.
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subaccount A subdivision of the separate account that invests exclusively in the shares of
a specified portfolio and supports the Contracts. Subaccounts corresponding to
each applicable portfolio hold assets under the Contract during the accumula-
tion period. Other subaccounts corresponding to each applicable portfolio will
hold assets after the maturity date if a variable annuity option is selected.
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surrender The termination of a Contract at the option of the owner.
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valuation date Each day on which the New York Stock Exchange is open for trading, except
when a subaccount's corresponding portfolio does not value its shares.
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valuation period The period beginning at the end of one valuation date and continuing to the
end of the next succeeding valuation date.
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</TABLE>
2
<PAGE>
SUMMARY
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THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THIS PROSPECTUS,
WHICH DISCUSS THE TOPICS IN MORE DETAIL. PLEASE READ THE ENTIRE PROSPECTUS
CAREFULLY.
1. THE ANNUITY CONTRACT
The WRL Freedom Wealth Creator/registered trademark/ is a flexible payment
variable deferred annuity contract (the "Contract") offered by Western Reserve
Life Assurance Co. of Ohio (Western Reserve, we, us). It is a contract between
you, as the owner, and Western Reserve, a life insurance company. The Contract
provides a way for you to invest on a tax-deferred basis in the subaccounts of
the separate account and the fixed account. We intend the Contract to be used
to accumulate money for retirement or other long-term investment purposes.
The Contract allows you to direct your money into any of the 23
subaccounts. Each subaccount invests exclusively in a single portfolio of the
fund. The money you invest in the subaccounts will fluctuate daily based on the
portfolio's investment results. The value of your investment in the subaccounts
is not guaranteed and may increase or decrease. You bear the investment risk
for amounts you invest in the subaccounts.
You can also direct money to the fixed account. Amounts in the fixed
account earn interest annually at a fixed rate that is guaranteed by us never
to be less than 3%, and may be more. We guarantee the interest, as well as
principal, on money placed in the fixed account.
You can transfer money between any of the investment choices during the
accumulation period, subject to the limit on transfers from the fixed account.
The Contract, like all deferred annuity contracts, has two phases: the
"accumulation period" and the "income phase." During the accumulation period,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the Contract. The income phase starts on the maturity date
when you begin receiving regular payments from your Contract. The money you can
accumulate during the accumulation period, as well as the annuity payment
option you choose, will determine the amount of any income payments you receive
during the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
The Contract allows you to receive income under one of five annuity
payment options. You may choose from fixed payment options or variable payment
options. If you select a variable payment option, the dollar amount of the
payments you receive may go up or down depending on the investment results of
the portfolios you invest in at that time.
3. PURCHASE
You can buy this Contract with $5,000 ($1,000 for traditional or Roth IRAs
and $50 for other qualified Contracts) or more under most circumstances. You
can add as little as $50 at any time during the accumulation period.
3
<PAGE>
4. INVESTMENT CHOICES
You can invest your money in any of the 23 mutual fund portfolios by
directing it to the corresponding subaccount. The portfolios are described in
the fund prospectus. The portfolios now available to you under the Contract
are:
<TABLE>
<S> <C>
[ ] WRL Janus Growth [ ] WRL Dean Asset Allocation
[ ] WRL Janus Global [ ] WRL C.A.S.E. Growth
[ ] WRL Alger Aggressive Growth [ ] WRL GE/Scottish Equitable International Equity
[ ] WRL VKAM Emerging Growth [ ] WRL GE U.S. Equity
[ ] WRL AEGON Balanced [ ] WRL Goldman Sachs Growth
[ ] WRL AEGON Bond [ ] WRL Goldman Sachs Small Cap
[ ] WRL LKCM Strategic Total Return [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL Federated Growth & Income [ ] WRL T. Rowe Price Small Cap
[ ] WRL J.P. Morgan Money Market [ ] WRL Salomon All Cap
[ ] WRL J.P. Morgan Real Estate Securities [ ] WRL Pilgrim Baxter Mid Cap Growth
[ ] WRL Third Avenue Value [ ] WRL Dreyfus Mid Cap
[ ] WRL NWQ Value Equity
</TABLE>
Depending upon market conditions, you can make or lose money in any of
these subaccounts. We reserve the right to offer other investment choices in
the future.
You can also allocate your purchase payments to the fixed account.
5. EXPENSES
We do not take any deductions from purchase payments at the time you buy
the Contract. You invest the full amount of each purchase payment in one or
more of the investment choices.
We deduct a daily mortality and expense risk charge of 1.40% each year
from the money you have invested in the subaccounts. We intend to reduce this
charge to 1.25% after the first seven Contract years, although we do not
guarantee that we will do so.
During the accumulation period, we deduct an annual Contract charge of $35
from the annuity value on each Contract anniversary and at the time of
surrender. We currently waive this charge if the total purchase payments, minus
all partial withdrawals, is more than $50,000 on the contract anniversary when
this charge is payable.
We impose a $25 charge per transfer if you make more than 12 transfers
among the subaccounts per Contract year.
If in any calendar quarter, you change the way you allocate your purchase
payments more than once, then we will impose a $25 charge on the second and
each additional change in allocation you make during that Contract quarter.
We will deduct state premium taxes, which currently range from 0% to
3.50%, if you surrender the Contract, or partially withdraw its value, or if we
pay out death benefit
4
<PAGE>
proceeds, or if you begin to receive regular annuity payments. We only charge
you premium taxes in those states that require us to pay premium taxes.
If you take a partial withdrawal or surrender your Contract, we will
deduct a withdrawal charge for purchase payments withdrawn within seven years
after we receive a purchase payment. This charge is 8% if the withdrawal occurs
within 12 months or less of our receipt of the purchase payment, and then
declines gradually to 7% - 13 through 24 months; 6% - 25 through 36 months; 5%
- - 37 through 48 months; 4% - 49 through 60 months; 3% - 61 through 72 months;
2% - 73 through 84 months; and no withdrawal charge - 85 months or more.
When we calculate withdrawal charges, we treat withdrawals as coming first
from the oldest purchase payment, then the next oldest and so forth. For the
first withdrawal or systematic partial withdrawal you make in any Contract
year, we will waive that portion of the withdrawal charge that is based on the
first 10% of your Contract's annuity value at the time of the withdrawal.
Amounts of the first withdrawal in excess of the first 10% of your Contract's
annuity value and all subsequent withdrawals you make during the Contract year
will be subject to a withdrawal charge. We will deduct the full withdrawal
charge if you surrender your Contract completely. We waive this charge under
certain circumstances.
The portfolios deduct investment charges from amounts you have invested in
the portfolios. These charges range from 0.40% to 1.50% annually, depending on
the portfolio. See the prospectus for the fund and the "Fee Table" in this
prospectus.
6. TAXES
The Contract's earnings are generally not taxed until you take them out.
For federal tax purposes, if you take money out during the accumulation period,
earnings come out first and are taxed as ordinary income. If you are younger
than 59-1/2 when you take money out, you may be charged a 10% federal penalty
tax on the earnings. The annuity payments you receive during the income phase
are considered partly a return of your original investment so that part of each
payment is not taxable as income until the "investment in the contract" has
been fully recovered. Different tax consequences may apply for a Contract used
in connection with a qualified plan.
7. ACCESS TO YOUR MONEY
You can take some or all of your money out anytime during the accumulation
period. However, you may not take a partial withdrawal if it reduces the cash
value below $5,000. No withdrawals may be made from the fixed account without
prior consent from us. For qualified Contracts issued under Code Section
403(b), certain restrictions will apply. Withdrawal charges may apply. You may
also have to pay federal income tax and a penalty tax on any money you take
out.
8. PERFORMANCE
The value of your Contract will vary up or down depending upon the
investment performance of the subaccounts you choose and will be reduced by
Contract fees and
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<PAGE>
charges. We provide performance information in Appendix B and in the SAI. Past
performance does not guarantee future results.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income
phase begins, your beneficiary will receive a death benefit.
If you name different persons as owner and annuitant, you can affect
whether the death benefit is payable and who would receive it. Use care when
naming owners, annuitants and beneficiaries, and consult your agent if you have
questions.
The death benefit will be the greatest of:
/bullet/ the annuity value of your Contract on the date we receive proof
of death and your beneficiary's election regarding payment;
/bullet/ the total purchase payments you make to the Contract, less
partial withdrawals; or
/bullet/ the highest annuity value of your Contract on any Contract
anniversary between the Contract date (as shown on your Contract
schedule page) and the earlier of:
/bullet/ the annuitant's date of death; or
/bullet/ the Contract anniversary nearest the annuitant's 80th
birthday.
The highest annuity value will be increased by purchase payments made and
decreased by adjusted partial withdrawals taken since the Contract anniversary
with the highest annuity value.
10. OTHER INFORMATION
RIGHT TO CANCEL PERIOD. You may return your Contract for a refund within
10 days after you receive it. The amount of the refund will generally be the
total purchase payments we have received, plus (or minus) any gains (or losses)
in the amounts you invested in the subaccounts. We determine the value of the
refund as of the date we receive the returned Contract. We will pay the refund
within 7 days after we receive your written notice of cancellation and the
returned Contract. The Contract will then be deemed void. In some states you
may have more than 10 days, or receive a different refund amount.
WHO SHOULD PURCHASE THE CONTRACT? We have designed this Contract for
people seeking long-term tax deferred accumulation of assets, generally for
retirement. This includes persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this Contract if you are looking for
a short-term investment or if you cannot take the risk of getting back less
money than you put in.
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<PAGE>
ADDITIONAL FEATURES. This Contract has additional features that might
interest you. These include the following:
/bullet/ REDUCED MINIMUM INITIAL PURCHASE PAYMENT (FOR NON-QUALIFIED
CONTRACTS): You may make a minimum initial purchase payment of
$1,000, rather than $5,000, if you indicate on your application
that you anticipate making minimum monthly payments of at least
$100 by wire transfer.
/bullet/ SYSTEMATIC PARTIAL WITHDRAWALS: You can arrange to have money
automatically sent to you while your Contract is in the
accumulation period. You may take systematic partial withdrawals
monthly, quarterly, semi-annually or annually. Amounts you
receive may be included in your gross income and, in certain
circumstances, may be subject to penalty taxes.
/bullet/ DOLLAR COST AVERAGING: You can arrange to have a certain amount
of money automatically transferred monthly from one or any
combination of the WRL J.P. Morgan Money Market or WRL AEGON Bond
subaccounts or the fixed account into your choice of subaccounts.
Dollar cost averaging does not guarantee a profit and does not
protect against a loss if market prices decline.
/bullet/ ASSET REBALANCING: We will, upon your request, automatically
transfer amounts among the subaccounts on a regular basis to
maintain a desired allocation of the annuity value among the
various subaccounts.
/bullet/ TELEPHONE OR FAX TRANSACTIONS: You may make transfers,
withdrawals or change the allocation of additional purchase
payments by telephone or fax.
/bullet/ NURSING CARE FACILITY WAIVER: If you are confined to a nursing
care facility, you may take partial withdrawals or surrender your
Contract completely without paying the withdrawal charge, under
certain circumstances.
/bullet/ CONTRACT LOANS: If you own a qualified Contract, you can take out
Contract loans during the accumulation period, subject to certain
restrictions.
These features are not available in all states and may not be suitable for
your particular situation.
Certain states place restrictions on access to the fixed account, on the
death benefit calculation and on other features of the Contract. Consult your
agent and the Contract form for details.
11. INQUIRIES
If you need additional information, please contact us at:
Western Reserve Life
Annuity Department
P.O. Box 9051
Clearwater, FL 33758-9051
1-800-851-9777
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ANNUITY CONTRACT FEE TABLE
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<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES
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<S> <C>
Sales Load On Purchase Payments ......... None
Maximum Withdrawal Charge(1)(2)
(as a % of purchase payments) ........... 8%
Transfer Charge ......................... $25 After 12 Per Year
Loan Processing Fee(3) .................. $30 Per Loan
Change in Purchase Payment
Allocation Fee(4) .................... $25
===============================================================
ANNUAL CONTRACT CHARGE(2)(5) ............ $35 Per Contract Year
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
- -----------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge(6) ......... 1.40%
Administrative Charge ........................ None
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES ........................... 1.40%
</TABLE>
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PORTFOLIO ANNUAL EXPENSES(7)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT ANNUAL
PORTFOLIOS FEES OTHER EXPENSES EXPENSES
<S> <C> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL Janus Growth(10) 0.78% 0.05% 0.83%
WRL Janus Global(11)(12) 0.80% 0.15% 0.95%
WRL Alger Aggressive Growth 0.80% 0.11% 0.91%
WRL VKAM Emerging Growth 0.80% 0.09% 0.89%
WRL AEGON Balanced 0.80% 0.11% 0.91%
WRL AEGON Bond 0.45% 0.09% 0.54%
WRL LKCM Strategic Total Return 0.80% 0.06% 0.86%
WRL Federated Growth & Income 0.75% 0.15% 0.90%
WRL J.P. Morgan Money Market 0.40% 0.06% 0.46%
WRL J.P. Morgan Real Estate Securities(13) 0.80% 0.20% 1.00%
WRL Third Avenue Value 0.80% 0.20% 1.00%
WRL NWQ Value Equity 0.80% 0.09% 0.89%
WRL Dean Asset Allocation 0.80% 0.06% 0.86%
WRL C.A.S.E. Growth 0.80% 0.20% 1.00%
WRL GE/Scottish Equitable International Equity 1.00% 0.50% 1.50%
WRL GE U.S. Equity 0.80% 0.25% 1.05%
WRL Goldman Sachs Growth(12)(14) 0.90% 0.10% 1.00%
WRL Goldman Sachs Small Cap(14) 0.90% 0.10% 1.00%
WRL T. Rowe Price Dividend Growth(12)(14) 0.90% 0.10% 1.00%
WRL T. Rowe Price Small Cap(14) 0.75% 0.25% 1.00%
WRL Salomon All Cap(12)(14) 0.90% 0.10% 1.00%
WRL Pilgrim Baxter Mid Cap Growth(12)(14) 0.90% 0.10% 1.00%
WRL Dreyfus Mid Cap(12)(14) 0.85% 0.15% 1.00%
</TABLE>
(1) The withdrawal charge decreases based on the number of years since the
purchase payment was made, from 8% in the year in which the purchase
payment was made to 0% in the seventh year after the purchase payment was
made. To calculate withdrawal charges, the first purchase payment made is
considered to come out first. This charge is waived under certain
circumstances.
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<PAGE>
(2) We may reduce the withdrawal charge and the annual Contract charge for
Contracts sold to groups of employees with the same employer, including
our directors, officers and full-time employees, or other groups where
sales to the group reduce our administrative expenses.
(3) Loans are available for qualified Contracts only.
(4) We impose a $25 charge each time you change your allocation of purchase
payments among the subaccounts and the fixed account more than once each
Contract quarter.
(5) We currently waive this charge if the total purchase payments, minus all
partial withdrawals, is more than $50,000 on the Contract anniversary that
the charge is payable.
(6) We intend to reduce this charge to 1.25% after the first seven Contract
years, but we do not guarantee that we will do so.
(7) The fee table information relating to the portfolios is for 1998 and was
provided to Western Reserve by the fund. Western Reserve has not
independently verified such information.
(8) Effective January 1, 1997, the fund's Board authorized the fund to charge
each portfolio of the fund an annual Rule 12b-1 fee of up to 0.15% of each
portfolio's average daily net assets. However, the fund will not deduct
the fee from any portfolio before April 30, 2000. You will receive advance
written notice if a Rule 12b-1 fee is deducted. See the fund prospectus
for more details.
(9) WRL Investment Management, Inc. ("WRL Management"), the investment adviser
of the fund, has undertaken, until at least April 30, 2000, to pay
expenses on behalf of the portfolios of the fund to the extent normal
operating expenses of a portfolio exceed the following percentage of a
portfolio's average daily net assets: 0.70% for WRL AEGON Bond and WRL
J.P. Morgan Money Market; 1.00% for WRL Alger Aggressive Growth, WRL Janus
Growth, WRL Janus Global, WRL VKAM Emerging Growth, WRL LKCM Strategic
Total Return, WRL Federated Growth & Income, WRL J.P. Morgan Real Estate
Securities, WRL Third Avenue Value, WRL NWQ Value Equity, WRL Dean Asset
Allocation, WRL C.A.S.E. Growth, WRL Goldman Sachs Growth, WRL Goldman
Sachs Small Cap, WRL T. Rowe Price Small Cap, WRL T. Rowe Price Dividend
Growth, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL
Dreyfus Mid Cap, and WRL AEGON Balanced; 1.50% for WRL GE/Scottish
Equitable International Equity; and 1.30% for the WRL GE U.S. Equity. In
1998, WRL Management reimbursed WRL J.P. Morgan Real Estate Securities in
the amount of $28,275, WRL Third Avenue Value in the amount of $14,229 and
WRL GE/Scottish Equitable International Equity in the amount of $127,763.
Without such reimbursements, the total annual expenses during 1998 for WRL
J.P. Morgan Real Estate Securities, WRL Third Avenue Value and WRL
GE/Scottish Equitable International Equity would have been 3.34%, 1.13%,
and 1.96%, respectively. See the fund prospectus for a description of the
expense limitations that apply to each portfolio of the fund.
(10) WRL Janus Growth's advisory fee reflects 0.80% of the average daily net
assets for the period prior to May 1, 1998, and 0.775% of the first $3
billion of average daily net assets and 0.75% of the average daily net
assets in excess of $3 billion for the period May 1, 1998 to December 31,
1998.
(11) On January 20, 1999, Western Reserve received an Order from the Securities
and Exchange Commission approving the substitution of shares of WRL Janus
Global for shares of the Global Sector portfolio. On April 30, 1999 the
substitution was effected in accordance with the Order. As a result of the
substitution, investments in the former Global Sector subaccount were
automatically transferred to the WRL Janus Global subaccount and the
Global Sector subaccount was liquidated.
(12) As compensation for its services to the portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the
average daily net assets of each portfolio. The management fees for each
portfolio are: WRL Janus Global - 0.80% up to $2 billion and 0.775% over 2
billion; WRL Salomon All Cap - 0.90% up to $100 million and 0.80% over
$100 million; WRL T. Rowe Price Dividend Growth - 0.90% up to $100 million
and 0.80% over $100 million; WRL Dreyfus Mid Cap - 0.85% up to $100
million and 0.80% over $100 million; WRL Pilgrim Baxter Mid Cap Growth -
0.90% up to $100 million and 0.80% over $100 million; and WRL Goldman
Sachs Growth - 0.90% up to $100 million and 0.80% over $100 million.
(13) Because WRL J.P. Morgan Real Estate Securities commenced operations on May
1, 1998, the percentages set forth as "Other Expenses" and "Total
Portfolio Annual Expenses" are annualized.
(14) Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap commenced
operations on May 1, 1999, the percentages set forth as "Other Expenses"
and "Total Portfolio Annual Expenses" are estimates.
9
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire $1,000 is
invested in the subaccount listed.
<TABLE>
<CAPTION>
IF THE CONTRACT
IS ANNUITIZED*
IF THE CONTRACT AT THE END OF THE
IS SURRENDERED APPLICABLE TIME PERIOD
AT THE END OF THE OR IF THE CONTRACT IS NOT
SUBACCOUNTS APPLICABLE TIME PERIOD SURRENDERED OR ANNUITIZED
- ----------------------------------------- --------------------------------------- --------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WRL Janus Growth $104 $133 $165 $267 $24 $73 $125 $267
WRL Janus Global 105 136 171 279 25 76 131 279
WRL Alger Aggressive Growth 104 135 169 275 24 75 129 275
WRL VKAM Emerging Growth 104 135 168 273 24 75 128 273
WRL AEGON Balanced 104 135 169 275 24 75 129 275
WRL AEGON Bond 101 124 150 237 21 64 110 237
WRL LKCM Strategic Total Return 104 134 166 270 24 74 126 270
WRL Federated Growth & Income 104 135 168 274 24 75 128 274
WRL J.P. Morgan Money Market 100 122 146 229 20 62 106 229
WRL J.P. Morgan Real Estate Securities 105 138 173 284 25 78 133 284
WRL Third Avenue Value 105 138 173 284 25 78 133 284
WRL NWQ Value Equity 104 135 168 273 24 75 128 273
WRL Dean Asset Allocation 104 134 166 270 24 74 126 270
WRL C.A.S.E. Growth 105 138 173 284 25 78 133 284
WRL GE/Scottish Equitable
International Equity 110 153 198 332 30 93 158 332
WRL GE U.S. Equity 106 139 176 289 26 79 136 289
WRL Goldman Sachs Growth 105 138 N/A N/A 25 78 N/A N/A
WRL Goldman Sachs Small Cap 105 138 N/A N/A 25 78 N/A N/A
WRL T. Rowe Price Dividend Growth 105 138 N/A N/A 25 78 N/A N/A
WRL T. Rowe Price Small Cap 105 138 N/A N/A 25 78 N/A N/A
WRL Salomon All Cap 105 138 N/A N/A 25 78 N/A N/A
WRL Pilgrim Baxter Mid Cap Growth 105 138 N/A N/A 25 78 N/A N/A
WRL Dreyfus Mid Cap 105 138 N/A N/A 25 78 N/A N/A
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
The above table will help you understand the costs of investing in the
subaccounts. The table reflects the 1998 expenses of the portfolios and the
subaccount fees and charges. The "Other Expenses" and "Total Portfolio Annual
Expenses" for WRL J.P. Morgan Real Estate Securities are annualized, and for
the WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price
Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim
Baxter Mid Cap Growth and WRL Dreyfus Mid Cap, are estimates. The table does
not reflect premium taxes which may range up to 3.5%, depending on the
jurisdiction.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND DOES NOT REPRESENT PAST OR FUTURE ANNUAL
RETURNS. ACTUAL RETURNS MAY BE GREATER OR LESS THAN THE ASSUMED RATE.
10
<PAGE>
The above examples assume that no transfer charges have been assessed. In
addition, the $35 annual Contract charge is reflected as a charge of 0.10%
based on an average annuity value of $34,638.
There is a financial history of each subaccount in Appendix A to this
prospectus. See Appendix A -- Condensed Financial Information.
1. THE ANNUITY CONTRACT
This prospectus describes the WRL Freedom Wealth Creator/registered
trademark/ Variable Annuity Contract offered by Western Reserve.
An annuity is a contract between you, the owner, and an insurance company
(in this case Western Reserve), where the insurance company promises to pay you
an income in the form of annuity payments. These payments begin after the
maturity date. (See Section 2.) Until the maturity date, your annuity is in the
accumulation period and the earnings are tax deferred. Tax deferral means you
generally are not taxed on your annuity until you take money out of your
annuity. After the maturity date, your annuity switches to the income phase.
The Contract is a flexible purchase variable annuity. You can use the
Contract to accumulate funds for retirement or other long-term financial
planning purposes.
It is a "flexible purchase" Contract because after you purchase it, you
can generally make additional investments of $50 or more, until the maturity
date. But you are not required to make any additional investments.
The Contract is a "variable" annuity because the value of your Contract
can go up or down based on the performance of your investment choices. If you
select the variable annuity portion of the Contract, the amount of money you
are able to accumulate in your Contract during the accumulation period depends
upon the performance of your investment choices. The amount of annuity payments
you receive during the income phase from the variable annuity portion of your
Contract also depends upon the investment performance of your investment
choices for the income phase.
The Contract also contains a fixed account. The fixed account offers an
interest rate that is guaranteed by Western Reserve to equal at least 3% per
year. There may be different interest rates for each payment or transfer you
direct to the fixed account. The interest rates we set will be credited for
periods of at least one year measured from each payment or transfer date.
Massachusetts, New Jersey and Washington State residents: The fixed
account is NOT available to you. You may not direct any money to the fixed
account or transfer any money to the fixed account.
OTHER CONTRACTS
We offer other variable annuity contracts which also invest in the same
portfolios of the fund. These contracts may have different charges that could
affect subaccount
11
<PAGE>
performance, and may offer different benefits more suitable to your needs. To
obtain more information about these contracts, contact your agent, or call us
at 1-800-851-9777.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments under the Contract start. This
is the maturity date. You can change this date by giving us 30 days written
notice. The maturity date cannot be earlier than the end of the fifth Contract
year. The latest annuity maturity date is the Contract month following the
month in which the annuitant reaches age 90. The maturity date may be earlier
for qualified Contracts.
ELECTION OF ANNUITY PAYMENT OPTION. Before the maturity date, if the
annuitant is alive, you may choose an annuity payment option or change your
option. If you do not choose an annuity option by the maturity date, we will
make payments under Option D (see below) as a Variable Life Income with 10
years of guaranteed payments. You cannot change the annuity payment option
after the maturity date.
If you choose a variable payment option, you must specify how you want the
annuity proceeds divided among the subaccounts as of the maturity date. If you
do not specify, we will allocate the annuity proceeds in the same proportion as
the annuity value is allocated among the investment options on the maturity
date.
Unless you specify otherwise, the annuitant named on the application will
receive the annuity payments. You can change the annuitant or add a joint
annuitant at any time before the maturity date, so long as we agree. If you do
not choose an annuitant, we will consider you to be the annuitant.
SUPPLEMENTAL CONTRACT. Once you annuitize and if you have selected a fixed
payment option, the Contract will end and we will issue a supplemental Contract
to describe the terms of the option you selected. The supplemental Contract
will name who will receive the annuity payments and describe when the annuity
payments will be made.
ANNUITY PAYMENT OPTIONS
The Contract provides five annuity payment options that are described
below. You can choose to receive payments monthly, quarterly, semi-annually, or
annually.
We will use your "annuity proceeds" to provide these payments. The
"annuity proceeds" is your annuity value on the maturity date, less any premium
tax that may apply. If your annuity payment would be less than $100, then we
will pay you the annuity proceeds in one lump sum.
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<PAGE>
FIXED ANNUITY INCOME PAYMENTS. If you choose annuity payment Option A, B
or C, the dollar amount of each annuity payment will be fixed on the maturity
date and guaranteed by us. The payment amount will depend on three things:
/bullet/ The amount of the annuity proceeds on the maturity date;
/bullet/ The interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 3%); and
/bullet/ The specific payment option you choose.
We may, in our discretion, increase the amount of a payment once payments
begin.
VARIABLE ANNUITY INCOME PAYMENTS. If you choose variable annuity payment
Option D or E, the dollar amount of the first variable payment will be
determined in accordance with the annuity payment rates set forth in the
applicable table contained in the Contract. The dollar amount of each
additional variable payment will vary based on the investment performance of
the subaccount(s) you invest in and the Contract's assumed investment return of
5%. The dollar amount of each variable payment after the first may increase,
decrease or remain constant. If, after all charges are deducted, the actual
investment performance exactly matches the Contract's assumed investment return
of 5% at all times, then the dollar amount of the next variable annuity payment
will remain equal. If actual investment performance, after all charges are
deducted, exceeds the assumed investment return, then the amount of the
variable annuity payments would increase. But, if actual investment
performance, less charges, is lower than the 5% assumed investment return, then
the amount of the variable annuity payments would decrease. The portfolio in
which you are invested must grow at a rate at least equal to the 5% assumed
investment return (plus the mortality and expense risk charge of 1.40%
annually) in order to avoid a decrease in the dollar amount of variable annuity
payments. For more information or how variable annuity income payments are
determined, see the SAI.
The annuity payment options are explained below. Options A, B, and C are
fixed only. Options D and E are variable only.
FIXED ANNUITY OPTIONS
PAYMENT OPTION A -- FIXED INSTALLMENTS. We will pay the annuity in equal
payments over a fixed period of 5, 10, 15 or 20 years or any other fixed period
acceptable to Western Reserve.
PAYMENT OPTION B -- LIFE INCOME: FIXED PAYMENTS
/bullet/ NO PERIOD CERTAIN -- We will make level payments only during the
annuitant's lifetime; or
/bullet/ 10 YEARS CERTAIN -- We will make level payments for the longer
of the annuitant's lifetime or ten years; or
/bullet/ GUARANTEED RETURN OF ANNUITY PROCEEDS -- We will make level
payments for the longer of the annuitant's lifetime or until the
total dollar amount of payments we made to you equals the annuity
proceeds.
13
<PAGE>
PAYMENT OPTION C -- JOINT AND SURVIVOR LIFE INCOME: Fixed Payments. We
will make level payments during the joint lifetime of the annuitant and a
co-annuitant of your choice. Payments will be made as long as either person is
living.
VARIABLE ANNUITY OPTIONS
PAYMENT OPTION D -- VARIABLE LIFE INCOME. The annuity proceeds are used to
purchase annuity units of the subaccounts you select. You may choose between:
/bullet/ NO PERIOD CERTAIN - We will make variable payments only during
the annuitant's lifetime; or
/bullet/ 10 YEARS CERTAIN - We will make variable payments for the longer
of the annuitant's lifetime or ten years.
PAYMENT OPTION E - VARIABLE JOINT AND SURVIVOR LIFE INCOME. We will make
variable payments during the joint lifetime of the annuitant and a co-annuitant
of your choice. Payments will be made as long as either person is living.
NOTE CAREFULLY:
If:
/bullet/ you choose Life Income with No Period Certain or a Joint and
Survivor Life Income (fixed or variable); and
/bullet/ the annuitant(s) dies before the due date of the second annuity
payment;
Then:
/bullet/ we may make only one annuity payment.
If:
/bullet/ you choose Fixed Installments, Life Income with 10 years Certain
or Guaranteed Return of Annuity Proceeds; and
/bullet/ the person receiving payments dies prior to the end of the
guaranteed period;
Then:
/bullet/ the remaining guaranteed payments will be continued to that
person's beneficiary, or their value (determined at the date of
death) may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity
payment checks if the postal or other delivery service is unable to deliver
checks to the payee's address of record. The payee is responsible to keep
Western Reserve informed of the payee's current address of record.
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
Western Reserve will issue a Contract IF:
/bullet/ we receive the information we need to issue the Contract;
/bullet/ we receive a minimum initial purchase payment; and
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<PAGE>
/bullet/ you (annuitant and any joint owner) are age 85 or younger.
PURCHASE PAYMENTS
You should make checks or drafts for purchase payments payable only to
"Western Reserve Life" and send them to the administrative office. Your check
or draft must be honored in order for Western Reserve to pay any associated
payments and benefits due under the Contract.
INITIAL PURCHASE REQUIREMENTS
The initial purchase payment for non-qualified Contracts must be at least
$5,000. However, you may make a minimum initial purchase payment of $1,000,
rather than $5,000, if you indicate on your application that you anticipate
making minimum monthly payments of at least $100 by electronic funds transfer.
For traditional or Roth IRAs, the minimum initial purchase payment is $1,000
and for qualified Contracts other than traditional or Roth IRAs, the minimum
initial purchase payment is $50.
We will credit your initial purchase payment to your Contract within two
business days after the day we receive it and your complete Contract
information. If we are unable to credit your initial purchase payment, we will
contact you within five business days and explain why. We will also return your
initial purchase payment at that time unless you tell us to keep it. We will
credit your initial purchase payment as soon as we receive all necessary
application information.
The date on which we credit your initial purchase payment to your Contract
is the Contract date. The Contract date is used to determine Contract years,
Contract months and Contract anniversaries.
If you wish to make payments by bank wire, you should instruct your bank
to wire federal funds to us. Please contact us at 1-800-851-9777 for complete
wire instructions.
We may reject any application or purchase payments for any reason
permitted by law.
ADDITIONAL PURCHASE PAYMENTS
You are not required to make any additional purchase payments. However,
you can make additional purchase payments as often as you like during the
lifetime of the annuitant and prior to the maturity date. Additional purchase
payments must be at least $50 ($100 monthly in the case of non-qualified
Contracts with a $1,000 initial purchase payment, and $1,000 if by wire). We
will credit additional purchase payments to your Contract as of the business
day we receive your purchase payment and required information.
MAXIMUM ANNUAL PURCHASE PAYMENTS
We allow purchase payments up to a total of $1,000,000 per Contract year
without prior approval.
15
<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your purchase payment to
the investment choices you select. Your allocation must be in whole percentages
and must total 100%. We will allocate additional purchase payments the same
way, unless you request a different allocation.
You may change allocations for future additional purchase payments by
sending written instructions or by telephone, subject to the limitations
described below under "Telephone Transactions." The allocation change will
apply to purchase payments received after the date we receive the change
request. We impose a $25 charge each time you change your allocation of
purchase payments among the subaccounts and the fixed account more than once
each Contract quarter.
You should review periodically how your payments are divided among the
subaccounts because market conditions and your overall financial objective may
change.
ANNUITY VALUE
You should expect your annuity value to change from valuation period to
valuation period to reflect the investment performance of the portfolios, the
interest credited to your value in the fixed account, and the fees and charges
we deduct. A valuation period begins at the close of business on each business
day and ends at the close of business on the next succeeding business day. A
business day is any day the New York Stock Exchange is open. Our business day
closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern time.
We observe the same holidays as the New York Stock Exchange.
ACCUMULATION UNITS
We measure the value of your Contract during the accumulation period by
using a unit called an accumulation unit. During the income phase, we call the
unit an annuity unit. When you direct money into a subaccount, we credit your
Contract with accumulation units for that subaccount. We determine how many
accumulation units to credit by dividing the dollar amount you direct to the
subaccount by the subaccount's accumulation unit value as of the end of that
business day. If you withdraw or transfer out of a subaccount, or if we assess
a transfer or annual Contract charge, we subtract accumulation units from the
subaccounts using the same method.
Each subaccount's accumulation unit value was set at $10 when the
subaccount started. We recalculate the accumulation unit value for each
subaccount at the close of each business day. The new value reflects the
investment performance of the underlying portfolio and the daily deduction of
the mortality and expense risk charge. For a detailed discussion of how we
determine accumulation unit values, see the SAI.
4. INVESTMENT CHOICES
THE SEPARATE ACCOUNT
The separate account currently consists of 23 subaccounts.
16
<PAGE>
THE FUND. Each subaccount invests exclusively in one portfolio of the
fund. The portfolios and their sub-adviser(s) are listed below.
<TABLE>
<CAPTION>
SUB-ADVISER PORTFOLIO
<S> <C>
JANUS CAPITAL CORPORATION WRL Janus Growth
WRL Janus Global
FRED ALGER MANAGEMENT, INC. WRL Alger Aggressive Growth
VAN KAMPEN ASSET MANAGEMENT INC. WRL VKAM Emerging Growth
AEGON USA INVESTMENT MANAGEMENT, INC. WRL AEGON Balanced
WRL AEGON Bond
LUTHER KING CAPITAL MANAGEMENT CORPORATION WRL LKCM Strategic Total Return
FEDERATED INVESTMENT COUNSELING WRL Federated Growth & Income
J.P. MORGAN INVESTMENT MANAGEMENT INC. WRL J.P. Morgan Money Market
WRL J.P. Morgan Real Estate Securities
EQSF ADVISERS, INC. WRL Third Avenue Value
NWQ INVESTMENT MANAGEMENT COMPANY, INC. WRL NWQ Value Equity
DEAN INVESTMENT ASSOCIATES WRL Dean Asset Allocation
C.A.S.E. MANAGEMENT, INC. WRL C.A.S.E. Growth
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED WRL GE/Scottish Equitable International Equity
AND GE INVESTMENT MANAGEMENT INCORPORATED
GE INVESTMENT MANAGEMENT INCORPORATED WRL GE U.S. Equity
GOLDMAN SACHS ASSET MANAGEMENT, INC. WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
T. ROWE PRICE ASSOCIATES, INC. WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
SALOMON BROTHERS ASSET MANAGEMENT, INC. WRL Salomon All Cap
PILGRIM BAXTER & ASSOCIATES, LTD. WRL Pilgrim Baxter Mid Cap Growth
THE DREYFUS CORPORATION WRL Dreyfus Mid Cap
</TABLE>
The general public may not purchase these portfolios. Their investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds would be similar those portfolios offered by this
prospectus.
17
<PAGE>
THERE IS NO ASSURANCE THAT A PORTFOLIO WILL ACHIEVE ITS STATED
OBJECTIVE(S). MORE DETAILED INFORMATION, INCLUDING AN EXPLANATION OF EACH
PORTFOLIO'S INVESTMENT OBJECTIVE MAY BE FOUND IN THE FUND'S CURRENT PROSPECTUS,
WHICH IS ATTACHED TO THIS PROSPECTUS. YOU SHOULD READ THE FUND PROSPECTUS
CAREFULLY BEFORE YOU INVEST.
THE FIXED ACCOUNT
Purchase payments allocated and amounts transferred to the fixed account
become part of the general account of Western Reserve. Interests in the general
account have not been registered under the Securities Act of 1933 (the "1933
Act"), nor is the general account registered as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). Accordingly,
neither the general account nor any interests therein are generally subject to
the provisions of the 1933 or 1940 Acts. Western Reserve has been advised that
the staff of the SEC has not reviewed the disclosures in this prospectus which
relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be
less than 3% per year. We have no formula for determining fixed account
interest rates. We establish the interest rate, at our sole discretion, for
each purchase payment or transfer into the fixed account. Rates are guaranteed
for at least one year.
If you select the fixed account, your money will be placed with the other
general assets of Western Reserve. All assets in our general account are
subject to the general liabilities of our business operations. The amount of
money you are able to accumulate in the fixed account during the accumulation
period depends upon the total interest credited. The amount of annuity payments
you receive during the income phase under a fixed annuity option will remain
level for the entire income phase.
When you request a transfer or partial withdrawal from the fixed account,
we will account for it on a first-in, first-out ("FIFO") basis, for purposes of
crediting your interest. This means that we will take the deduction from the
oldest money you have put in the fixed account. You may not make partial
withdrawals from the fixed account unless we consent.
Massachusetts, New Jersey and Washington State residents: The fixed
account is NOT available to you. You may not direct any money to the fixed
account or transfer any of your Contract's value into the fixed account.
TRANSFERS
During the accumulation period, you or your agent/registered
representative of record may make transfers from any subaccount as often as you
wish. However, we will not permit you to make transfers if you have elected
dollar cost averaging, asset rebalancing or systematic partial withdrawals.
Transfers from the fixed account are allowed once each Contract year. The
amount you may transfer out of the fixed account is limited to the greater of:
(1) 25% of the dollar amount in the fixed account, or (2) the amount you
transferred out of the fixed account in the previous Contract year.
18
<PAGE>
Massachusetts, New Jersey and Washington State residents: You may NOT
transfer any of your Contract's value into the fixed account.
Transfers may be made by telephone or fax, subject to limitations
described below under Telephone Transactions.
If you make more than 12 transfers from the subaccounts in any Contract
year, we will charge you $25 for each additional transfer you make during that
year. Currently, there is no charge for transfers from the fixed account.
The Contract's transfer privilege is not intended to afford owners a way
to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from WRL J.P.
Morgan Money Market. We interpret "substantive" to mean either a dollar amount
large enough to have a negative impact on a portfolio's operations, or a series
of movements between portfolios. We will not limit non-substantive transfers.
We may, at any time, no longer permit transfers, modify our procedures, or
limit the number of transfers we permit. Ordinarily, we will execute transfers
and determine all values in connection with transfers at the end of the
business day during which we receive the transfer request.
DOLLAR COST AVERAGING PROGRAM
Dollar cost averaging allows you to transfer systematically a specific
amount each month from the WRL J.P. Morgan Money Market subaccount, the WRL
AEGON Bond subaccount, the fixed account, or any combination of these accounts,
to a different subaccount. You may specify the dollar amount to be transferred
monthly; however, you must transfer a total of $100 monthly. To qualify, a
minimum of $5,000 must be in each subaccount from which we make transfers.
There is no charge for this program. These transfers do count towards the 12
free transfers allowed during each Contract year.
If you make dollar cost averaging transfers from the fixed account, each
month you may transfer no more than 1/10th of the dollar amount in the fixed
account on the date you start dollar cost averaging.
By transferring a set amount on a regular schedule instead of transferring
the total amount at one particular time, you may reduce the risk of investing
in the portfolios only when the price is high. Dollar cost averaging does not
guarantee a profit and it does not protect you from loss if market prices
decline.
We reserve the right to discontinue offering dollar cost averaging 30 days
after we send notice to you. Dollar cost averaging is not available if you have
elected the asset rebalancing program or systematic partial withdrawals.
ASSET REBALANCING PROGRAM
During the accumulation period you can instruct us to rebalance
automatically the amounts in your subaccounts to maintain your desired asset
allocation. This feature is called
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<PAGE>
asset rebalancing and can be started and stopped at any time free of charge.
However, we will not rebalance if you are in the dollar cost averaging program,
if you take systematic partial withdrawals or if you request any other
transfer. Asset rebalancing ignores amounts in the fixed account. You can
choose to rebalance quarterly, semi-annually, or annually.
To qualify for asset rebalancing, a minimum annuity value of $5,000 for an
existing Contract, or a minimum initial purchase payment of $5,000 for a new
Contract, is required. Asset rebalancing does not guarantee gains, nor does it
assure that any subaccount will not have losses.
Each reallocation which occurs under asset rebalancing will be counted
towards the 12 free transfers allowed during each Contract year.
We reserve the right to discontinue, modify or suspend the asset
rebalancing program at any time.
TELEPHONE OR FAX TRANSACTIONS
You may make transfers, withdrawals and change the allocation of
additional purchase payments by telephone. Telephone withdrawals are not
allowed in the following situations:
/bullet/ for qualified retirement accounts (except IRAs);
/bullet/ if the amount you want to withdraw is greater than $50,000; or
/bullet/ if the address of record has been changed within the past 10
days.
Upon instructions from you, the registered representative/agent of record
for your Contract may also make telephone transfers or withdrawals for you. If
you do not want the ability to make transfers or withdrawals by telephone, you
should notify us in writing.
You may make telephone transfers or withdrawals by calling our toll-free
number 1-800-851-9777. You will be required to provide certain information for
identification purposes when you request a transaction by telephone. Western
Reserve may also require written confirmation of your request. Western Reserve
will not be liable for following telephone requests that it believes are
genuine.
You may also fax your transfer request to us at 727-299-1648. We will not
be responsible for transmittal problems which are not reported to us within
five business. Any reports must be accompanied by proof of the faxed
transmittal.
Telephone requests must be received before 4:00 p.m. Eastern time to
assure same-day pricing of the transaction. Western Reserve may discontinue
this option at any time.
THIRD PARTY INVESTMENT SERVICES
Western Reserve or an affiliate 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
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not limited to, transferring subaccount values among subaccounts in accordance
with various investment allocation strategies that these third parties employ.
Such independent third parties may or may not be appointed Western Reserve
agents for the sale of Contracts.
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 CONTRACTS. 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.
5. EXPENSES
There are charges and expenses associated with your Contract that reduce
the return on your investment in the Contract.
MORTALITY AND EXPENSE RISK CHARGE
We charge a fee as compensation for bearing certain mortality and expense
risks under the Contract. Examples include a guarantee of annuity rates, the
death benefits, certain Contract expenses, and assuming the risk that the
current charges will be insufficient in the future to cover costs of
administering the Contract. The mortality and expense risk charge is equal, on
an annual basis, to 1.40% of the average daily net assets that you have
invested in each subaccount. We intend to reduce this charge to 1.25% after the
first seven Contract years, although we do not guarantee that we will do so.
This charge is deducted from the subaccounts during both the accumulation
period and the annuity period (the income phase).
If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge covers more than actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
ANNUAL CONTRACT CHARGE
We deduct an annual Contract charge of $35 from your annuity value on each
Contract anniversary and at surrender. We deduct the charge to cover our costs
of administering the Contract. We currently waive this charge if the total
purchase payments, minus all partial withdrawals, is more than $50,000 on the
Contract anniversary for which the charge is payable.
TRANSFER CHARGE
You are allowed to make 12 free transfers per Contract year. If you make
more than 12 transfers per Contract year, we charge $25 for each additional
transfer. We deduct the
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charge from the amount transferred. Dollar cost averaging transfers and asset
rebalancing are considered transfers. All transfer requests made on the same
day are treated as a single request. We deduct the charge to compensate us for
the cost of processing the transfer.
LOAN PROCESSING FEE
If you take a Contract loan, we will impose a $30 loan processing fee.
This fee covers loan processing and other expenses associated with establishing
and administering the loan reserve. Only qualified Contracts can take Contract
loans.
FEE FOR CHANGES IN YOUR PURCHASE PAYMENT ALLOCATIONS
During the accumulation period, you may allocate a percentage of the
purchase payment to one or more subaccounts, the fixed account, or a
combination of both. If, in any Contract quarter, you change the way you
allocate your purchase payments more than once, then we will impose a $25
charge for the second and each additional change in allocation you make during
that Contract quarter. We will deduct the charge from the subaccounts on a pro
rata basis.
PREMIUM TAXES
Some states assess premium taxes on the purchase payments you make.
Currently, we do not deduct for these taxes at the time you make a purchase
payment. However, we will deduct the total amount of premium taxes, if any,
from the annuity value when:
/bullet/ you elect to begin receiving annuity payments;
/bullet/ you surrender the Contract;
/bullet/ you request a partial withdrawal; or
/bullet/ a death benefit is paid.
Generally, premium taxes range from 0% to 3.50%, depending on the state.
FEDERAL, STATE AND LOCAL TAXES
We may in the future deduct charges from the Contract for any taxes we
incur because of the Contract. However, no deductions are being made at the
present time.
WITHDRAWAL CHARGE
During the accumulation period, you may withdraw part or all of the
Contract's annuity value. We impose a withdrawal charge to help us recover
sales expenses, including broker-dealer compensation and printing, sales
literature and advertising costs. We deduct this charge from your annuity value
at the time you request the withdrawal.
If you take a partial withdrawal or if you surrender your Contract
completely, we will deduct a withdrawal charge of up to 8.0% of purchase
payments withdrawn within seven years after we receive a purchase payment. To
calculate withdrawal charges, we treat withdrawals as coming first from the
oldest purchase payment, then the next oldest and so forth.
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For the first withdrawal or systematic partial withdrawal you make in any
Contract year, we waive that portion of the withdrawal charge that is based on
the first 10% of your Contract's annuity value on the time of the withdrawal.
Amounts of the first withdrawal in excess of the first 10% of your Contract's
annuity value and all subsequent withdrawals you make during the Contract year
will be subject to a withdrawal charge. We will deduct the full withdrawal
charge if you surrender your Contract completely. We do not assess withdrawal
charges when you annuitize. We waive the withdrawal charge under certain
circumstances (see below).
The following schedule shows the withdrawal charges that apply during the
seven years following each purchase payment:
<TABLE>
<CAPTION>
NUMBER OF MONTHS
FROM RECEIPT OF EACH WITHDRAWAL
PURCHASE PAYMENT CHARGE
<S> <C>
12 or less 8%
13 through 24 7%
25 through 36 6%
37 through 48 5%
49 through 60 4%
61 through 72 3%
73 through 84 2%
85 or more 0%
</TABLE>
For example, assume your Contract's annuity value is $100,000 at the end
of the 13th month since your initial purchase payment and you withdraw $30,000
as your first withdrawal of the Contract year. Because the $30,000 is more than
10% of your Contract's annuity value ($10,000), you would pay a withdrawal
charge of $1,505.37 on the remaining $20,000 (7% of $21,505.37, which is
$20,000 plus the $1,505.37 withdrawal charge).
Keep in mind that withdrawals may be taxable, and if made before age
59-1/2, may be subject to a 10% federal penalty tax. For tax purposes,
withdrawals are considered to come from earnings first.
NURSING CARE FACILITY WAIVER. If your Contract contains a nursing care
facility waiver endorsement, we will waive the withdrawal charge, provided:
/bullet/ you (or any joint owner) have been confined to a nursing care
facility for 30 consecutive days or longer;
/bullet/ your confinement began after the Contract date; and
/bullet/ you provide us with written evidence of your confinement within
two months after your confinement ends.
We will waive the withdrawal charge under the endorsement only for partial
withdrawals and complete surrenders made during your confinement or within two
months after your confinement ends. This endorsement is not available in all
states.
NIMCRUT CONTRACTS. The Contract may be utilized to fund a Net Income
Makeup Charitable Remainder Unitrust (NIMCRUT). If an owner of a NIMCRUT takes
a partial
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withdrawal from a NIMCRUT Contract, we will deduct withdrawal charges. However,
once each calendar quarter, the NIMCRUT owner may withdraw from the NIMCRUT
Contract any portion of the annuity value that is greater than the total
purchase payments made, then we will not deduct withdrawal charges on such
withdrawals.
If the NIMCRUT owner surrenders the Contract completely within the
withdrawal charge period, we will deduct withdrawal charges as specified above.
The withdrawal charges will be applied to total purchase payments made, less
any previous withdrawals on which you paid withdrawal charges.
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount is reduced by the fees and
expenses paid by the portfolios. A description of these expenses is found in
the "Fee Table" section of this prospectus and in the fund prospectus.
REDUCED CHARGES AND EXPENSES TO EMPLOYEES
We may reduce the withdrawal charge and annual Contract charge for
Contracts sold to large groups of full-time employees of the same employer,
including directors, officers and full-time employees of Western Reserve or its
affiliates, or other groups where sales to the group reduce our administrative
expenses.
6. TAXES
NOTE: Western Reserve has prepared the following information on federal
income taxes as a general discussion of the subject. It is not intended as tax
advice to any individual. You should consult your own tax advisor about your
own circumstances. We believe that the Contract qualifies as an annuity
contract for federal income tax purposes and the following discussion assumes
it so qualifies. We have included an additional discussion regarding taxes in
the SAI.
ANNUITY CONTRACTS IN GENERAL
Deferred annuity contracts are a way of setting aside money for future
needs like retirement. Congress recognized how important saving for retirement
is and provided special rules in the Code for annuities.
Simply stated, these rules provide that you will not be taxed on the
earnings, if any, on the money held in your annuity Contract until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
Contract-qualified or non-qualified (discussed below).
You will not be taxed on increases in the value of your Contract until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporations or certain other entities
other than tax-qualified trusts) owns a non-qualified Contract, the Contract
will generally not be treated as an annuity for tax purposes.
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QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under an individual retirement annuity, a
403(b) plan, 457 plan, or pension or profit sharing plan, your Contract is
referred to as a qualified Contract.
If you purchase the Contract as an individual and not under a qualified
Contract, your Contract is referred to as a non-qualified Contract.
A qualified Contract may be used in connection with the following plans:
/bullet/ INDIVIDUAL RETIREMENT ANNUITY (IRA): A traditional IRA allows
individuals to make contributions, which may be deductible, to
the Contract. A Roth IRA also allows individuals to make
contributions to the Contract, but it does not allow a deduction
for contributions. Roth IRA distributions may be tax-free if the
owner meets certain rules.
/bullet/ TAX-SHELTERED ANNUITY (403(B) PLAN): A 403(b) plan may be made
available to employees of certain public school systems and
tax-exempt organizations and permits contributions to the
Contract on a pre-tax basis.
/bullet/ CORPORATE PENSION AND PROFIT-SHARING AND H.R. 10 PLANS:
Employers and self-employed individuals can establish pension or
profit-sharing plans for their employees or themselves and make
contributions to the Contract on a pre-tax basis.
/bullet/ DEFERRED COMPENSATION PLAN (457 PLAN): Certain governmental and
tax-exempt organizations can establish a plan to defer
compensation on behalf of their employees through contributions
to the Contract.
There are limits on the amount of annual contributions you can make to
these plans. Other restrictions may apply. The terms of the plan may limit your
rights under a qualified Contract. You should consult your legal counsel or tax
advisor if you are considering purchasing a Contract for use with any
retirement plan. We have provided more detailed information on these plans and
the tax consequences associated with them in the SAI.
WITHDRAWALS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats that
withdrawal as first coming from earnings and then from your purchase payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that
is earnings. Different rules apply for annuity payments.
The Code also provides that withdrawn earnings may be subject to a
penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
/bullet/ paid on or after the taxpayer reaches age 59-1/2;
/bullet/ paid after the taxpayer dies;
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/bullet/ paid if the taxpayer becomes totally disabled (as that term is
defined in the Code);
/bullet/ paid in a series of substantially equal payments made annually
(or more frequently) under a lifetime annuity;
/bullet/ paid under an immediate annuity; or
/bullet/ which come from purchase payments made prior to August 14, 1982.
MULTIPLE CONTRACTS
All non-qualified, deferred annuity contracts entered into after October
21, 1988 that we issue (or our affiliates issue) to the same owner during any
calendar year are to be treated as one annuity contract for purposes of
determining the amount includable in an individual's gross income. There may be
other situations in which the Treasury may conclude that it would be
appropriate to aggregate two or more annuity contracts purchased by the same
owner. You should consult a competent tax advisor before purchasing more than
one Contract or other annuity contracts.
DIVERSIFICATION AND DISTRIBUTION REQUIREMENTS
The Code provides that the underlying investments for a non-qualified
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. A non-qualified Contract must meet certain
distribution requirements upon an owner's death in order to be treated as an
annuity contract. A qualified Contract (except a Roth IRA) must also meet
certain distribution requirements during the owner's life. These
diversification and distribution requirements are discussed in the SAI. Western
Reserve may modify the Contract to attempt to maintain favorable tax treatment.
WITHDRAWALS -- QUALIFIED CONTRACTS
The above information describing the taxation of non-qualified Contracts
does not apply to qualified Contracts. There are special rules that govern
qualified Contracts, including rules restricting when amounts can be paid from
the Contracts and providing that a penalty tax may be assessed on amounts
withdrawn from the Contract prior to the date you reach age 59-1/2, unless you
meet one of the exceptions to this rule. We have provided more information in
the SAI.
WITHDRAWALS -- 403(B) CONTRACTS
The Code limits the withdrawal of purchase payments from certain 403(b)
Contracts. Withdrawals generally can only be made when an owner:
/bullet/ reaches age 59-1/2;
/bullet/ leaves his/her job;
/bullet/ dies; or
/bullet/ becomes disabled (as that term is defined in the Code); or
/bullet/ in the case of hardship. However, in the case of hardship, the
owner can only withdraw the purchase payments and not any
earnings.
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NET INCOME MAKEUP CHARITABLE REMAINDER UNITRUSTS (NIMCRUTS)
Issues arising in connection with the ownership of certain annuity
products by charitable remainder trusts are currently under extensive study by
the Internal Revenue Service. You should consult a competent legal or tax
advisor before you purchase a Contract by, or transfer a Contract to, a
charitable remainder trust.
PARTIAL WITHDRAWALS AND SURRENDERS
In the case of a partial withdrawal, systematic partial withdrawal, or
complete surrender distributed to a participant or beneficiary under a
qualified Contract (other than a Roth IRA or a qualified Contract under Section
457 of the Code as to which there are special rules), a ratable portion of the
amount received is taxable, generally based on the ratio of the investment in
the Contract to the total annuity value. The "investment in the contract"
generally equals the portion, if any, of any purchase payments paid by or on
behalf of an individual under a Contract which is not excluded from the
individual's gross income. For Contracts issued in connection with qualified
plans, the "investment in the contract" can be zero.
Generally, in the case of a partial withdrawal, systematic partial
withdrawal, or complete surrender under a non-qualified Contract before the
maturity date, amounts received are first treated as taxable income to the
extent that the annuity value immediately before the partial withdrawal,
systematic partial withdrawal, or complete surrender exceeds the "investment in
the contract" at that time. Any additional amount partially withdrawn, applied
to a systematic partial withdrawal or complete surrender is not taxable. In the
event of a partial withdrawal or systematic partial withdrawal from, or
surrender of, a non-qualified Contract, we will withhold for tax purposes the
minimum amount required by law, unless the owner affirmatively elects, before
payments begin, to have either nothing withheld or a different amount withheld.
Loans and pledges or assignment of non-qualified Contracts are taxed in
the same manner as withdrawals from such Contracts.
TAXATION OF DEATH BENEFIT PROCEEDS
We may distribute amounts from the Contract because of the death of an
owner or the annuitant. Generally, such amounts are includable in the income of
the recipient:
/bullet/ if distributed in a lump sum, these amounts are taxed in the
same manner as a full surrender; or
/bullet/ if distributed under an annuity payment option, these amounts
are taxed in the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by
the owner's or annuitant's death. That is, the "investment in the contract"
remains generally the total purchase payments, less amounts received which were
not includable in gross income.
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ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment
option you select, in general, for non-qualified and certain qualified
Contracts, only a portion of the annuity payments you receive will be
includable in your gross income.
The excludable portion of each annuity payment you receive generally will
be determined as follows:
/bullet/ Fixed payments - by dividing the "investment in the contract" on
the maturity date by the total expected value of the annuity
payments for the term of the payments. This is the percentage of
each annuity payment that is excludable.
/bullet/ Variable payments - by dividing the "investment in the contract"
on the maturity date by the total number of expected periodic
payments. This is the amount of each annuity payment that is
excludable.
The remainder of each annuity payment is includable in gross income. Once
the "investment in the contract" has been fully recovered, the full amount of
any additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern
the allocation of the Contract's entire "investment in the contract" to each
such option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax advisor as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the maturity date, annuity payments stop because of an
annuitant's death, the excess (if any) of the "investment in the contract" as
of the maturity date over the aggregate amount of annuity payments received
that was excluded from gross income is generally allowable as a deduction for
your last tax return.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS
If you transfer your ownership or assign a Contract, designate an
annuitant or other beneficiary who is not also the owner, select certain
maturity dates, or change annuitants, you may trigger certain income or gift
tax consequences that are beyond the scope of this discussion. If you
contemplate any such transfer, assignment, selection, or change, you should
contact a competent tax advisor with respect to the potential tax effects of
such a transaction.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. You should consult a tax advisor with respect to
legislative developments and their effect on the Contract.
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7. ACCESS TO YOUR MONEY
SURRENDERS AND WITHDRAWALS
You can have access to the money in your Contract in several ways:
/bullet/ by making a withdrawal (either a complete surrender or partial
withdrawal); or
/bullet/ by taking annuity payments.
If you want to surrender your Contract completely, you will receive your
cash value, which equals the annuity value of your Contract minus:
/bullet/ any withdrawal charges;
/bullet/ premium taxes; and
/bullet/ the annual Contract charge.
No partial withdrawal is permitted if the withdrawal would reduce the cash
value below $5,000. You may not make withdrawals from the fixed account unless
we consent. Unless you tell us otherwise, we will take the withdrawal from each
of the investment choices in proportion to the cash value.
Remember that any withdrawal you take will reduce the annuity value, and
might reduce the amount of the death benefit. See Section 9, Death Benefit, for
more details.
Income taxes, federal tax penalties and certain restrictions may apply to
any withdrawals you make.
We must receive a properly completed surrender request which must contain
your original signature. If you reside in a community property state, your
spouse must also sign the surrender request. We will accept fax or telephone
requests for partial withdrawals as long as the withdrawal proceeds are being
sent to the address of record. The maximum withdrawal amount you may request by
fax or telephone is $50,000.
When we incur extraordinary expenses, such as overnight mail expenses, for
expediting delivery of your partial withdrawal or surrender payment, we will
deduct that charge from the payment. We charge $20 for an overnight delivery.
For your protection, we will require a signature guarantee for:
/bullet/ all requests for partial withdrawals or surrenders over
$100,000; or
/bullet/ where the partial withdrawal or surrender proceeds will be sent
to an address other than the address of record.
All signature guarantees must be made by:
/bullet/ a national or state bank;
/bullet/ a member firm of a national stock exchange; or
/bullet/ any institution that is an eligible guarantor under SEC rules
and regulations.
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Notarization is not an acceptable form of signature guarantee.
If the Contract's owner is not an individual, additional information may
be required. If you own a qualified Contract, the Code may require your spouse
to consent to any withdrawal. Other restrictions will apply to Section 403(b)
qualified Contracts and Texas Optional Retirement Program Contracts. For more
information, call us at 1-800-851-9777.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the separate account for a surrender, a
death benefit, or the death of the owner of a non-qualified Contract, will
generally occur within seven business days from the date all required
information is received by us. We may be permitted to defer such payment from
the separate account if:
/bullet/ the New York Stock Exchange is closed for other than usual
weekends or holidays or trading on the Exchange is otherwise
restricted; or
/bullet/ an emergency exists as defined by the SEC or the SEC requires
that trading be restricted; or
/bullet/ the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred
under these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right
to defer payment of transfers, partial withdrawals, surrenders and loan amounts
from the fixed account for up to six months.
SYSTEMATIC PARTIAL WITHDRAWALS
You can elect to receive regular payments from your Contract by using
systematic partial withdrawals. You can withdraw up to 10% of your cash value
annually (or up to 10% of your initial purchase payment if a new Contract), in
equal monthly, quarterly, semi-annual or annual payments of at least $200. Your
initial purchase payment, if a new Contract, or your cash value, if an existing
Contract, must equal at least $25,000. We will not process a systematic partial
withdrawal if the cash value for the entire Contract would be reduced below
$5,000. No systematic partial withdrawals are permitted from the fixed account.
We will impose a withdrawal charge for payments made under systematic partial
withdrawals.
You may stop systematic partial withdrawals at any time. We reserve the
right to discontinue offering systematic partial withdrawals 30 days after we
send you written notice. Systematic partial withdrawals are not available if
you have elected the dollar cost averaging or asset rebalancing program.
Income taxes, federal tax penalties and other restrictions may apply to
any systematic partial withdrawal you receive.
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CONTRACT LOANS FOR QUALIFIED CONTRACTS
You can take Contract loans during the accumulation period when the
Contract is:
/bullet/ used in connection with a Tax Sheltered Annuity Plan under
Section 403(b) of the Code;
/bullet/ purchased by a pension, profit-sharing, or other similar plan
qualified under section 401(a) of the Code (including Section
401(k) plans); and
/bullet/ the Contract has been in force for at least 10 days.
The maximum amount you may borrow against the Contract is the lesser of:
/bullet/ 50% of the annuity value; or
/bullet/ $50,000 reduced by the highest outstanding loan balance during
the one year period immediately prior to the loan date. However,
if the annuity value is less than $20,000, the maximum you may
borrow against the Contract is the lesser of 80% of the annuity
value or $10,000.
The minimum loan amount is $1,000 (unless otherwise required by state
law). You are responsible for requesting and repaying loans that comply with
applicable tax requirements, and other laws, such as the Employment Retirement
Income Security Act of 1974 ("ERISA"). Accordingly, you should consult a
competent tax advisor before requesting a Contract loan.
The loan amount will be withdrawn from your investment choices and
transferred to the loan reserve. The loan reserve is part of the fixed account
and is used as collateral for all Contract loans. We reserve the right to
postpone distributing the loan amount from the fixed account for up to six
months, if required.
On each Contract anniversary we will compare the amount of the Contract
loan to the amount in the loan reserve. If all Contract loans and unpaid
interest due on the loan exceed the amount in the loan reserve, we will
withdraw the difference from the subaccounts and transfer it to the loan
reserve. If the amount of the loan reserve exceeds the amount of the
outstanding Contract loan, we will withdraw the difference from the loan
reserve and transfer it in accordance with your current purchase payment
allocation. We reserve the right to transfer the excess to the fixed account if
the amount used to establish the loan reserve was transferred from the fixed
account.
If all Contract loans and unpaid interest due on the loan exceed the cash
value, we will mail to your last known address and to any assignee of record a
notice stating the amount due in order to reduce the loan amount so that the
loan amount no longer exceeds the cash value. If the excess amount is not paid
within 31 days after we mail the notice, the Contract will terminate without
value.
You can repay any Contract loan in full:
/bullet/ while the Contract is in force; and
/bullet/ during the accumulation period.
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NOTE CAREFULLY: If you do not repay your Contract loan, we will subtract
the amount of the unpaid loan plus interest from:
/bullet/ the amount of any death benefit proceeds; or
/bullet/ the amount we pay upon a partial withdrawal or full surrender;
or
/bullet/ the amount we apply on the maturity date to provide annuity
payments.
You must pay interest on the loan at the rate of 6% per year. We deduct
interest in arrears. Amounts in the loan reserve will earn interest at a
minimum guaranteed effective annual interest rate of 4%. Principal and interest
must be repaid:
/bullet/ in level quarterly or monthly payments over a 5-year period; or
/bullet/ over a 10, 15 or 20-year period, if the loan is used to buy your
principal residence.
An extended repayment period cannot go beyond the year you turn 70-1/2.
If:
/bullet/ a repayment is not received within 31 days from the original due
date;
Then:
/bullet/ a distribution of all Contract loans and unpaid accrued
interest, and any applicable charges, including any withdrawal
charge, will take place.
This distribution will be reported as taxable to the Internal Revenue
Service, may be subject to income and penalty tax, and may cause the Contract
to not qualify under Section 403(b) of the Code.
You may fax your loan request to us at 727-299-1620.
The loan date is the date we process the loan request. We impose a $30 fee
to cover loan processing and expenses associated with establishing and
administering the loan reserve. We reserve the right to limit the number of
Contract loans made to one per Contract year.
Contract loans may not be available in all states.
8. PERFORMANCE
Western Reserve periodically advertises performance of the subaccounts and
investment portfolios. We may disclose at least four different kinds of
performance.
First, we may disclose standard total return figures for the subaccounts
that reflect the deduction of all charges under the Contract, including the
mortality and expense charge, the annual Contract charge and the withdrawal
charge. THESE FIGURES ARE BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE
SUBACCOUNTS SINCE THEIR INCEPTION.
Second, we may disclose total return figures on a non-standard basis. This
means that the data may be presented for different time periods and different
dollar amounts. The data
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will not be reduced by the withdrawal charge currently assessed under the
Contract. We will only disclose non-standard performance data if it is
accompanied by standard total return data.
Third, we may present historic performance data for the portfolios since
their inception reduced by some or all fees and charges under the Contract.
Such adjusted historic performance includes data that precedes the inception
dates of the subaccounts, but is designed to show the performance that would
have resulted if the Contract had been available during that time.
Fourth, we may include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
The fund prospectus presents the total return of certain existing
SEC-registered funds that are managed by sub-advisers to the portfolios. These
funds have investment objectives, policies and strategies that are
substantially similar to those of certain portfolios. We call these funds the
"Similar Sub-Advised Funds." None of the fees and charges under the Contract
has been deducted from the performance data of the Similar Sub-Advised Funds.
If Contract fees and charges were deducted, the investment returns would be
lower. Similar Sub-Advised Funds are not available for investment under the
Contract.
Appendix B contains performance information that you may find useful. It
is divided into various parts, depending upon the type of performance
information shown. Future performance will vary and future results will not be
the same as the results shown.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain
circumstances, if you are an owner and the annuitant and you die during the
accumulation period. (If you are not the annuitant, a death benefit may or may
not be paid. See below.) The beneficiary may choose an annuity payment option,
or may choose to receive a lump sum.
WHEN WE PAY A DEATH BENEFIT
BEFORE THE MATURITY DATE. We will pay a death benefit to your beneficiary
IF:
/bullet/ you are both the annuitant and the owner of the Contract; and
/bullet/ you die before the maturity date.
If the only beneficiary is your surviving spouse, then he or she may elect
to continue the Contract as the new annuitant and owner, instead of receiving
the death benefit.
Distribution requirements apply to the annuity value upon the death of any
owner or annuitant. These restrictions are detailed in the SAI.
AFTER THE MATURITY DATE. The death benefit payable, if any, on or after
the maturity date depends on the annuity payment option selected.
33
<PAGE>
If:
/bullet/ you are not the annuitant; and
/bullet/ you die on or after the maturity date; and
/bullet/ the entire interest in the Contract has not been paid to you;
Then:
/bullet/ any remaining value in the Contract will be distributed at least
as rapidly as under the method of distribution being used as of
the date of the owner's death.
WHEN WE DO NOT PAY A DEATH BENEFIT
NO DEATH BENEFIT IS PAID IN THE FOLLOWING CASES:
If:
/bullet/ you are not the annuitant; and
/bullet/ the annuitant dies prior to the maturity date;
Then:
/bullet/ you will become the new annuitant and the Contract will
continue.
If:
/bullet/ you are not the annuitant; and
/bullet/ you die prior to the maturity date;
Then:
/bullet/ the new owner must surrender the Contract for the annuity value
within five years of your death.
NOTE CAREFULLY. If the owner does not name a successor owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or
other instrument, unless Western Reserve receives written notice of the trust
as a successor owner signed prior to the owner's death, that trust may not
exercise ownership rights to the Contract. It may be necessary to open a
probate estate in order to exercise ownership rights to the Contract if no
contingent owner is named in a written notice received by Western Reserve.
34
<PAGE>
AMOUNT OF DEATH BENEFIT
Death benefit provisions may differ from state to state. The death benefit
may be paid as a lump sum or as annuity payments. The death benefit will be the
greatest of the following:
If:
/bullet/ the annuitant dies during the accumulation period and
/bullet/ BEFORE the seventh Contract year; or
/bullet/ AFTER the annuitant reaches attained age 79;
Then:
/bullet/ the death benefit will be the greater of:
/bullet/ the annuity value on the date we receive proof of death and
your beneficiary's election regarding payments; or
/bullet/ the total purchase payments made, minus any partial
withdrawals.
If:
/bullet/ the annuitant dies during the accumulation period and
/bullet/ AFTER the seventh Contract year; but
/bullet/ BEFORE the annuitant reaches attained age 79;
Then:
/bullet/ the death benefit will be the greater of:
/bullet/ the death benefits described above; or
/bullet/ the annuity value on the seventh Contract anniversary, minus
any partial withdrawals.
If:
/bullet/ the annuitant dies during the accumulation period;
Then:
/bullet/ the death benefit will be the greater of:
/bullet/ the death benefits described above; or
/bullet/ the highest annuity value on any Contract anniversary between
your Contract date (as shown on your Contract schedule page) and
the earlier of:
35
<PAGE>
/bullet/ the annuitant's date of death; or
/bullet/ the Contract anniversary nearest the annuitant's 80th
birthday.
/bullet/ The highest annuity value will be increased by purchase payments
made and decreased by adjusted partial withdrawals taken
following the Contract anniversary date with the highest annuity
value. The adjusted partial withdrawal is equal to (a) times (b)
where
/bullet/ (a) is the ratio of the death benefit to the annuity value,
calculated on the date the partial withdrawal is processed, but
prior to the processing; and
/bullet/ (b) is the amount of the partial withdrawal.
Connecticut, Massachusetts, Montana, New Jersey, Puerto Rico and Texas
residents: The death benefit will be the greater of:
/bullet/ the annuity value on the date we receive the required
information;
/bullet/ the total purchase payments made, minus any partial withdrawals;
or
/bullet/ the annuity value on the seventh Contract anniversary, minus any
partial withdrawals (if the annuitant dies during the
accumulation period and AFTER the seventh Contract year; but
BEFORE the annuitant reaches attained age 79).
ALTERNATE PAYMENT ELECTIONS
The beneficiary may elect to receive the death benefit in a lump sum
payment, or (if not your surviving spouse) to receive payment:
1. within 5 years of the date of the annuitant's death;
2. over a specific number of years, not to exceed the beneficiary's life
expectancy, with payments starting within one year of the annuitant's
death; or
3. under a life annuity payout option, with payments starting within one
year of the annuitant's death.
If the beneficiary chooses 1 or 2 above, this Contract remains in effect
and remains in the accumulation period until it terminates at the end of the
elected period. The death benefit becomes the new annuity value. If the
beneficiary chooses 3 above, the Contract remains in effect, but moves into the
annuity phase with the beneficiary receiving payments under a life annuity
payout option. Special restrictions apply to 1 above. See the SAI for more
details.
10. OTHER INFORMATION
OWNERSHIP
You, as owner of the Contract, exercise all rights under the Contract. You
can change the owner at any time by notifying us in writing. An ownership
change may be a taxable event.
36
<PAGE>
ASSIGNMENT
You can also assign the Contract any time during your lifetime. Western
Reserve will not be bound by the assignment until we receive written notice of
the assignment. Western Reserve will not be liable for any payment or other
action we take in accordance with the Contract before we receive notice of the
assignment. An assignment may be a taxable event. There may be limitations on
your ability to assign a qualified Contract.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was incorporated under the laws of Ohio on October 1,
1957. It is engaged in the business of writing life insurance policies and
annuity contracts. Western Reserve is wholly-owned by First AUSA Life Insurance
Company, a stock life insurance company which is wholly-owned by AEGON USA,
Inc. (AEGON USA), which conducts most of its operations through subsidiary
companies engaged in the insurance business or in providing non-insurance
financial services. All of the stock of AEGON USA is indirectly owned by AEGON
N.V. of the Netherlands, the securities of which are publicly traded. AEGON
N.V., a holding company, conducts its business through subsidiary companies
engaged primarily in the insurance business. Western Reserve is licensed in the
District of Columbia, Guam, Puerto Rico and in all states except New York.
THE SEPARATE ACCOUNT
Western Reserve established a separate account, called the WRL Series
Annuity Account, under the laws of the State of Ohio on April 12, 1988. The
separate account is divided into subaccounts, each of which invests exclusively
in shares of a mutual fund portfolio. Currently, there are 23 subaccounts
offered through this Contract. Western Reserve may add, delete or substitute
subaccounts or investments held by the subaccounts, and we reserve the right to
change the investment objective of any subaccount, subject to applicable law as
described in the SAI. In addition, the separate account may be used for other
variable annuity contracts issued by Western Reserve.
The separate account is registered with the SEC as a unit investment trust
under the 1940 Act. However, the SEC does not supervise the management, the
investment practices, or the Contracts of the separate account or Western
Reserve.
The assets of the separate account are held in Western Reserve's name on
behalf of the separate account and belong to Western Reserve. However, the
assets underlying the Contracts are not chargeable with liabilities arising out
of any other business Western Reserve may conduct. The income, gains and
losses, realized and unrealized, from the assets allocated to each subaccount
are credited to and charged against that subaccount without regard to the
income, gains and losses from any other of our accounts or subaccounts.
Information about the separate account can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a web site (HTTP://WWW.SEC.GOV)
that contains other information regarding the separate account.
37
<PAGE>
VOTING RIGHTS
Western Reserve will vote all shares of the portfolios in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in accordance with those instructions. We will
vote shares for which no timely instructions were received in the same
proportion as the voting instructions we received. However, if we determine
that we are permitted to vote the shares in our own right, we may do so. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate portfolio. More information on voting
rights is provided in the SAI.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation is the principal underwriter of the Contracts.
Like Western Reserve, it is an indirect wholly-owned subsidiary of AEGON USA.
It is located at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG
Securities Corporation is registered as a broker/dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc.
First year commissions of up to 6% of purchase payments will be paid to
broker/dealers who sell the Contracts under agreements with AFSG Securities
Corporation. These commissions are not deducted from purchase payments. In
addition, certain production, persistency and managerial bonuses may be paid.
Western Reserve may also pay compensation to banks and other financial
institutions for their services in connection with the sale and servicing of
the Contracts.
NON-PARTICIPATING CONTRACT
The Contract does not participate or share in the profits or surplus
earnings of Western Reserve. No dividends are payable on the Contract.
VARIATIONS IN CONTRACT PROVISIONS
Certain provisions of the Contracts may vary from the descriptions in this
prospectus in order to comply with different state laws. See your Contract for
variations since any such state variations will be included in your Contract or
in riders or endorsements attached to your Contract.
Massachusetts, New Jersey and Washington State residents: The fixed
account is NOT available to you. You may not direct any money to the fixed
account or transfer any money to the fixed account.
Connecticut, Massachusetts, Montana, New Jersey, Puerto Rico and Texas
residents: The death benefit will be the greater of:
/bullet/ the annuity value on the date we receive the required
information;
38
<PAGE>
/bullet/ the total purchase payments made, minus any partial withdrawals;
or
/bullet/ the annuity value on the seventh Contract anniversary, minus any
partial withdrawals (if the annuitant dies during the
accumulation period and AFTER the seventh Contract year; but
BEFORE the annuitant reaches attained age 79).
YEAR 2000 READINESS DISCLOSURE
In May 1996, Western Reserve adopted and presently has in place a Year
2000 Project Plan (the "Plan") to review and analyze existing hardware and
software systems, as well as voice and data communications systems, to
determine if they are Year 2000 compliant. As of March 1, 1999, substantially
all of Western Reserve's mission-critical systems are Year 2000 compliant. The
Plan remains on track as we continue with the validation of our mission-critical
and non-mission-critical systems, including revalidation testing in 1999. In
addition, we have undertaken aggressive initiatives to test all systems that
interface with any third parties and other business partners. All of these
steps are aimed at allowing current operations to remain unaffected by the Year
2000 date change.
As of the date of this prospectus, Western Reserve has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly Western Reserve's risk of a material business interruption based
on the Year 2000 issues. It should be noted that the Year 2000 computer
problem, and its resolution, is complex and multifaceted, and any company's
success cannot be conclusively known until the Year 2000 is reached. In spite
of its efforts or results, our ability to function unaffected to and through
the Year 2000 may be adversely affected by actions, or failure to act, of third
parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section
3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C.
Section 1 (1998).
IMSA
We are a charter member of the Insurance Maketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
LEGAL PROCEEDINGS
Western Reserve, like other life insurance companies, is involved in
lawsuits. We are not aware of any class 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
39
<PAGE>
be predicted with certainty, Western Reserve believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have
a material adverse impact on the separate account, AFSG Securities Corporation,
the principal underwriter for the Contracts, or Western Reserve.
FINANCIAL STATEMENTS
The financial statements of Western Reserve and the separate account are
included in the SAI.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Definitions of Special Terms
The Contract-General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
Administration
Records and Reports
Distribution of the Contracts
Other Products
Custody of Assets
Legal Matters
Independent Accountants
Other Information
Financial Statements
Inquiries and requests for a SAI should be directed to:
Western Reserve Life
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
40
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WRL JANUS GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/92(1)-12/31/92 $10.000 $10.240 10,000
12/31/93 $10.240 $10.500 7,300,170
12/31/94 $10.500 $ 9.493 10,691,346
12/31/95 $ 9.493 $13.771 13,303,045
12/31/96 $13.771 $16.019 18,529,755
12/31/97 $16.019 $18.568 151,449
12/31/98 $18.568 $30.116 2,270,566
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/92(1)-12/31/92 $10.000 $10.140 10,000
12/31/93 $10.140 $11.330 1,298,622
12/31/94 $11.330 $10.400 1,516,637
12/31/95 $10.400 $12.613 2,298,276
12/31/96 $12.613 $12.455 2,818,826
12/31/97 $12.455 $13.407 37,167
12/31/98 $13.407 $14.452 747,108
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/92(1)-12/31/92 $10.000 $10.010 10,000
12/31/93 $10.010 $10.110 618,769
12/31/94 $10.110 $10.319 2,375,242
12/31/95 $10.319 $10.728 2,315,107
12/31/96 $10.728 $11.119 4,642,483
12/31/97 $11.119 $11.546 38,640
12/31/98 $11.546 $11.989 1,273,041
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
12/3/92(1)-12/31/92 $10.000 $10.151 25,000
12/31/93 $10.151 $13.520 1,927,294
12/31/94 $13.520 $13.364 6,555,723
12/31/95 $13.364 $16.217 6,454,647
12/31/96 $16.217 $20.428 10,475,149
12/31/97 $20.428 $23.921 98,103
12/31/98 $23.921 $30.669 1,458,390
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/93(1)-12/31/93 $10.000 $12.350 2,319,646
12/31/94 $12.350 $11.286 5,255,225
12/31/95 $11.286 $16.337 6,116,953
12/31/96 $16.337 $19.152 8,959,748
12/31/97 $19.152 $22.938 78,465
12/31/98 $22.938 $31.063 987,389
</TABLE>
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/93(1)-12/31/93 $10.000 $11.240 1,874,169
12/31/94 $11.240 $11.027 6,078,888
12/31/95 $11.027 $13.555 7,005,600
12/31/96 $13.555 $15.372 12,133,712
12/31/97 $15.372 $18.471 68,811
12/31/98 $18.471 $19.969 1,324,735
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/94(1)-12/31/94 $10.000 $ 9.782 1,104,940
12/31/95 $ 9.782 $13.313 4,238,166
12/31/96 $13.313 $14.500 6,567,346
12/31/97 $14.500 $17.766 88,470
12/31/98 $17.766 $26.048 1,061,718
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/94(1)-12/31/94 $10.000 $ 9.339 790,146
12/31/95 $ 9.339 $11.032 1,396,713
12/31/96 $11.032 $12.045 2,269,160
12/31/97 $12.045 $13.909 30,103
12/31/98 $13.909 $14.666 626,516
</TABLE>
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH & INCOME SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
3/1/94(1)-12/31/94 $10.000 $ 9.453 384,654
12/31/95 $ 9.453 $11.676 815,938
12/31/96 $11.676 $12.853 1,463,937
12/31/97 $12.853 $15.799 37,467
12/31/98 $15.799 $16.055 543,850
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
WRL DEAN ASSET ALLOCATION SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/3/95(1)-12/31/95 $10.000 $11.843 5,948,340
12/31/96 $11.843 $13.363 8,913,473
12/31/97 $13.363 $15.363 67,539
12/31/98 $15.363 $16.411 1,377,008
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/96(1)-12/31/96 $10.000 $11.213 1,992,766
12/31/97 $11.213 $13.827 64,057
12/31/98 $13.827 $12.983 913,328
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR SUBACCOUNT(2)
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/96(1)-12/31/96 $10.000 $10.509 302,972
12/31/97 $10.509 $10.719 17,614
12/31/98 $10.719 $11.609 81,042
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/96(1)-12/31/96 $10.000 $10.773 1,090,757
12/31/97 $10.773 $12.220 75,246
12/31/98 $12.220 $12.348 523,058
</TABLE>
<TABLE>
<CAPTION>
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/97(1)-12/31/97 $10.000 $10.601 20,486
12/31/98 $10.601 $11.797 307,863
</TABLE>
<TABLE>
<CAPTION>
WRL GE U.S. EQUITY SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/97(1)-12/31/97 $10.000 $12.526 18,145
12/31/98 $12.526 $15.177 1,247,669
</TABLE>
<TABLE>
<CAPTION>
WRL THIRD AVENUE VALUE SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
1/2/98(1)-12/31/98 $10.000 $9.187 152,511
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
WRL J.P. MORGAN REAL ESTATE SECURITIES SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
5/1/98(1)-12/31/98 $10.000 $8.427 11,771
</TABLE>
(1) Commencement of operations of these subaccounts.
(2) Prior to May 1, 1999, the Global Sector subaccount was offered for
investment under the Contract and, therefore, is included in the
Contract's Condensed Financial Information and financial statements.
However, the Global Sector portfolio is no longer available for
investment.
Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, and
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap did not commence
operations until May 1, 1999, there is no condensed financial information for
these subaccounts for the year ended December 31, 1998.
47
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------
STANDARDIZED PERFORMANCE DATA
Western Reserve may advertise historical yields and total returns for the
subaccounts of the separate account. These figures are based on historical
earnings and will be calculated according to guidelines from the SEC. They do
not indicate future performance.
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT. The yield of the WRL J. P. Morgan
Money Market subaccount is the annualized income generated by an investment in
the subaccount over a specified seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period, not including
capital changes or income other than investment income, is generated each
seven-day period over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but we assume that the
income earned is reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment. For
the seven days ended December 31, 1998, the yield of the WRL J.P. Morgan Money
Market subaccount was 3.54%, and the effective yield was 3.61%.
OTHER SUBACCOUNTS. The yield of a subaccount (other than the WRL J.P.
Morgan Money Market subaccount) refers to the annualized income generated by an
investment in the subaccount over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated each 30-day period over a 12-month period and is
shown as a percentage of the investment.
The total return of a subaccount assumes that an investment has been held
in the subaccount for various periods of time including a period measured from
the date the subaccount began operations. When a subaccount has been in
operation for 1, 5, and 10 years, the total return for these periods will be
provided. The total return quotations will represent the average annual
compounded rates of return of investment of $1,000 in the subaccount as of the
last day of each period.
The yield and total return calculations are not reduced by any premium
taxes. For additional information regarding yields and total returns, please
refer to the SAI.
Based on the method of calculation described in the SAI, the standard
average annual total returns for periods from inception of the subaccounts to
December 31, 1998, and for the one and five year periods ended December 31,
1998 are shown in Table 1 below. Total returns shown reflect deductions of
1.40% for the mortality and expense risk charge and $35 for the annual Contract
charge. (Based on an average Contract size of $34,638, the annual Contract
charge translates into a charge of 0.10%.) Total returns also assume a complete
surrender of the Contract at the end of the period; therefore, the withdrawal
charge is deducted.
48
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
1 YEAR 5 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/98 12/31/98 12/31/98 DATE
<S> <C> <C> <C> <C>
WRL Janus Growth 53.95% 23.05% 19.69% 12/3/92
WRL Janus Global 19.92% 17.28% 20.04% 12/3/92
WRL Alger Aggressive Growth 38.41% N/A 21.41% 3/1/94
WRL VKAM Emerging Growth 27.16% 19.78% 21.15% 3/1/93
WRL AEGON Balanced -2.70% N/A 7.53% 3/1/94
WRL AEGON Bond -0.34% 4.21% 5.91% 12/3/92
WRL LKCM Strategic Total Return -0.08% 11.57% 12.20% 3/1/93
WRL Federated Growth & Income -6.54% N/A 9.62% 3/1/94
WRL J.P Morgan Money Market* -4.29% 2.66% 2.65% 12/3/92
WRL J.P. Morgan Real Estate Securities** -23.79% N/A -23.79% 5/1/98
WRL Third Avenue Value** -16.22% N/A -16.22% 1/2/98
WRL NWQ Value Equity -14.24% N/A 8.22% 5/1/96
WRL Dean Asset Allocation -1.34% N/A 12.25% 1/3/95
WRL C.A.S.E. Growth -7.07% N/A 6.11% 5/1/96
WRL GE/Scottish Equitable International Equity 3.16% N/A 5.26% 1/2/97
WRL GE U.S. Equity 13.03% N/A 20.32% 1/2/97
WRL Goldman Sachs Growth N/A N/A N/A 5/1/99
WRL Goldman Sachs Small Cap N/A N/A N/A 5/1/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 5/1/99
WRL T. Rowe Price Small Cap N/A N/A N/A 5/1/99
WRL Salomon All Cap N/A N/A N/A 5/1/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 5/1/99
WRL Dreyfus Mid Cap N/A N/A N/A 5/1/99
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** One-year data has not been annualized.
49
<PAGE>
NON-STANDARDIZED PERFORMANCE DATA
In addition to the standard data discussed above, similar performance data
for other periods may also be shown.
We may from time to time also disclose average annual total return or
other performance data in non-standard formats for the subaccounts. The
non-standard performance data may make different assumptions regarding the
amount invested, the time periods shown, or the effect of partial withdrawals
or annuity payments.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the SAI.
Based on the method of calculation described in the SAI, the standard
average annual total returns for periods from inception of the subaccounts to
December 31, 1998, and for the one and five year periods ended December 31,
1998 are shown in Table 2 below. Total returns shown reflect deductions of
1.40% for the mortality and expense risk charge and $35 for the annual Contract
charge. (Based on an average Contract size of $34,638, the annual Contract
charge translates into a charge of 0.10%.) Total returns assume that the
Contract is not surrendered and therefore the withdrawal charge is not
deducted.
50
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
1 YEAR 5 YEARS INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/98 12/31/98 12/31/98 DATE
<S> <C> <C> <C> <C>
WRL Janus Growth 61.95% 23.39% 19.82% 12/3/92
WRL Janus Global 27.92% 17.70% 20.17% 12/3/92
WRL Alger Aggressive Growth 46.41% N/A 21.80% 3/1/94
WRL VKAM Emerging Growth 35.16% 20.16% 21.35% 3/1/93
WRL AEGON Balanced 5.30% N/A 8.15% 3/1/94
WRL AEGON Bond 7.66% 4.88% 6.15% 12/3/92
WRL LKCM Strategic Total Return 7.92% 12.08% 12.49% 3/1/93
WRL Federated Growth & Income 1.46% N/A 10.19% 3/1/94
WRL J.P Morgan Money Market* 3.71% 3.37% 2.93% 12/3/92
WRL J.P. Morgan Real Estate Securities** -15.79% N/A -15.79% 5/1/98
WRL Third Avenue Value** -8.22% N/A -8.22% 1/2/98
WRL NWQ Value Equity -6.24% N/A 10.16% 5/1/96
WRL Dean Asset Allocation 6.66% N/A 13.12% 1/3/95
WRL C.A.S.E. Growth 0.93% N/A 8.12% 5/1/96
WRL GE/Scottish Equitable International Equity 11.16% N/A 8.55% 1/2/97
WRL GE U.S. Equity 21.03% N/A 23.22% 1/2/97
WRL Goldman Sachs Growth N/A N/A N/A 5/1/99
WRL Goldman Sachs Small Cap N/A N/A N/A 5/1/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 5/1/99
WRL T. Rowe Price Small Cap N/A N/A N/A 5/1/99
WRL Salomon All Cap N/A N/A N/A 5/1/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 5/1/99
WRL Dreyfus Mid Cap N/A N/A N/A 5/1/99
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** One-year data has not been annualized.
51
<PAGE>
ADJUSTED HISTORICAL PERFORMANCE DATA. We may disclose historic performance
data for the underlying portfolios since their inception reduced by some or all
of the fees and charges under the Contract. Such adjusted historic performance
includes data that precedes the inception dates of the subaccounts. This data
is designed to show the performance that would have resulted if the Contract
had been in existence during that time, based on the portfolio's performance.
This data assumes that the subaccount was in existence for the same period as
the portfolio with a level of charges equal to those currently assessed under
the Contract. This data is not intended to indicate future performance.
As shown in Table 3 and Table 4 below, we may disclose average annual
total returns for the portfolios reduced by all fees and charges under the
Contract, as if the Contract had been in existence since the inception of the
portfolio. Such fees and charges include the 1.40% mortality and expense risk
charge and the $35 annual Contract charge. (Based on an average Contract size
of $34,638, the annual Contract charge translates into a charge of 0.10%.)
Table 3 assumes a complete surrender of the Contract at the end of the period
and therefore the withdrawal charge is deducted. Table 4 assumes that the
Contract is not surrendered and therefore the withdrawal charge is not
deducted.
52
<PAGE>
The following information is also based on the method of calculation described
in the SAI. The adjusted historical average annual total returns for periods
ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
TABLE 3
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS
10 YEARS CORRESPONDING
OR PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
WRL Janus Growth* 3.95% 23.05% 20.77% 10/2/86
WRL Janus Global 19.92% 17.28% 20.04% 12/3/92
WRL Alger Aggressive Growth 38.41% N/A 21.41% 3/1/94
WRL VKAM Emerging Growth 27.16% 19.78% 21.15% 3/1/93
WRL AEGON Balanced -2.70% N/A 7.53% 3/1/94
WRL AEGON Bond* -0.34% 4.21% 7.50% 10/2/86
WRL LKCM Strategic Total Return -0.08% 11.57% 12.20% 3/1/93
WRL Federated Growth & Income -6.54% N/A 9.62% 3/1/94
WRL J.P Morgan Money Market* -4.29% 2.66% 3.43% 10/2/86
WRL J.P. Morgan Real Estate Securities** -23.79% N/A -23.79% 5/1/98
WRL Third Avenue Value** -16.22% N/A -16.22% 1/2/98
WRL NWQ Value Equity -14.24% N/A 8.22% 5/1/96
WRL Dean Asset Allocation -1.34% N/A 12.25% 1/3/95
WRL C.A.S.E. Growth* -7.07% N/A 7.28% 5/1/95
WRL GE/Scottish Equitable International Equity 3.16% N/A 5.26% 1/2/97
WRL GE U.S. Equity 13.03% N/A 20.32% 1/2/97
WRL Goldman Sachs Growth N/A N/A N/A 5/1/99
WRL Goldman Sachs Small Cap N/A N/A N/A 5/1/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 5/1/99
WRL T. Rowe Price Small Cap N/A N/A N/A 5/1/99
WRL Salomon All Cap N/A N/A N/A 5/1/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 5/1/99
WRL Dreyfus Mid Cap N/A N/A N/A 5/1/99
</TABLE>
* The calculation of total return performance for the WRL Janus Growth, WRL
AEGON Bond and WRL J.P. Morgan Money Market subaccounts prior to December
31, 1992 and the WRL C.A.S.E. Growth subaccount prior to May 1, 1996
reflects deductions for the mortality and expense risk charge on a monthly
basis, rather than a daily basis. The monthly deduction is made at the
beginning of each month and generally approximates the performance that
would have resulted if the subaccounts had actually been in existence since
the inception of the portfolios. Yield more closely reflects current
earnings of the WRL J.P. Morgan Money Market subaccount than its total
return.
** One-year data has not been annualized.
53
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS OF THE PORTFOLIOS
10 YEARS CORRESPONDING
OR PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
WRL Janus Growth* 61.95% 23.39% 20.77% 10/2/86
WRL Janus Global 27.92% 17.70% 20.17% 12/3/92
WRL Alger Aggressive Growth 46.41% N/A 21.80% 3/1/94
WRL VKAM Emerging Growth 35.16% 20.16% 21.35% 3/1/93
WRL AEGON Balanced 5.30% N/A 8.15% 3/1/94
WRL AEGON Bond* 7.66% 4.88% 7.50% 10/2/86
WRL LKCM Strategic Total Return 7.92% 12.08% 12.49% 3/1/93
WRL Federated Growth & Income 1.46% N/A 10.19% 3/1/94
WRL J.P Morgan Money Market * 3.71% 3.37% 3.43% 10/2/86
WRL J.P. Morgan Real Estate Securities ** -15.79% N/A -15.79% 5/1/98
WRL Third Avenue Value** -8.22% N/A -8.22% 1/2/98
WRL NWQ Value Equity -6.24% N/A 10.16% 5/1/96
WRL Dean Asset Allocation 6.66% N/A 13.12% 1/3/95
WRL C.A.S.E. Growth* 0.93% N/A 13.28% 5/1/95
WRL GE/Scottish Equitable International Equity 11.16% N/A 8.55% 1/2/97
WRL GE U.S. Equity 21.03% N/A 23.22% 1/2/97
WRL Goldman Sachs Growth N/A N/A N/A 5/1/99
WRL Goldman Sachs Small Cap N/A N/A N/A 5/1/99
WRL T. Rowe Price Dividend Growth N/A N/A N/A 5/1/99
WRL T. Rowe Price Small Cap N/A N/A N/A 5/1/99
WRL Salomon All Cap N/A N/A N/A 5/1/99
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 5/1/99
WRL Dreyfus Mid Cap N/A N/A N/A 5/1/99
</TABLE>
* The calculation of total return performance for the WRL Janus Growth, WRL
AEGON Bond and WRL J.P. Morgan Money Market subaccounts prior to December
31, 1992 and the WRL C.A.S.E. Growth subaccount prior to May 1, 1996
reflects deductions for the mortality and expense risk charge on a monthly
basis, rather than a daily basis. The monthly deduction is made at the
beginning of each month and generally approximates the performance that
would have resulted if the subaccounts had actually been in existence since
the inception of the portfolios. Yield more closely reflects current
earnings of the WRL J.P. Morgan Money Market subaccount than its total
return.
** One-year data has not been annualized.
54
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM WEALTH CREATOR/registered trademark/
VARIABLE ANNUITY
Issued through
WRL SERIES ANNUITY ACCOUNT
Offered by
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
570 Carillon Parkway
St. Petersburg, Florida 33716
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the WRL Freedom Wealth Creator/registered trademark/
Variable Annuity offered by Western Reserve Life Assurance Co. of Ohio. You may
obtain a copy of the prospectus dated May 1, 1999, by calling 1-800-851-9777,
or by writing to the administrative office, Western Reserve Life, 570 Carillon
Parkway, St. Petersburg, Florida 33716. The prospectus sets forth information
that a prospective investor should know before investing in a Contract. Terms
used in the current prospectus for the Contract are incorporated in this
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT AND THE WRL SERIES
ANNUITY ACCOUNT.
Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
DEFINITIONS OF SPECIAL TERMS ............................... 1
THE CONTRACT--GENERAL PROVISIONS ........................... 3
Owner ..................................................... 3
Entire Contract ........................................... 3
Misstatement of Age or Gender ............................. 3
Addition, Deletion or Substitution of Investments ......... 4
Annuity Payment Options ................................... 5
Death Benefit ............................................. 6
Assignment ................................................ 7
Proof of Age, Gender and Survival ......................... 7
Non-Participating ......................................... 8
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................... 8
Tax Status of the Contract ................................ 8
Taxation of Western Reserve ............................... 12
INVESTMENT EXPERIENCE ...................................... 13
Accumulation Units ........................................ 13
Annuity Unit Value and Annuity Payment Rates .............. 14
HISTORICAL PERFORMANCE DATA ................................ 16
Money Market Yields ....................................... 16
Other Subaccount Yields ................................... 18
Total Returns ............................................. 18
Other Performance Data .................................... 19
Advertising and Sales Literature .......................... 20
PUBLISHED RATINGS .......................................... 20
ADMINISTRATION ............................................. 21
RECORDS AND REPORTS ........................................ 21
DISTRIBUTION OF THE CONTRACTS .............................. 21
OTHER PRODUCTS ............................................. 22
CUSTODY OF ASSETS .......................................... 22
LEGAL MATTERS .............................................. 22
INDEPENDENT ACCOUNTANTS .................................... 22
OTHER INFORMATION .......................................... 23
FINANCIAL STATEMENTS ....................................... 23
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS
<TABLE>
<S> <C>
accumulation The period between the Contract date and the maturity date while the
period Contract is in force.
-----------------------------------------------------------------------------
accumulation An accounting unit of measure used to calculate subaccount values during
unit value the accumulation period.
-----------------------------------------------------------------------------
annuitant The person named in the application, or as subsequently changed, to
receive annuity payments. The annuitant may be changed as provided in the
Contract's death benefit provisions and annuity provision.
-----------------------------------------------------------------------------
annuity value The sum of the separate account value and the fixed account value.
-----------------------------------------------------------------------------
annuity unit An accounting unit of measure used to calculate annuity payments from the
value subaccounts after the maturity date.
-----------------------------------------------------------------------------
attained age The issue age, which is annuitant's age on the birthday nearest the Contract
date, plus the number of completed Contract years.
-----------------------------------------------------------------------------
beneficiary(ies) The person(s) entitled to receive the death benefit proceeds under the
Contract.
-----------------------------------------------------------------------------
cash value The annuity value less any applicable premium taxes and any withdrawal
charge.
-----------------------------------------------------------------------------
Code The Internal Revenue Code of 1986, as amended.
-----------------------------------------------------------------------------
Contract date The later of the date on which the initial purchase payment is received and
the date that the properly completed application is received at Western
Reserve's administrative office.
-----------------------------------------------------------------------------
fixed account An allocation option under the Contract, other than the separate account,
that provides for accumulation of purchase payments, and options for
annuity payments on a fixed basis. For Contracts issued in the States of
Massachusetts, New Jersey and Washington, the fixed account is used
solely for Contract loans and is not available for allocation of purchase
payments or transfers.
-----------------------------------------------------------------------------
fixed account During the accumulation period, a Contract's value allocated to the fixed
value account.
-----------------------------------------------------------------------------
fund(s) WRL Series Fund, Inc., an investment company which is registered with the
U.S. Securities and Exchange Commission. We reserve the right to add
other registered investment companies to the Contract in the future.
-----------------------------------------------------------------------------
in force Condition under which the Contract is active and the owner is entitled to
exercise all rights under the Contract.
-----------------------------------------------------------------------------
maturity date The date on which the accumulation period ends and annuity payments
begin.
-----------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
non-qualified Contracts issued other than in connection with retirement plans. Non-
Contracts qualified Contracts do not qualify for special federal income tax treatment
under the Code.
------------------------------------------------------------------------------
owner (you, The person(s) entitled to exercise all rights under the Contract. The an-
your) nuitant is the owner unless the application states otherwise, or unless a
change of ownership is made at a later time.
------------------------------------------------------------------------------
portfolio A separate investment portfolio of the fund.
------------------------------------------------------------------------------
purchase Amounts paid by an owner or on the owner's behalf to Western Reserve as
payments consideration for the benefits provided by the Contract. When we use the
term "purchase payment" in this SAI, it has the same meaning as "net
purchase payment" in the Contract, which means the purchase payment
less any applicable premium taxes.
------------------------------------------------------------------------------
qualified Contracts issued in connection with retirement plans that qualify for special
Contracts federal income tax treatment under the Code.
------------------------------------------------------------------------------
separate account WRL Series Annuity Account, a separate account composed of subaccounts
established to receive and invest purchase payments not allocated to the
fixed account.
------------------------------------------------------------------------------
separate account During the accumulation period, a Contract's value in the separate account,
value which equals the total value in each subaccount during the accumulation
period.
------------------------------------------------------------------------------
subaccount A subdivision of the separate account that invests exclusively in the shares
of a specified portfolio and supports the Contracts. Subaccounts cor-
responding to each applicable portfolio hold assets under the Contract
during the accumulation period. Other subaccounts corresponding to each
applicable portfolio will hold assets after the maturity date if a variable
annuity option is selected.
------------------------------------------------------------------------------
surrender The termination of a Contract at the option of the owner.
------------------------------------------------------------------------------
valuation date Each day on which the New York Stock Exchange is open for trading,
except when a subaccount's corresponding portfolio does not value its
shares.
------------------------------------------------------------------------------
valuation period The period beginning at the end of one valuation date and continuing to the
end of the next succeeding valuation date.
------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
In order to supplement the description in the prospectus, the following
provides additional information about Western Reserve and the Contract, which
may be of interest to a prospective purchaser.
THE CONTRACT-GENERAL PROVISIONS
OWNER
The Contract shall belong to the owner upon issuance of the Contract after
completion of an application and delivery of the initial purchase payment.
While the annuitant is living, the owner may: (1) assign the Contract; (2)
surrender the Contract; (3) amend or modify the Contract with Western Reserve's
consent; (4) receive annuity payments or name a payee to receive the payments;
and (5) exercise, receive and enjoy every other right and benefit contained in
the Contract. The exercise of these rights may be subject to the consent of any
assignee or irrevocable beneficiary; and of the owner's spouse in a community
or marital property state.
A successor owner can be named in the Contract application or in a written
notice. The successor owner will become the new owner upon the owner's death,
if the owner is not the annuitant and dies before the annuitant. If no
successor owner survives the owner and the owner dies before the annuitant, the
owner's estate will become the owner.
The owner may change the ownership of the Contract in a written notice. When
this change takes effect, all rights of ownership in the Contract will pass to
the new owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will take effect
as of the date Western Reserve accepts the written notice. We assume no
liability for any payments made, or actions taken before a change is accepted,
and shall not be responsible for the validity or effect of any change of
ownership. Changing the owner or naming a new successor owner cancels any prior
choice of successor owner, but does not change the designation of the
beneficiary or the annuitant.
ENTIRE CONTRACT
The Contract and any endorsements thereon and the Contract application
constitute the entire contract between Western Reserve and the owner. All
statements in the application are representations and not warranties. No
statement will cause the Contract to be void or to be used in defense of a
claim unless contained in the application.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the annuitant has been misstated, Western Reserve will
change the annuity benefit payable to that which the purchase payments would
have purchased for the correct age or gender. The dollar amount of any
underpayment Western Reserve makes shall
3
<PAGE>
be paid in full with the next payment due such person or the beneficiary. The
dollar amount of any overpayment Western Reserve makes due to any misstatement
shall be deducted from payments subsequently accruing to such person or
beneficiary. Any underpayment or overpayment will include interest at 5% per
year, from the date of the wrong payment to the date of the adjustment. The age
of the annuitant may be established at any time by the submission of proof
Western Reserve finds satisfactory.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held by
the separate account or that the separate account may purchase. We reserve the
right to eliminate the shares of any of the portfolios of the fund and to
substitute shares of another portfolio of the fund (or of another open-end
registered investment company), if the shares of a portfolio are no longer
available for investment, or if in our judgment further investment in any
portfolio should become inappropriate in view of the purposes of the separate
account. We will not, however, substitute any shares attributable to an owner's
interest in a subaccount without notice to, and prior approval of, the
Securities and Exchange Commission (to the extent required by the Investment
Company Act of 1940, as amended (the "1940 Act")) or other applicable law.
We also reserve the right to establish additional subaccounts, each of which
would invest in a new portfolio of the fund, or in shares of another investment
company, with a specified investment objective. New subaccounts may be
established when, in the sole discretion of Western Reserve, marketing, tax or
investment conditions warrant, and any new subaccounts will be made available
to existing owners on a basis to be determined by Western Reserve. We may also
eliminate one or more subaccounts if, in our sole discretion, marketing, tax or
investment conditions warrant.
In the event of any such substitution or change, we may make such changes in
the Contracts and other annuity contracts as may be necessary or appropriate to
reflect such substitution or change. If deemed by Western Reserve to be in the
best interest of persons having voting rights under the Contracts, the separate
account may be operated as a management company under the 1940 Act, or subject
to any required approval, it may be deregistered under that Act in the event
such registration is no longer required.
We reserve the right to change the investment objective of any subaccount.
Additionally, if required by law or regulation, we will not materially change
an investment objective of the separate account or of a portfolio designated
for a subaccount unless a statement of the change is filed with and approved by
the appropriate insurance offical of the state of Western Reserve's domicile,
or deemed approved in accordance with such law or regulation.
4
<PAGE>
ANNUITY PAYMENT OPTIONS
During the lifetime of the annuitant and prior to the maturity date, the owner
may choose an annuity payment option or change the election. If no election is
made prior to the maturity date, annuity payments will be made under payment
Option D, with 120 payments guaranteed.
Thirty days prior to the maturity date, we will mail to the owner a notice and
a form upon which the owner can select allocation options for the annuity
proceeds as of the maturity date, which cannot be changed thereafter and will
remain in effect until the Contract terminates. If a separate account annuity
option is chosen, the owner must include in the written notice the subaccount
allocation of the annuity proceeds as of the maturity date. If we do not
receive that form or other written notice acceptable to us prior to the
maturity date, the Contract's existing allocation options will remain in effect
until the Contract terminates. The owner may also, prior to the maturity date,
select or change the frequency of annuity payments, which may be monthly,
quarterly, semi-annually or annually, provided that the annuity option and
payment frequency provides for payments of at least $100 per period. If none of
these is possible, a lump sum payment will be made.
DETERMINATION OF THE FIRST VARIABLE PAYMENT. The amount of the first variable
payment is determined by multiplying the annuity proceeds times the appropriate
rate for the variable option selected. The rates are based on the Society of
Actuaries 1983 Individual Mortality Table A with projection and a 5% effective
annual assumed investment return and assuming a maturity date in the year 2000.
Gender based mortality tables will be used unless prohibited by law. The amount
of the first variable payment depends upon the gender (if consideration of
gender is allowed under state law) and adjusted age of the annuitant. The
adjusted age is the annuitant's actual age nearest birthday, at the maturity
date, adjusted as follows:
<TABLE>
<CAPTION>
MATURITY DATE ADJUSTED AGE
- --------------- ---------------------------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by Western Reserve
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
DETERMINATION OF ADDITIONAL VARIABLE PAYMENTS. The amount of variable annuity
payments after the first will increase or decrease according to the annuity
unit value which reflects the investment experience of the selected
subaccount(s). Each variable annuity payment after the first will be equal to
the number of units attributable to the Contract in each selected subaccount
multiplied by the annuity unit value of that subaccount on the date the payment
is processed.
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<PAGE>
The number of such units is determined by dividing the first payment allocated
to that subaccount by the annuity unit value of that subaccount on the date the
first annuity payment is processed.
DEATH BENEFIT
DEATH OF OWNER. Federal tax law requires that if any owner (including any joint
owner or any successor owner who has become a current owner) dies before the
maturity date, then the entire value of the Contract must generally be
distributed within five years of the date of death of such owner. Special rules
apply where (1) the spouse of the deceased owner is the sole beneficiary, (2)
an owner is not a natural person and the primary annuitant dies or is changed,
or (3) any owner dies after the maturity date. See "Certain Federal Income Tax
Consequences" for a detailed description of these rules. Other rules may apply
to qualified Contracts.
If the annuitant is not an owner, and an owner dies prior to the maturity date,
a successor owner may surrender the Contract at any time for the amount of the
cash value. If the successor owner is not the deceased annuitant/owner's
spouse, however, the cash value must be distributed: (1) within five years
after the date of the deceased annuitant/owner's death, or (2) as payments that
begin no later than one year after the deceased annuitant/owner's death and
must be made for the successor owner's lifetime or for a period certain (so
long as any period certain does not exceed the successor owner's life
expectancy).
DEATH OF ANNUITANT. Due proof of death of the annuitant is proof that the
annuitant who is an owner died prior to the commencement of annuity payments.
Upon receipt of this proof and an election of a method of settlement and return
of the Contract, the death benefit generally will be paid within seven days, or
as soon thereafter as we have sufficient information about the beneficiary to
make the payment. The beneficiary may receive the amount payable in a lump sum
cash benefit, or, subject to any limitation under any state or federal law,
rule, or regulation, under one of the annuity payment options, unless a
settlement agreement is effective at the owner's death preventing such
election.
If the annuitant was an owner, and the beneficiary was not the deceased
annuitant's spouse, (1) the death benefit must be distributed within five years
of the date of the deceased annuitant/owner's death, or (2) payments must begin
no later than one year after the deceased annuitant/owner's death and must be
made for the beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the beneficiary's life expectancy). Death
proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of the deceased annuitant/owner's
death. If the sole beneficiary is the deceased annuitant/owner's surviving
spouse, such spouse may elect to continue the Contract as the new annuitant and
owner instead of receiving the death benefit. (See "Certain Federal Income Tax
Consequences" in this SAI.)
If the beneficiary elects to receive the death benefit proceeds under option
(1), then: (a) we will allow the beneficiary to make only ONE partial
withdrawal during the five-year period. That
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<PAGE>
withdrawal must be made at the time option (1) is elected. No withdrawal
charges will apply to this withdrawal; (b) we will allow the beneficiary to
make ONE transfer to and from the subaccounts and the fixed account during the
five-year period. That transfer must be made at the time option (1) is elected;
(c) we will deduct the annual Contract charge each year during the five-year
period; (d) we will not apply any withdrawal charges to the total distribution
of the Contract; (e) we will not permit annuitization at the end of the
five-year period; and (f) if the beneficiary dies during the five-year period,
we will pay the remaining value of the Contract first to the contingent
beneficiary named by the owner. If no contingent beneficiary is named, then we
will make payment to the beneficiary's estate. The beneficiary is not permitted
to name his or her own beneficiary.
BENEFICIARY. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary during
the annuitant's lifetime by sending written notice to Western Reserve. The
beneficiary's consent to such change is not required unless the beneficiary was
irrevocably designated or law requires consent. (If an irrevocable beneficiary
dies, the owner may then designate a new beneficiary.) The change will take
effect as of the date the owner signs the written notice. We will not be liable
for any payment made before the written notice is received. Unless we receive
written notice from the owner to the contrary, no beneficiary may assign any
payments under the Contract before such payments are due. To the extent
permitted by law, no payments under the Contract will be subject to the claims
of any beneficiary's creditors.
ASSIGNMENT
During the annuitant's lifetime and prior to the maturity date (subject to any
irrevocable beneficiary's rights) the owner may assign any rights or benefits
provided by a non-qualified Contract. The assignment of a Contract will be
treated as a distribution of the annuity value for federal tax purposes. Any
assignment must be made in writing and accepted by Western Reserve. An
assignment will be effective as of the date accepted by Western Reserve. We
assume no liability for any payments made or actions taken before a change is
accepted and shall not be responsible for the validity or effect of any
assignment.
With regard to qualified Contracts, ownership of the Contract generally may be
assigned, but any assignment may be subject to restrictions, penalties,
taxation as a distribution, or even prohibition under the Code, and must also
be permitted under the terms of the underlying retirement plan.
PROOF OF AGE, GENDER AND SURVIVAL
Western Reserve may require proper proof of age and gender of any annuitant or
co-annuitant prior to making the first annuity payment. Prior to making any
payment, Western Reserve may require proper proof that the annuitant or
co-annuitant is alive and legally qualified to receive such payment. If
required by law to ignore differences in gender of any payee, annuity payments
will be determined using unisex rates.
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<PAGE>
NON-PARTICIPATING
The Contract will not share in Western Reserve's surplus earnings; no dividends
will be paid.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES
THE FOLLOWING SUMMARY DOES NOT CONSTITUTE TAX ADVICE. IT IS A GENERAL
DISCUSSION OF CERTAIN OF THE EXPECTED FEDERAL INCOME TAX CONSEQUENCES OF
INVESTMENT IN AND DISTRIBUTIONS WITH RESPECT TO A CONTRACT, BASED ON THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, PROPOSED AND FINAL TREASURY
REGULATIONS THEREUNDER, JUDICIAL AUTHORITY, AND CURRENT ADMINISTRATIVE RULINGS
AND PRACTICE. THIS SUMMARY DISCUSSES ONLY CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO "UNITED STATES PERSONS," AND DOES NOT DISCUSS STATE, LOCAL, OR
FOREIGN TAX CONSEQUENCES. UNITED STATES PERSONS MEANS CITIZENS OR RESIDENTS OF
THE UNITED STATES, DOMESTIC CORPORATIONS, DOMESTIC PARTNERSHIPS AND TRUSTS OR
ESTATES THAT ARE SUBJECT TO UNITED STATES FEDERAL INCOME TAX REGARDLESS OF THE
SOURCE OF THEIR INCOME.
TAX STATUS OF THE CONTRACT
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account
must be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. (/section/)
1.817-5) apply a diversification requirement to each of the subaccounts of the
separate account. The separate account, through the fund and its portfolios,
intends to comply with the diversification requirements of the Treasury.
Section 817(h) applies to variable annuity contracts other than pension plan
contracts. The regulations reiterate that the diversification requirements do
not apply to pension plan contracts. All of the qualified retirement plans
(described below) are defined as pension plan contracts for these purposes.
Notwithstanding the exception of qualified Contracts from application of the
diversification rules, the investment vehicle for Western Reserve's qualified
Contracts (i.e., the fund) will be structured to comply with the
diversification standards because it serves as the investment vehicle for
non-qualified Contracts as well as qualified Contracts.
OWNER CONTROL. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity Contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses incidents
of
8
<PAGE>
ownership in those assets, such as the ability to exercise investment control
over the assets. More recently, the Treasury Department announced, in
connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which Contract owners may direct their investments to particular
subaccounts without being treated as owners of underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that owners were not owners of separate account assets. For example,
the owner of a Contract has the choice of one or more subaccounts in which to
allocate purchase payments and annuity values, and may be able to transfer
among these accounts more frequently than in such rulings. These differences
could result in owners being treated as the owners of the assets of the
separate account. In addition, Western Reserve does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. We therefore reserve the right to
modify the Contracts as necessary to attempt to prevent the owners from being
considered the owners of a pro rata share of the assets of the separate
account.
DISTRIBUTION REQUIREMENTS. The Code also requires that non-qualified Contracts
contain specific provisions for distribution of Contract proceeds upon the
death of an owner. In order to be treated as an annuity contract for federal
income tax purposes, the Code requires that such Contracts provide that if any
owner dies on or after the maturity date and before the entire interest in the
Contract has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on such owner's death. If any
owner dies before the maturity date, the entire interest in the Contract must
generally be distributed within five years after such owner's date of death or
be applied to provide an immediate annuity under which payments will begin
within one year of such owner's death and will be made for the life of the
beneficiary or for a period not extending beyond the life expectancy of the
beneficiary. However, if such owner's death occurs prior to the maturity date,
and such owner's surviving spouse is named beneficiary, then the Contract may
be continued with the surviving spouse as the new owner. If any owner is not a
natural person, then for purposes of these distribution requirements, the
primary annuitant shall be treated as an owner and any death or change of such
primary annuitant shall be treated as the death of an owner. The Contract
contains provisions intended to comply with these requirements of the Code. No
regulations interpreting these requirements of the Code have yet been issued
and thus no assurance can be given that the provisions contained in the
Contracts satisfy all such Code requirements. The provisions contained in the
Contracts will be reviewed and modified if necessary to maintain their
compliance with the Code requirements when clarified by regulation or
otherwise.
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<PAGE>
WITHHOLDING. The portion of any distribution under a Contract that is
includable in gross income will be subject to federal income tax withholding
unless the recipient of such distribution elects not to have federal income tax
withheld and properly notifies Western Reserve. For certain qualified
Contracts, certain distributions are subject to mandatory withholding. The
withholding rate varies according to the type of distribution and the owner's
tax status. For qualified Contracts, "eligible rollover distributions" from
Section 401(a) plans and Section 403(b) tax-sheltered annuities are subject to
a mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan,
except certain distributions such as distributions required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
QUALIFIED CONTRACTS. The qualified Contract is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary according
to the type of plan and the terms and conditions of the plan. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59-1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into Western Reserve's Contract administration procedures.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70-1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code) or if the plan is a traditional IRA, distributions
generally must begin no later than April 1 of the calendar year in which the
owner (or plan participant) reaches age 70-1/2. Each owner is responsible for
requesting distributions under the Contract that satisfy applicable tax rules.
Western Reserve makes no attempt to provide more than general information about
use of the Contract with the various types of retirement plans. Purchasers of
Contracts for use with any retirement plan should consult their legal counsel
and tax advisor regarding the suitability of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as a traditional
individual retirement annuity under Section 408(b) of the Code, a Contract must
contain certain provisions: (i) the owner must be the annuitant; (ii) the
Contract generally is not transferable by the owner, E.G., the owner may not
designate a new owner, designate a contingent owner or assign the Contract as
collateral security; (iii) the total purchase payments for any calendar year on
behalf of any individual may not exceed $2,000, except in the case of a
rollover amount or contribution
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under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv)
annuity payments or partial withdrawals must begin no later than April 1 of the
calendar year following the calendar year in which the annuitant attains age
70-1/2; (v) an annuity payment option with a period certain that will guarantee
annuity payments beyond the life expectancy of the annuitant and the
beneficiary may not be selected; (vi) certain payments of death benefits must
be made in the event the annuitant dies prior to the distribution of the
annuity value; and (vii) the entire interest of the owner is non-forfeitable.
Contracts intended to qualify as traditional individual retirement annuities
under Section 408(b) of the Code contain such provisions. Amounts in the IRA
(other than nondeductible contributions) are taxed when distributed from the
IRA. Distributions prior to age 59-1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for an
individual retirement account or annuity ("IRA") may be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the purchase payments paid or the cash value for the Contract. The
Contract provides an enhanced death benefit that could exceed the amount of
such a permissible death benefit, but it is unclear to what extent such an
enhanced death benefit could disqualify the Contract under Section 408 of the
Code. The IRS has not reviewed the Contract for qualification as an IRA, and
has not addressed in a ruling of general applicability whether an enhanced
death benefit provision, such as the provision in the Contract, comports with
IRA qualification requirements.
ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply. You should consult a
tax advisor before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years. The
Roth IRA is available to individuals with earned income and whose adjusted
gross income is under $110,000 for single filers, $160,000 for married filing
jointly, and $10,000 for married filing separately. The amount per individual
that may be contributed to all IRAs (Roth and traditional) is $2,000. Secondly,
the distributions are taxed differently. The Roth IRA offers tax-free
distributions when made five tax years after the first contribution to any Roth
IRA and made after attaining age 59-1/2, or to pay for qualified first time
homebuyer expenses (lifetime maximum of $10,000), or due to death or
disability. All other distributions are subject to income tax when made from
earnings and may be subject to a premature withdrawal penalty tax unless an
exception applies. Unlike the traditional IRA, there are no minimum required
distributions during the owner's lifetime; however, required distributions at
death are the same.
SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase Contracts for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The Contract includes a death
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<PAGE>
benefit that in some cases may exceed the greater of the purchase payments or
the annuity value. The death benefit could be characterized as an incidental
benefit, the amount of which is limited in any tax-sheltered annuity under
Section 403(b). Because the death benefit may exceed this limitation, employers
using the Contract in connection with such plans should consult their tax
advisor. Additionally, in accordance with the requirements of the Code, Section
403(b) annuities generally may not permit distribution of (i) elective
contributions made in years beginning after December 31, 1988, (ii) earnings on
those contributions, and (iii) earnings on amounts attributed to elective
contributions held as of the end of the last year beginning before January 1,
1989. Distributions of such amounts will be allowed only upon the death of the
employee, on or after attainment of age 59-1/2, separation from service,
disability, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10 PLANS. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the
Contract is assigned or transferred to any individual as a means to provide
benefit payments. The Contract includes a death benefit that in some cases may
exceed the greater of the purchase payments or the annuity value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in a pension or profit-sharing plan. Because the death benefit may
exceed this limitation, employers using the Contract in connection with such
plans should consult their tax advisor.
DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is used in the Code), provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The Contracts can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her
participation will be made. For non-governmental Section 457 Plans, all such
investments, however, are owned by the sponsoring employer, and are subject to
the claims of the general creditors of the sponsoring employer. Depending on
the terms of the particular plan, a non-governmental employer may be entitled
to draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, all amounts received under a Section 457 plan are
taxable and are subject to federal income tax withholding as wages.
TAXATION OF WESTERN RESERVE
Western Reserve at present is taxed as a life insurance company under Part I of
Subchapter L of the Code. The separate account is treated as part of Western
Reserve and, accordingly, will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Western Reserve does not
expect to incur any federal income tax liability with respect to investment
income and net capital gains arising from the activities of the separate
account
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retained as part of the reserves under the Contract. Based on this expectation,
it is anticipated that no charges will be made against the separate account for
federal income taxes. If, in future years, any federal income taxes are
incurred by Western Reserve with respect to the separate account, we may make a
charge to the separate account.
INVESTMENT EXPERIENCE
ACCUMULATION UNITS
Allocations of a purchase payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the purchase
payment or amount transferred to the subaccount by the accumulation unit value
of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a
given business day is based on the net asset value of a share of the
corresponding portfolio of the fund less any applicable charges or fees.
Upon allocation to the selected subaccount of the separate account, purchase
payments are converted into accumulation units of the subaccount. At the end of
any valuation period, a subaccount's value is equal to the number of units that
your Contract has in the subaccount, multiplied by the accumulation unit value
of the subaccount.
The number of units that your Contract has in each subaccount is equal to:
1. The initial units purchased on the Contract date; plus
2. Units purchased at the time additional purchase payments are allocated to
the subaccount; plus
3. Units purchased through transfers from another subaccount or the fixed
account; minus
4. Any units that are redeemed to pay for partial withdrawals; minus
5. Any units that are redeemed as part of a transfer to another subaccount or
the fixed account; minus
6. Any units that are redeemed to pay the annual Contract charge, any premium
taxes and any transfer charge.
The value of an accumulation unit was arbitrarily established at $10 at the
inception of each subaccount. Thereafter, the value of an accumulation unit is
determined as of the close of the regular session of business on the New York
Stock Exchange, on each day the Exchange is open.
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The accumulation unit value will vary from one valuation period to the next
depending on the investment results experienced by each subaccount. The
accumulation unit value for each subaccount at the end of a valuation period is
the result of:
1. The total value of the assets held in the subaccount. This value is
determined by multiplying the number of shares of the designated fund
portfolio owned by the subaccount times the portfolio's net asset value per
share; minus
2. The accrued daily percentage for the mortality and expense risk charge
multiplied by the net assets of the subaccount; minus
3. The accrued amount of reserve for any taxes that are determined by us to
have resulted from the investment operations of the subaccount; divided by
4. The number of outstanding units in the subaccount. The mortality and expense
risk charge is deducted at an annual rate of 1.40% of net assets for each
day in the valuation period and compensates us for certain mortality and
expense risks. The accumulation unit value may increase, decrease, or
remain the same from valuation period to valuation period.
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
(that is, the portfolio performance minus subaccount fees and charges) exceeds
the assumed interest rate of 5% annually. Conversely, annuity unit values fall
if the net investment performance of the subaccount is less than the assumed
rate. The value of a variable annuity unit in each subaccount was established
at $10.00 on the date operations began for that subaccount. The value of a
variable annuity unit on any subsequent business day is equal to (a) multiplied
by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment return adjustment factor for the valuation period.
The investment return adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
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The net investment factor for the Contract used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a portfolio share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the portfolio for shares held in that subaccount if the
ex-dividend date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for which
Western Reserve determines to have resulted from the investment
operations of the subaccount.
(ii) is the net asset value of a portfolio share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk charge. This
factor is equal, on an annual basis, to 1.40% of the daily net asset
value of the subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
gender and adjusted age of the annuitant at the annuity commencement date.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity Unit Value = A B C
<TABLE>
<S> <C> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume ...................................................................... = $ X
B = Net investment factor for the valuation period for which the annuity unit
value is being calculated.
Assume ...................................................................... = Y
C = A factor to neutralize the assumed interest rate of 5% built into the annuity
tables used.
Assume ...................................................................... = Z
</TABLE>
Then, the annuity unit value is: $ X Y Z = $ Q
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<PAGE>
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First monthly variable annuity payment = A B
---
$1,000
<TABLE>
<S> <C> <C>
Where: A = The annuity value as of the maturity date.
Assume .............................................. = $ X
B = The annuity purchase rate per $1,000 based upon the
option selected, the gender and adjusted age of the
annuitant according to the tables contained in the
Contract.
Assume .............................................. = $ Y
</TABLE>
Then, the first monthly variable annuity payment = $X$Y = $Z
---------
1,000
FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY UNITS
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of annuity units = A
-
B
<TABLE>
<S> <C> <C>
Where: A The dollar amount of the first monthly variable annuity payment.
Assume ......................................................... = $ X
B = The annuity unit value for the valuation date on which the first monthly
payment is due.
Assume ......................................................... = $ Y
</TABLE>
Then, the number of annuity units = $ X = Z
---
$ Y
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
YIELD - The yield quotation set forth in the prospectus for the WRL J.P. Morgan
Money Market subaccount is for the seven days ended on the date of the most
recent balance sheet of the separate account included in the registration
statement, and is computed by determining the net change, exclusive of capital
changes and income other than investment income, in the value of a hypothetical
pre-existing account having a balance of one unit in the WRL J.P. Morgan Money
Market subaccount at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from owner accounts, and dividing the difference
by the value of the account at the beginning of the base period to obtain the
base period return, and multiplying the base period return by (365/7) with the
resulting figure carried to at least the nearest hundredth of one percent.
EFFECTIVE YIELD - The effective yield quotation for the WRL J.P. Morgan Money
Market subaccount set forth in the prospectus is for the seven days ended on
the date of the most recent balance sheet of the separate account included in
the registration statement. The effective yield is computed by determining the
net change, exclusive of capital changes and income
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other than investment income, in the value of a hypothetical pre-existing
subaccount having a balance of one unit in the WRL J.P. Morgan Money Market
subaccount at the beginning of the period. A hypothetical charge, reflecting
deductions from owner accounts, is subtracted from the balance. The difference
is divided by the value of the subaccount at the beginning of the base period
to obtain the base period return, which is then compounded by adding 1. Next,
the sum is raised to a power equal to 365 divided by 7, and 1 is subtracted
from the result. The following formula describes the computation:
EFFECTIVE YIELD = ({BASE PERIOD RETURN + 1}365/7) - 1
The effective yield is shown at least to the nearest hundredth of one percent.
HYPOTHETICAL CHARGE - For purposes of the yield and effective yield
computations, the hypothetical charge reflects all fees and charges that are
charged to all owner accounts in proportion to the length of the base period.
Such fees and charges include the $35 annual Contract charge, calculated on the
basis of an average separate account value per Contract of $34,638, which
converts that charge to an annual rate of 0.10% of the separate account value.
The yield and effective yield quotations do not reflect any deduction for
premium taxes or transfer charges that may be applicable to a particular
Contract, nor do they reflect the withdrawal charge that may be assessed at the
time of redemption in an amount ranging up to 8% of the requested redemption
amount. The specific withdrawal charge percentage applicable to a particular
redemption depends on the length of time purchase payments have been held under
the Contract and whether redemptions have been made previously during that
Contract year. (See Expenses--Withdrawal Charge on page 22 of the prospectus.)
No fees or sales charges are assessed upon annuitization under the Contracts,
except premium taxes. Realized gains and losses from the sale of securities,
and unrealized appreciation and depreciation of assets held by the WRL J.P.
Morgan Money Market subaccount and the fund are excluded from the calculation
of yield.
The yield on amounts held in the WRL J.P. Morgan Money Market subaccount
normally will fluctuate on a daily basis. Therefore, the disclosed yield for
any given past period is not an indication or representation of future yields
or rates of return. The WRL J.P. Morgan Money Market subaccount actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the WRL J.P. Morgan Money Market, the types and quality
of portfolio securities held by the WRL J.P. Morgan Money Market and its
operating expenses. For the seven days ended December 31, 1998, the yield of
the WRL J.P. Morgan Money Market subaccount was 3.54%, and the effective yield
was 3.61%.
17
<PAGE>
OTHER SUBACCOUNT YIELDS
The yield quotations for all of the subaccounts, except the WRL J.P. Morgan
Money Market subaccount, representing the accumulation period set forth in the
prospectus is based on the 30-day period ended on the date of the most recent
balance sheet of the separate account and are computed by dividing the net
investment income per unit earned during the period by the maximum offering
price per unit on the last date of the period, according to the following
formula:
YIELD = 2[ (a - bcd + 1)6 -1]
<TABLE>
<S> <C> <C>
Where: A = net investment income earned during the period by the corresponding
portfolio of the fund attributable to shares owned by the subaccount.
B = expenses accrued for the period (net of reimbursement).
C = the average daily number of units outstanding during the period.
D = the maximum offering price per unit on the last day of the period.
</TABLE>
For purposes of the yield quotations for all of the subaccounts, except the WRL
J.P. Morgan Money Market subaccount, the calculations take into account all
fees that are charged to all owner accounts during the accumulation period.
Such fees include the $35 annual Contract charge, calculated on the basis of an
average separate account value per Contract of $34,638, which converts that
charge to an annual rate of 0.10% of the separate account value. The
calculations do not take into account any premium taxes or any transfer or
withdrawal charges.
Premium taxes currently range from 0% to 3.5% of purchase payments depending
upon the jurisdiction in which the Contract is delivered. A withdrawal charge
may be assessed at the time of redemption in an amount ranging up to 8% of the
requested redemption amount, with the specific percentage applicable to a
particular redemption depending on the length of time purchase payments were
held under the Contract, and whether redemptions had been made previously
during that Contract year. (See Expenses--Withdrawal Charge on page 22 of the
prospectus.)
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses. For the 30 days ended December 31,
1998, the yield for the WRL AEGON Bond subaccount was 4.05%.
TOTAL RETURNS
The total return quotations set forth in the prospectus for all of these
subaccounts, except the WRL J.P. Morgan Money Market subaccount, holding assets
for the Contracts during the accumulation period are average annual total
return quotations for the one, three, five, and ten-year periods, (or, while a
subaccount has been in existence for a period of less than one, three, five or
ten years, for such lesser period) ended on the date of the most recent balance
18
<PAGE>
sheet of the separate account, and for the period from the date the subaccounts
commenced operations until the aforesaid date. The quotations are computed by
determining the average annual compounded rates of return over the relevant
periods that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1+T)n = ERV
<TABLE>
<S> <C> <C>
where: P = a hypothetical initial payment of
$1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment
made at the beginning of each
period at the end of each period
</TABLE>
For purposes of the total return quotations for all of these subaccounts,
except the WRL J.P. Morgan Money Market subaccount, the calculations take into
account all fees that are charged to all owner accounts during the accumulation
period. Such fees include the $35 annual Contract charge, calculated on the
basis of an average separate account value per Contract of $34,638, which
converts that charge to an annual rate of 0.10% of the separate account value.
The calculations also assume a complete redemption as of the end of the
particular period. The calculations do not reflect any deduction for premium
taxes or any transfer or withdrawal charges that may be applicable to a
particular Contract.
OTHER PERFORMANCE DATA
We may present the total return data stated in the prospectus on a non-standard
basis. This means that the data will not be reduced by all the fees and charges
under the Contract and that the data may be presented for different time
periods and for different purchase payment amounts. NON-STANDARD PERFORMANCE
DATA WILL ONLY BE DISCLOSED IF STANDARD PERFORMANCE DATA FOR THE REQUIRED
PERIODS IS ALSO DISCLOSED.
We may also disclose cumulative total returns and yields for the subaccounts
based on the inception date of the subaccounts. These calculations will be
determined according to the formulas presented in this SAI.
In addition, we may present historic performace data for the portfolios since
their inception reduced by some or all of the fees and charges under the
Contract. Such adjusted historic performance includes data that precedes the
inception dates of the subaccounts. This data is designed to show the
performance that would have resulted if the Contract had been in existence
during that time.
For instance, we may disclose average annual total returns for the portfolios
reduced by all fees and charges under the Contract, as if the Contract had been
in existence. Such fees and charges include the mortality and expense risk
charge of 1.40%, and the $35 annual Contract charge (based on average separate
account value of $34,638, the annual Contract charge is
19
<PAGE>
translated into an annual charge of 0.10%). Such data assumes a complete
surrender of the Contract at the end of the period.
ADVERTISING AND SALES LITERATURE
From time to time we may refer to the diversifying process of asset allocation
based on the Modern Portfolio Theory developed by Nobel Prize winning economist
Harry Markowitz. The basic assumptions of Modern Portfolio Theory are: (1) the
selection of individual investments has little impact on portfolio performance,
(2) market timing strategies seldom work, (3) markets are efficient, and (4)
portfolio selection should be made among asset classes. Modern Portfolio Theory
allows an investor to determine an efficient portfolio selection that may
provide a higher return with the same risk or the same return with lower risk.
When presenting the asset allocation process we may outline the process of
personal and investment risk analysis including determining individual risk
tolerances and a discussion of the different types of investment risk. We may
classify investors into four categories based on their risk tolerance and will
quote various industry experts on which types of investments are best suited to
each of the four risk categories. The industry experts quoted may include
Ibbotson Associates, CDA Investment Technologies, Lipper Analytical Services
and any other expert which has been deemed by us to be appropriate. We may also
provide an historical overview of the performance of a variety of investment
market indices, the performance of these indices over time, and the performance
of different asset classes, such as stocks, bonds, cash equivalents, etc. We
may also discuss investment volatility including the range of returns for
different asset classes and over different time horizons, and the correlation
between the returns of different asset classes. We may also discuss the basis
of portfolio optimization including the required inputs and the construction of
efficient portfolios using sophisticated computer-based techniques. Finally, we
may describe various investment strategies and methods of implementation, the
periodic rebalancing of diversified portfolios, the use of dollar cost
averaging techniques, a comparison of the tax impact of purchase payments made
on a "before tax" basis through a tax-qualified plan with those made on an
"after tax" basis outside of a tax-qualified plan, and a comparison of
tax-deferred versus non tax-deferred accumulation of purchase payments.
As described in the prospectus, in general, an owner is not taxed on increases
in value under a Contract until a distribution is made under the Contract. As a
result, the Contract will benefit from tax deferral during the accumulation
period, as the annuity value may grow more rapidly than under a comparable
investment where certain increases in value are taxed on a current basis. From
time to time, we may use narrative, numerical or graphic examples to show
hypothetical benefits of tax deferral in advertising and sales literature.
PUBLISHED RATINGS
We may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Rating Services, Moody's
20
<PAGE>
Investors Service, Inc. and Duff & Phelps Credit Rating Co. A.M. Best's and
Moody's ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. Standard & Poor's and Duff &
Phelps provide ratings which measure the claims-paying ability of insurance
companies. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance contracts in
accordance with their terms. Claims-paying ability ratings do not refer to an
insurer's ability to meet non-contract obligations such as debt or commercial
paper obligations. These ratings do not apply to the separate account, its
subaccounts, the fund or its portfolios, or to its performance.
ADMINISTRATION
Western Reserve performs administrative services for the Contracts. These
services include issuance of the Contracts, maintenance of records concerning
the Contracts, and certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
WRL Investment Services, Inc. As presently required by the 1940 Act and
regulations promulgated thereunder, Western Reserve will mail to all Contract
owners at their last known address of record, at least annually, reports
containing such information as may be required under the 1940 Act or by any
other applicable law or regulation. Contract owners will also receive
confirmation of each financial transaction and any other reports required by
law or regulation.
DISTRIBUTION OF THE CONTRACTS
Prior to May 1, 1999, InterSecurities, Inc. ("ISI"), an affiliate of Western
Reserve, was the principal underwriter of the Contracts. ISI has the same
address as Western Reserve. Effective May 1, 1999, AFSG Securities Corporation
("AFSG") became the principal underwriter of the Contracts. AFSG is located at
4333 Edgewood Rd., N.E., Cedar Rapids, Iowa 52499. Both ISI and AFSG are
registered with the SEC under the Securities Exchange Act of 1934 and are
members of the National Association of Securities Dealers, Inc. No amounts have
been retained by ISI for acting as principal underwriter for the Contracts and
AFSG will not be compensated for its services as principal underwriter of the
Contracts.
The Contracts are offered to the public through broker-dealers licensed under
the federal securities laws, and state insurance laws and who have entered into
written sales agreements with AFSG. Western Reserve will generally pay
broker-dealers first year sales commissions in an amount no greater than 6% of
purchase payments. In addition, broker-dealers may receive renewal commissions
equal to an amount no greater than 0.20% of the annuity value as of each
Contract anniversary, beginning in the second Contract year and each year
thereafter, providing the Contract has an annuity value of $5,000 or more on
each anniversary. Certain production, persistency and managerial bonuses may
also be paid. Subject to applicable federal and state laws and regulations,
Western Reserve may also pay compensation to banks
21
<PAGE>
and other financial institutions for their services in connection with the sale
and servicing of the Contracts. The level of such compensation will not exceed
that paid to broker-dealers for their sale of the Contracts. The offering of
the Contracts is continuous and Western Reserve does not anticipate
discontinuing the offering of the Contracts. However, Western Reserve reserves
the right to do so.
OTHER PRODUCTS
Western Reserve makes other variable annuity contracts available that may also
be funded through the separate account. These variable annuity contracts may
have different features, such as different investment choices or charges.
CUSTODY OF ASSETS
The assets of WRL Series Annuity Account are held by Western Reserve. The
assets of the separate account are kept physically segregated and held apart
from our general account and any of our other separate accounts. WRL Investment
Services, Inc. maintains records of all purchases and redemptions of shares of
the fund. Additional protection for the assets of the separate account is
provided by a blanket bond issued to AEGON U.S. Holding Corporation ("AEGON
U.S.") in the amount of $5 million (subject to a $1 million deductible),
covering all of the employees of AEGON U.S. and its affiliates, including
Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A.
Securities, Inc. provides additional fidelity coverage to a limit of $12
million.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP has provided advice on certain legal matters
concerning federal securities laws applicable to the issue and sale of the
Contracts. All matters of Ohio law pertaining to the Contracts, including the
validity of the Contracts and Western Reserve's right to issue the Contracts
under Ohio insurance law, have been passed upon by Thomas E. Pierpan, Esq.,
Vice President, Associate General Counsel and Assistant Secretary of Western
Reserve.
INDEPENDENT ACCOUNTANTS
The accounting firm of PricewaterhouseCoopers LLP, independent accountants,
provided audit services to the separate account for the year ended December 31,
1998. The principal business address of PricewaterhouseCoopers LLP is 160
Federal Street, Boston, Massachusetts 02110. The accounting firm of Ernst &
Young LLP, independent auditors, provided audit services to Western Reserve for
the year ended December 31, 1998. The principal business address of Ernst &
Young LLP is 801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764.
22
<PAGE>
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this SAI. Not all of the information set forth in the
Registration Statement, amendments, and exhibits thereto has been included in
the prospectus or this SAI. Statements contained in the prospectus and this SAI
concerning the content of the Contracts and other legal instruments are
intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of an owner's interest in the separate account will be affected
solely by the investment results of the selected subaccount(s). Western
Reserve's financial statements which are included in this SAI, should be
considered only as bearing on Western Reserve's ability to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the separate account.
Financial statements for Western Reserve as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 have been
prepared on the basis of statutory accounting principles, rather than generally
accepted accounting principles.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life
Assurance Co. of Ohio and Policy Owners of the
WRL Series Life Account
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of each of the Sub-Accounts constituting the WRL Series Life Account
(a separate account of Western Reserve Life Assurance Co. of Ohio, hereafter
referred to as the "Life Account") at December 31, 1998, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Life Account's management, our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
--------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999
24
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
Money
Market Bond Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 143,019 12,371 27,417
======= ====== ======
Cost ................................................ $143,019 $141,968 $ 936,730
======== ======== ==========
Investment, at net asset value ....................... $143,019 $143,431 $1,643,367
Transfers receivable from depositor .................. 0 0 0
-------- -------- ----------
Total assets ........................................ 143,019 143,431 1,643,367
-------- -------- ----------
LIABILITIES:
Accrued expenses ..................................... 0 0 0
Transfers payable to depositor ....................... 240 754 117
-------- -------- ----------
Total liabilities ................................... 240 754 117
-------- -------- ----------
Net assets .......................................... $142,779 $142,677 $1,643,250
======== ======== ==========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 48,797 $ 50,893 $ 817,014
Class B ............................................. 93,982 91,784 826,236
Depositor's equity:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- -------- ----------
Net assets applicable to units outstanding ......... $142,779 $142,677 $1,643,250
======== ======== ==========
Contract Owners' units:
Class A ............................................. 3,396 2,415 13,063
Class B ............................................. 7,839 6,351 27,435
Depositor's units:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- -------- ----------
Units outstanding .................................. 11,235 8,766 40,498
======== ======== ==========
Accumulation unit value -- Class A .................. $ 14.37 $ 21.08 $ 62.54
======== ======== ==========
Accumulation unit value -- Class B .................. $ 11.99 $ 14.45 $ 30.12
======== ======== ==========
</TABLE>
The notes to the financial statements are an integral part of
this report.
25
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
Strategic Emerging
Global Total Return Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 34,670 29,841 21,627
====== ====== ======
Cost ................................................ $649,971 $409,291 $410,871
======== ======== ========
Investment, at net asset value ....................... $821,980 $489,540 $582,292
Transfers receivable from depositor .................. 890 0 967
-------- -------- --------
Total assets ........................................ 822,870 489,540 583,259
-------- -------- --------
LIABILITIES:
Accrued expenses ..................................... 0 0 0
Transfers payable to depositor ....................... 0 29 0
-------- -------- --------
Total liabilities ................................... 0 29 0
-------- -------- --------
Net assets .......................................... $822,870 $489,511 $583,259
======== ======== ========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $298,285 $160,783 $201,838
Class B ............................................. 524,585 328,728 381,421
Depositor's equity:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- -------- --------
Net assets applicable to units outstanding ......... $822,870 $489,511 $583,259
======== ======== ========
Contract Owners' units:
Class A ............................................. 9,640 7,983 6,443
Class B ............................................. 17,105 16,462 12,279
Depositor's units:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- -------- --------
Units outstanding .................................. 26,745 24,445 18,722
======== ======== ========
Accumulation unit value -- Class A .................. $ 30.94 $ 20.14 $ 31.33
======== ======== ========
Accumulation unit value -- Class B .................. $ 30.67 $ 19.97 $ 31.06
======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of
this report.
26
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
Aggressive Growth &
Growth Balanced Income
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 17,282 6,282 5,661
====== ===== =====
Cost ................................................ $281,400 $73,205 $70,109
======== ======= =======
Investment, at net asset value ....................... $387,788 $78,793 $69,506
Transfers receivable from depositor .................. 461 0 0
-------- ------- -------
Total assets ........................................ 388,249 78,793 69,506
-------- ------- -------
LIABILITIES:
Accrued expenses ..................................... 0 0 0
Transfers payable to depositor ....................... 0 45 856
-------- ------- -------
Total liabilities ................................... 0 45 856
-------- ------- -------
Net assets .......................................... $388,249 $78,748 $68,650
======== ======= =======
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $106,742 $19,730 $16,502
Class B ............................................. 281,507 59,018 52,148
Depositor's equity:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $388,249 $78,748 $68,650
======== ======= =======
Contract Owners' units:
Class A ............................................. 4,069 1,336 1,021
Class B ............................................. 10,807 4,024 3,248
Depositor's units:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Units outstanding .................................. 14,876 5,360 4,269
======== ======= =======
Accumulation unit value -- Class A ................... $ 26.23 $ 14.77 $ 16.17
======== ======= =======
Accumulation unit value -- Class B ................... $ 26.05 $ 14.67 $ 16.06
======== ======= =======
</TABLE>
The notes to the financial statements are an integral part of
this report.
27
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
Tactical Asset C.A.S.E.
Allocation Growth Global Sector
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 24,217 3,976 1,045
====== ===== =====
Cost ................................................ $314,319 $56,032 $11,468
======== ======= =======
Investment, at net asset value ....................... $323,329 $51,653 $11,552
Transfers receivable from depositor .................. 0 88 12
-------- ------- -------
Total assets ........................................ 323,329 51,741 11,564
-------- ------- -------
LIABILITIES:
Accrued expenses ..................................... 0 0 0
Transfers payable to depositor ....................... 5 0 0
-------- ------- -------
Total liabilities ................................... 5 0 0
-------- ------- -------
Net assets .......................................... $323,324 $51,741 $11,564
======== ======= =======
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 85,428 $14,161 $ 1,433
Class B ............................................. 237,896 37,580 10,131
Depositor's equity:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $323,324 $51,741 $11,564
======== ======= =======
Contract Owners' units:
Class A ............................................. 5,174 887 123
Class B ............................................. 14,496 3,043 873
Depositor's units:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Units outstanding .................................. 19,670 3,930 996
======== ======= =======
Accumulation unit value -- Class A .................. $ 16.51 $ 15.96 $ 11.66
======== ======= =======
Accumulation unit value -- Class B .................. $ 16.41 $ 12.35 $ 11.61
======== ======= =======
</TABLE>
The notes to the financial statements are an integral part of
this report.
28
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
International U.S.
Value Equity Equity Equity
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 10,818 2,176 6,700
====== ===== =====
Cost ................................................ $143,906 $25,592 $88,930
======== ======= =======
Investment, at net asset value ....................... $131,063 $26,267 $96,618
Transfers receivable from depositor .................. 0 0 257
-------- ------- -------
Total assets ........................................ 131,063 26,267 96,875
-------- ------- -------
LIABILITIES:
Accrued expenses ..................................... 0 0 0
Transfers payable to depositor ....................... 206 108 0
-------- ------- -------
Total liabilities ................................... 206 108 0
-------- ------- -------
Net assets .......................................... $130,857 $26,159 $96,875
======== ======= =======
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 38,640 $ 6,783 $23,419
Class B ............................................. 92,217 19,376 73,456
Depositor's equity:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $130,857 $26,159 $96,875
======== ======= =======
Contract Owners' units:
Class A ............................................. 2,964 573 1,538
Class B ............................................. 7,103 1,642 4,840
Depositor's units:
Class A ............................................. 0 0 0
Class B ............................................. 0 0 0
-------- ------- -------
Units outstanding .................................. 10,067 2,215 6,378
======== ======= =======
Accumulation unit value -- Class A .................. $ 13.04 $ 11.83 $ 15.22
======== ======= =======
Accumulation unit value -- Class B .................. $ 12.98 $ 11.80 $ 15.18
======== ======= =======
</TABLE>
The notes to the financial statements are an integral part of
this report.
29
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
Third Avenue Real Estate
Value Securities
Sub-Account Sub-Account
<S> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares .............................................. 1,651 201
===== ===
Cost ................................................ $15,959 $1,774
======= ======
Investment, at net asset value ....................... $15,335 $1,706
Transfers receivable from depositor .................. 5 189
------- ------
Total assets ........................................ 15,340 1,895
------- ------
LIABILITIES:
Accrued expenses ..................................... 0 0
Transfers payable to depositor ....................... 0 0
------- ------
Total liabilities ................................... 0 0
------- ------
Net assets .......................................... $15,340 $1,895
======= ======
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 5,783 $ 318
Class B ............................................. 9,281 1,071
Depositor's equity:
Class A ............................................. 138 253
Class B ............................................. 138 253
------- ------
Net assets applicable to units outstanding ......... $15,340 $1,895
======= ======
Contract Owners' units:
Class A ............................................. 629 38
Class B ............................................. 1,010 127
Depositor's units:
Class A ............................................. 15 30
Class B ............................................. 15 30
------- ------
Units outstanding .................................. 1,669 225
======= ======
Accumulation unit value -- Class A .................. $ 9.20 $ 8.44
======= ======
Accumulation unit value -- Class B .................. $ 9.19 $ 8.43
======= ======
</TABLE>
The notes to the financial statements are an integral part of
this report.
30
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Money
Market Bond Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $7,098 $6,877 $ 2,436
Capital gain distributions .............................................. 0 0 10,814
------ ------ --------
Total investment income ............................................... 7,098 6,877 13,250
------ ------ --------
EXPENSES:
Mortality and expense risk:
Class A ................................................................ 652 587 8,232
Class B ................................................................ 1,204 1,077 8,089
------ ------ --------
Total expenses ........................................................ 1,856 1,664 16,321
------ ------ --------
Net investment income (loss) ............................................ 5,242 5,213 (3,071)
------ ------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................... 0 2,980 84,538
Change in unrealized appreciation (depreciation) ........................ 0 772 534,463
------ ------ --------
Net gain (loss) on investment securities ................................ 0 3,752 619,001
------ ------ --------
Net increase (decrease) in net assets resulting from operations ....... $5,242 $8,965 $615,930
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Strategic Emerging
Global Total Return Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 4,368 $11,176 $ 0
Capital gain distributions .............................................. 28,573 9,413 19,371
-------- ------- --------
Total investment income ............................................... 32,941 20,589 19,371
-------- ------- --------
EXPENSES:
Mortality and expense risk:
Class A ................................................................ 3,594 2,046 2,147
Class B ................................................................ 6,370 4,258 4,191
-------- ------- --------
Total expenses ........................................................ 9,964 6,304 6,338
-------- ------- --------
Net investment income (loss) ............................................ 22,977 14,285 13,033
-------- ------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................... 41,579 12,532 34,463
Change in unrealized appreciation (depreciation) ........................ 112,012 9,475 100,637
-------- ------- --------
Net gain (loss) on investment securities ................................ 153,591 22,007 135,100
-------- ------- --------
Net increase (decrease) in net assets resulting from operations ....... $176,568 $36,292 $148,133
======== ======= ========
</TABLE>
The notes to the financial statements are an integral part of
this report.
31
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Aggressive Growth &
Growth Balanced Income
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 810 $1,738 $ 2,946
Capital gain distributions .............................................. 19,054 76 518
-------- ------ --------
Total investment income ............................................... 19,864 1,814 3,464
-------- ------ --------
EXPENSES:
Mortality and expense risk:
Class A ................................................................ 1,054 236 204
Class B ................................................................ 2,857 730 643
-------- ------ --------
Total expenses ........................................................ 3,911 966 847
-------- ------ --------
Net investment income (loss) ............................................ 15,953 848 2,617
-------- ------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................... 11,096 2,432 1,695
Change in unrealized appreciation (depreciation) ........................ 87,922 550 (3,096)
-------- ------ --------
Net gain (loss) on investment securities ................................ 99,018 2,982 (1,401)
-------- ------ --------
Net increase (decrease) in net assets resulting from operations ....... $114,971 $3,830 $ 1,216
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Tactical Asset C.A.S.E. Global
Allocation Growth Sector
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 9,083 $ 4,661 $202
Capital gain distributions .............................................. 21,777 321 138
--------- -------- ----
Total investment income ............................................... 30,860 4,982 340
--------- -------- ----
EXPENSES:
Mortality and expense risk:
Class A ................................................................ 1,035 187 26
Class B ................................................................ 3,064 492 143
--------- -------- ----
Total expenses ........................................................ 4,099 679 169
--------- -------- ----
Net investment income (loss) ............................................ 26,761 4,303 171
--------- -------- ----
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................... 4,988 (437) 208
Change in unrealized appreciation (depreciation) ........................ (12,543) (3,543) 557
--------- -------- ----
Net gain (loss) on investment securities ................................ (7,555) (3,980) 765
--------- -------- ----
Net increase (decrease) in net assets resulting from operations ....... $ 19,206 $ 323 $936
========= ======== ====
</TABLE>
The notes to the financial statements are an integral part of
this report.
32
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Value International
Equity Equity U.S. Equity
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 2,672 $ 20 $ 2,868
Capital gain distributions .............................................. 9,420 0 664
--------- ------ -------
Total investment income ............................................... 12,092 20 3,532
--------- ------ -------
EXPENSES:
Mortality and expense risk:
Class A ................................................................ 604 88 209
Class B ................................................................ 1,461 231 625
--------- ------ -------
Total expenses ........................................................ 2,065 319 834
--------- ------ -------
Net investment income (loss) ............................................ 10,027 (299) 2,698
--------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................... 7,300 892 3,078
Change in unrealized appreciation (depreciation) ........................ (29,640) 1,160 7,647
--------- ------ -------
Net gain (loss) on investment securities ................................ (22,340) 2,052 10,725
--------- ------ -------
Net increase (decrease) in net assets resulting from operations ....... $ (12,313) $1,753 $13,423
========= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Third Avenue Real Estate
Value Securities
Sub-Account (a) Sub-Account (b)
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................................... $ 42 $ 0
Capital gain distributions ............................................ 0 0
-------- ------
Total investment income ............................................. 42 0
-------- ------
EXPENSES:
Mortality and expense risk:
Class A .............................................................. 58 3
Class B .............................................................. 102 7
-------- ------
Total expenses ...................................................... 160 10
-------- ------
Net investment income (loss) .......................................... (118) (10)
-------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ................. (367) (97)
Change in unrealized appreciation (depreciation) ...................... (624) (68)
-------- ------
Net gain (loss) on investment securities .............................. (991) (165)
-------- ------
Net increase (decrease) in net assets resulting from operations ..... $ (1,109) $ (175)
======== ======
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of
this report.
33
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONEY MARKET BOND
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
-------------------------- -----------------------
1998 1997 1998 1997
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 5,242 $ 4,323 $ 5,213 $ 3,787
Net gain (loss) on investment securities ......... 0 0 3,752 2,297
----------- ---------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 5,242 4,323 8,965 6,084
----------- ---------- --------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 89,466 24,672 39,699 34,812
----------- ---------- --------- ---------
Less cost of units redeemed:
Administrative charges .......................... 67 56 74 60
Policy loans .................................... 10 44 9 29
Surrender benefits .............................. 51,046 35,358 15,360 12,801
Death benefits .................................. 2,489 1,410 1,002 1,119
----------- ---------- --------- ---------
53,612 36,868 16,445 14,009
----------- ---------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions ................. 35,854 (12,196) 23,254 20,803
----------- ---------- --------- ---------
Net increase (decrease) in net assets ........... 41,096 (7,873) 32,219 26,887
Depositor's equity contribution (redemption) ..... 0 0 0 0
NET ASSETS:
Beginning of year ................................ 101,683 109,556 110,458 83,571
----------- ---------- --------- ---------
End of year ...................................... $ 142,779 $ 101,683 $ 142,677 $ 110,458
=========== ========== ========= =========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .......... 2,861 3,849 2,360 2,513
Units issued .................................... 12,716 11,575 1,411 863
Units redeemed .................................. (12,181) (12,563) (1,356) (1,016)
----------- ---------- --------- ---------
Units outstanding -- end of year ............... 3,396 2,861 2,415 2,360
=========== ========== ========= =========
Class B:
Units outstanding -- beginning of year .......... 5,383 5,254 4,801 3,055
Units issued .................................... 42,233 26,457 5,846 3,754
Units redeemed .................................. (39,777) (26,328) (4,296) (2,008)
----------- ---------- --------- ---------
Units outstanding -- end of year ............... 7,839 5,383 6,351 4,801
=========== ========== ========= =========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ...................... $ 179,547 $ 156,967 $ 29,044 $ 16,414
Cost of units redeemed .......................... (172,316) (170,491) (27,598) (18,763)
----------- ---------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions ................ $ 7,231 $ (13,524) $ 1,446 $ (2,349)
=========== ========== ========= =========
Class B
Proceeds from units issued ...................... $ 498,610 $ 300,223 $ 82,089 $ 49,003
Cost of units redeemed .......................... (469,987) (298,895) (60,281) (25,851)
----------- ---------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions ................ $ 28,623 $ 1,328 $ 21,808 $ 23,152
=========== ========== ========= =========
<CAPTION>
GROWTH
SUB-ACCOUNT
December 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ (3,071) $ 95,008
Net gain (loss) on investment securities ......... 619,001 44,193
---------- ----------
Net increase (decrease) in net assets
resulting from operations ....................... 615,930 139,201
---------- ----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 176,685 100,049
---------- ----------
Less cost of units redeemed:
Administrative charges .......................... 924 824
Policy loans .................................... 276 291
Surrender benefits .............................. 145,324 122,338
Death benefits .................................. 6,422 6,036
---------- ----------
152,946 129,489
---------- ----------
Increase (decrease) in net assets
from capital unit transactions ................. 23,739 (29,440)
---------- ----------
Net increase (decrease) in net assets ........... 639,669 109,761
Depositor's equity contribution (redemption) ..... 0 0
NET ASSETS:
Beginning of year ................................ 1,003,581 893,820
---------- ----------
End of year ...................................... $1,643,250 $1,003,581
========== ==========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .......... 14,842 17,370
Units issued .................................... 2,325 2,279
Units redeemed .................................. (4,104) (4,807)
---------- ----------
Units outstanding -- end of year ............... 13,063 14,842
========== ==========
Class B:
Units outstanding -- beginning of year .......... 23,273 19,833
Units issued .................................... 14,632 9,817
Units redeemed .................................. (10,470) (6,377)
---------- ----------
Units outstanding -- end of year ............... 27,435 23,273
========== ==========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ...................... $ 115,049 $ 83,258
Cost of units redeemed .......................... (196,117) (173,750)
---------- ----------
Increase (decrease) in net assets
from capital unit transactions ................ $ (81,068) $ (90,492)
========== ==========
Class B
Proceeds from units issued ...................... $ 349,932 $ 172,646
Cost of units redeemed .......................... (245,125) (111,594)
---------- ----------
Increase (decrease) in net assets
from capital unit transactions ................ $ 104,807 $ 61,052
========== ==========
</TABLE>
The notes to the financial statements are an integral part of
this report.
34
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
STRATEGIC
GLOBAL TOTAL RETURN EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31, December 31,
------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 22,977 $ 67,753 $ 14,285 $ 31,906 $ 13,033 $ 34,075
Net gain (loss) on investment securities ......... 153,591 16,167 22,007 39,238 135,100 32,074
---------- ---------- --------- --------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 176,568 83,920 36,292 71,144 148,133 66,149
---------- ---------- --------- --------- ---------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 84,146 153,435 53,733 73,224 52,394 65,278
---------- ---------- --------- --------- ---------- ---------
Less cost of units redeemed:
Administrative charges .......................... 531 415 257 230 370 305
Policy loans .................................... 169 179 75 78 81 148
Surrender benefits .............................. 67,089 50,878 41,421 31,156 39,571 28,049
Death benefits .................................. 2,884 2,194 2,375 2,384 1,824 1,218
---------- ---------- --------- --------- ---------- ---------
70,673 53,666 44,128 33,848 41,846 29,720
---------- ---------- --------- --------- ---------- ---------
Increase (decrease) in net assets
from capital unit transactions ................. 13,473 99,769 9,605 39,376 10,548 35,558
---------- ---------- --------- --------- ---------- ---------
Net increase (decrease) in net assets ........... 190,041 183,689 45,897 110,520 158,681 101,707
Depositor's equity contribution (redemption) ..... 0 0 0 0 0 0
NET ASSETS:
Beginning of year ................................ 632,829 449,140 443,614 333,094 424,578 322,871
---------- ---------- --------- --------- ---------- ---------
End of year ...................................... $ 822,870 $ 632,829 $ 489,511 $ 443,614 $ 583,259 $ 424,578
========== ========== ========= ========= ========== =========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .......... 10,843 10,764 8,831 8,850 7,180 7,440
Units issued .................................... 2,177 3,749 1,416 2,112 1,612 2,547
Units redeemed .................................. (3,380) (3,670) (2,264) (2,131) (2,349) (2,807)
---------- ---------- --------- --------- ---------- ---------
Units outstanding -- end of year ............... 9,640 10,843 7,983 8,831 6,443 7,180
========== ========== ========= ========= ========== =========
Class B:
Units outstanding -- beginning of year .......... 15,530 11,159 15,125 12,771 11,279 9,377
Units issued .................................... 8,478 9,373 5,389 5,551 6,337 6,544
Units redeemed .................................. (6,903) (5,002) (4,052) (3,197) (5,337) (4,642)
---------- ---------- --------- --------- ---------- ---------
Units outstanding -- end of year ............... 17,105 15,530 16,462 15,125 12,279 11,279
========== ========== ========= ========= ========== =========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ...................... $ 60,997 $ 85,424 $ 27,037 $ 36,001 $ 41,764 $ 53,282
Cost of units redeemed .......................... (93,858) (85,013) (43,014) (36,499) (59,104) (58,078)
---------- ---------- --------- --------- ---------- ---------
Increase (decrease) in net assets
from capital unit transactions ................ $ (32,861) $ 411 $ (15,977) $ (498) $ (17,340) $ (4,796)
========== ========== ========= ========= ========== =========
Class B
Proceeds from units issued ....................... $ 236,884 $ 215,509 $ 101,973 $ 94,632 $ 162,954 $ 137,690
Cost of units redeemed ........................... (190,550) (116,151) (76,391) (54,758) (135,066) (97,336)
---------- ---------- --------- --------- ---------- ---------
Increase (decrease) in net assets
from capital unit transactions ................ $ 46,334 $ 99,358 $ 25,582 $ 39,874 $ 27,888 $ 40,354
========== ========== ========= ========= ========== =========
</TABLE>
The notes to the financial statements are an integral part of
this report.
35
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31, December 31,
------------------------- ------------------------ -----------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 15,953 $ 18,672 $ 848 $ 5,486 $ 2,617 $ 6,496
Net gain (loss) on investment securities ......... 99,018 19,487 2,982 1,940 (1,401) 1,829
--------- --------- --------- -------- --------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 114,971 38,159 3,830 7,426 1,216 8,325
--------- --------- --------- -------- --------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 61,019 51,596 21,611 16,015 22,549 13,870
--------- --------- --------- -------- --------- --------
Less cost of units redeemed:
Administrative charges .......................... 253 189 47 35 37 26
Policy loans .................................... 191 69 34 5 15 14
Surrender benefits .............................. 23,320 16,218 7,504 3,892 5,368 3,255
Death benefits .................................. 922 1,009 334 615 342 622
--------- --------- --------- -------- --------- --------
24,686 17,485 7,919 4,547 5,762 3,917
--------- --------- --------- -------- --------- --------
Increase (decrease) in net assets
from capital unit transactions ................. 36,333 34,111 13,692 11,468 16,787 9,953
--------- --------- --------- -------- --------- --------
Net increase (decrease) in net assets ........... 151,304 72,270 17,522 18,894 18,003 18,278
Depositor's equity contribution (redemption) ..... 0 0 0 0 0 0
NET ASSETS:
Beginning of year ................................ 236,945 164,675 61,226 42,332 50,647 32,369
--------- --------- --------- -------- --------- --------
End of year ...................................... $ 388,249 $ 236,945 $ 78,748 $ 61,226 $ 68,650 $ 50,647
========= ========= ========= ======== ========= ========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .......... 4,173 4,385 1,239 1,124 885 961
Units issued .................................... 1,588 1,851 652 511 654 478
Units redeemed .................................. (1,692) (2,063) (555) (396) (518) (554)
--------- --------- --------- -------- --------- --------
Units outstanding -- end of year ............... 4,069 4,173 1,336 1,239 1,021 885
========= ========= ========= ======== ========= ========
Class B:
Units outstanding -- beginning of year .......... 9,141 6,954 3,157 2,386 2,316 1,554
Units issued .................................... 6,364 5,495 2,021 1,449 2,664 1,325
Units redeemed .................................. (4,698) (3,308) (1,154) (678) (1,732) (563)
--------- --------- --------- -------- --------- --------
Units outstanding -- end of year ............... 10,807 9,141 4,024 3,157 3,248 2,316
========= ========= ========= ======== ========= ========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ...................... $ 33,380 $ 30,741 $ 9,298 $ 6,670 $ 10,307 $ 6,632
Cost of units redeemed .......................... (34,274) (33,539) (7,930) (5,169) (8,136) (7,537)
--------- --------- --------- -------- --------- --------
Increase (decrease) in net assets
from capital unit transactions ................ $ (894) $ (2,798) $ 1,368 $ 1,501 $ 2,171 $ (905)
========= ========= ========= ======== ========= ========
Class B
Proceeds from units issued ...................... $ 134,461 $ 91,322 $ 28,613 $ 18,801 $ 41,704 $ 18,709
Cost of units redeemed .......................... (97,234) (54,413) (16,289) (8,834) (27,088) (7,851)
--------- --------- --------- -------- --------- --------
Increase (decrease) in net assets
from capital unit transactions ................ $ 37,227 $ 36,909 $ 12,324 $ 9,967 $ 14,616 $ 10,858
========= ========= ========= ======== ========= ========
</TABLE>
The notes to the financial statements are an integral part of
this report.
36
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION C.A.S.E. GROWTH GLOBAL SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31, December 31,
------------------------- ----------------------- -----------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................... $ 26,761 $ 16,973 $ 4,303 $ 3,913 $ 171 $ 505
Net gain (loss) on investment securities ........ (7,555) 15,427 (3,980) (788) 765 (407)
--------- --------- --------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ...................... 19,206 32,400 323 3,125 936 98
--------- --------- --------- -------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) .......... 60,662 71,016 5,436 32,505 (627) 7,365
--------- --------- --------- -------- -------- --------
Less cost of units redeemed:
Administrative charges ......................... 145 107 33 15 8 4
Policy loans ................................... 61 38 17 12 5 1
Surrender benefits ............................. 27,240 17,363 3,062 1,838 799 665
Death benefits ................................. 1,105 1,673 578 222 82 14
--------- --------- --------- -------- -------- --------
28,551 19,181 3,690 2,087 894 684
--------- --------- --------- -------- -------- --------
Increase (decrease) in net assets
from capital unit transactions ................ 32,111 51,835 1,746 30,418 (1,521) 6,681
--------- --------- --------- -------- -------- --------
Net increase (decrease) in net assets .......... 51,317 84,235 2,069 33,543 (585) 6,779
Depositor's equity contribution (redemption) ..... 0 0 0 (25) (556) 0
NET ASSETS:
Beginning of year ............................... 272,007 187,772 49,672 16,154 12,705 5,926
--------- --------- --------- -------- -------- --------
End of year ..................................... $ 323,324 $ 272,007 $ 51,741 $ 49,672 $ 11,564 $ 12,705
========= ========= ========= ======== ======== ========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year ......... 5,049 4,640 1,121 260 220 230
Units issued ................................... 1,544 1,856 538 1,162 44 113
Units redeemed ................................. (1,419) (1,447) (772) (301) (141) (123)
--------- --------- --------- -------- -------- --------
Units outstanding -- end of year .............. 5,174 5,049 887 1,121 123 220
========= ========= ========= ======== ======== ========
Class B:
Units outstanding -- beginning of year ......... 12,633 9,398 2,618 1,164 965 334
Units issued ................................... 5,679 6,245 1,879 2,142 348 878
Units redeemed ................................. (3,816) (3,010) (1,454) (688) (440) (247)
--------- --------- --------- -------- -------- --------
Units outstanding -- end of year .............. 14,496 12,633 3,043 2,618 873 965
========= ========= ========= ======== ======== ========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ..................... $ 24,856 $ 26,637 $ 8,282 $ 18,073 $ 506 $ 1,229
Cost of units redeemed ......................... (22,698) (20,740) (12,019) (4,706) (1,579) (1,348)
--------- --------- --------- -------- -------- --------
Increase (decrease) in net assets
from capital unit transactions ............... $ 2,158 $ 5,897 $ (3,737) $ 13,367 $ (1,073) $ (119)
========= ========= ========= ======== ======== ========
Class B
Proceeds from units issued ..................... $ 90,625 $ 89,910 $ 22,803 $ 24,989 $ 3,952 $ 9,471
Cost of units redeemed ......................... (60,672) (43,972) (17,320) (7,963) (4,956) (2,671)
--------- --------- --------- -------- -------- --------
Increase (decrease) in net assets
from capital unit transactions ............... $ 29,953 $ 45,938 $ 5,483 $ 17,026 $ (1,004) $ 6,800
========= ========= ========= ======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of
this report.
37
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
VALUE EQUITY INTERNATIONAL EQUITY U.S. EQUTIY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31, December 31,
------------------------- ----------------------- -----------------------
1998 1997 1998 1997 (a) 1998 1997 (a)
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 10,027 $ 576 $ (299) $ (55) $ 2,698 $ 1,223
Net gain (loss) on investment securities ......... (22,340) 16,752 2,052 (273) 10,725 1,489
--------- --------- --------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... (12,313) 17,328 1,753 (328) 13,423 2,712
--------- --------- --------- -------- --------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 11,585 97,065 9,266 17,763 52,247 38,761
--------- --------- --------- -------- --------- ---------
Less cost of units redeemed:
Administrative charges .......................... 84 41 13 3 25 5
Policy loans .................................... 64 14 26 5 22 0
Surrender benefits .............................. 14,233 7,470 1,407 504 7,153 2,568
Death benefits .................................. 682 315 207 5 386 1
--------- --------- --------- -------- --------- ---------
15,063 7,840 1,653 517 7,586 2,574
--------- --------- --------- -------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions ................. (3,478) 89,225 7,613 17,246 44,661 36,187
--------- --------- --------- -------- --------- ---------
Net increase (decrease) in net assets ........... (15,791) 106,553 9,366 16,918 58,084 38,899
Depositor's equity contribution (redemption) ..... 0 (343) (725) 600 (408) 300
NET ASSETS:
Beginning of year ................................ 146,648 40,438 17,518 0 39,199 0
--------- --------- --------- -------- --------- ---------
End of year ...................................... $ 130,857 $ 146,648 $ 26,159 $ 17,518 $ 96,875 $ 39,199
========= ========= ========= ======== ========= =========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .......... 3,562 1,486 601 0 987 0
Units issued .................................... 2,145 3,436 665 717 1,779 1,742
Units redeemed .................................. (2,743) (1,360) (693) (116) (1,228) (755)
--------- --------- --------- -------- --------- ---------
Units outstanding -- end of year ............... 2,964 3,562 573 601 1,538 987
========= ========= ========= ======== ========= =========
Class B:
Units outstanding -- beginning of year .......... 7,035 2,119 1,051 0 2,141 0
Units issued .................................... 5,002 7,466 1,776 1,505 5,244 3,215
Units redeemed .................................. (4,934) (2,550) (1,185) (454) (2,545) (1,074)
--------- --------- --------- -------- --------- ---------
Units outstanding -- end of year ............... 7,103 7,035 1,642 1,051 4,840 2,141
========= ========= ========= ======== ========= =========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued ...................... $ 29,077 $ 43,341 $ 7,942 $ 7,704 $ 24,458 $ 20,081
Cost of units redeemed .......................... (36,336) (17,206) (8,214) (1,254) (17,106) (8,686)
--------- --------- --------- -------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions ................ $ (7,259) $ 26,135 $ (272) $ 6,450 $ 7,352 $ 11,395
========= ========= ========= ======== ========= =========
Class B
Proceeds from units issued ....................... $ 69,109 $ 95,515 $ 20,738 $ 16,298 $ 71,783 $ 37,740
Cost of units redeemed ........................... (65,328) (32,768) (13,578) (4,902) (34,882) (12,648)
--------- --------- --------- -------- --------- ---------
Increase (decrease) in net assets
from capital unit transactions .................... $ 3,781 $ 62,747 $ 7,160 $ 11,396 $ 36,901 $ 25,092
========= ========= ========= ======== ========= =========
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1997.
The notes to the financial statements are an integral part of
this report.
38
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
THIRD AVENUE REAL ESTATE
VALUE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
December 31, December 31,
1998 (b) 1998 (c)
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................... $ (118) $ (10)
Net gain (loss) on investment securities ............. (991) (165)
-------- --------
Net increase (decrease) in net assets
resulting from operations .......................... (1,109) (175)
-------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............... 16,606 1,484
-------- --------
Less cost of units redeemed:
Administrative charges .............................. 4 0
Policy loans ........................................ 0 0
Surrender benefits .................................. 453 14
Death benefits ...................................... 0 0
-------- --------
457 14
-------- --------
Increase (decrease) in net assets
from capital unit transactions ..................... 16,149 1,470
-------- --------
Net increase (decrease) in net assets ............... 15,040 1,295
Depositor's equity contribution (redemption) ......... 300 600
NET ASSETS:
Beginning of year .................................... 0 0
-------- --------
End of year .......................................... $ 15,340 $ 1,895
======== ========
UNIT ACTIVITY:
Class A:
Units outstanding -- beginning of year .............. 0 0
Units issued ........................................ 992 84
Units redeemed ...................................... (348) (16)
-------- --------
Units outstanding -- end of year ................... 644 68
======== ========
Class B:
Units outstanding -- beginning of year .............. 0 0
Units issued ........................................ 1,702 302
Units redeemed ...................................... (677) (145)
-------- --------
Units outstanding -- end of year ................... 1,025 157
======== ========
CAPITAL UNIT TRANSACTIONS BY CLASS:
Class A
Proceeds from units issued .......................... $ 9,565 $ 784
Cost of units redeemed .............................. (3,245) (151)
-------- --------
Increase (decrease) in net assets
from capital unit transactions .................... $ 6,320 $ 633
======== ========
Class B
Proceeds from units issued .......................... $ 16,395 $ 2,659
Cost of units redeemed .............................. (6,266) (1,222)
-------- --------
Increase (decrease) in net assets
from capital unit transactions .................... $ 10,129 $ 1,437
======== ========
</TABLE>
(b) The inception date of this Sub-Account was January 2, 1998.
(c) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of
this report.
39
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 13.82 $ 13.29
Income from operations:
Net investment income (loss) .......................................... 0.55 0.53
Net realized and unrealized gain (loss) on investment ................. 0.00 0.00
------- -------
Net income (loss) from operations .................................... 0.55 0.53
------- -------
Accumulation unit value, end of year .................................... $ 14.37 $ 13.82
======= =======
Total return (a) ........................................................ 3.99% 4.00%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $48,797 $39,531
Ratios of net investment income (loss) to average net assets (b) ....... 3.89% 3.92%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 12.80 $ 12.29 $ 12.03
Income from operations:
Net investment income (loss) .......................................... 0.49 0.51 0.26
Net realized and unrealized gain (loss) on investment ................. 0.00 0.00 0.00
------- ------- -------
Net income (loss) from operations .................................... 0.49 0.51 0.26
------- ------- -------
Accumulation unit value, end of year .................................... $ 13.29 $ 12.80 $ 12.29
======= ======= =======
Total return (a) ........................................................ 3.81% 4.12% 2.22%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $51,141 $41,596 $55,318
Ratios of net investment income (loss) to average net assets (b) ....... 3.72% 4.03% 2.28%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 19.52 $ 18.11
Income from operations:
Net investment income (loss) .......................................... 0.82 0.73
Net realized and unrealized gain (loss) on investment ................. 0.74 0.68
------- -------
Net income (loss) from operations .................................... 1.56 1.41
------- -------
Accumulation unit value, end of year .................................... $ 21.08 $ 19.52
======= =======
Total return (a) ........................................................ 7.96% 7.80%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $50,893 $46,082
Ratios of net investment income (loss) to average net assets (b) ....... 4.02% 3.95%
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 18.31 $ 15.08 $ 16.40
Income from operations:
Net investment income (loss) .......................................... 0.77 0.83 0.72
Net realized and unrealized gain (loss) on investment ................. (0.97) 2.40 (2.04)
------- ------- -------
Net income (loss) from operations .................................... (0.20) 3.23 (1.32)
------- ------- -------
Accumulation unit value, end of year .................................... $ 18.11 $ 18.31 $ 15.08
======= ======= =======
Total return (a) ........................................................ (1.10)% 21.46% (8.10)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $45,516 $54,109 $47,193
Ratios of net investment income (loss) to average net assets (b) ....... 4.34% 4.94% 4.69%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 38.50 $ 33.17
Income from operations:
Net investment income (loss) ........................................... (0.08) 3.42
Net realized and unrealized gain (loss) on investment .................. 24.12 1.91
------- --------
Net income (loss) from operations ..................................... 24.04 5.33
------- --------
Accumulation unit value, end of year ..................................... $ 62.54 $ 38.50
======= ========
Total return (a) ......................................................... 62.43% 16.09%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $817,014 $571,456
Ratios of net investment income (loss) to average net assets (b) ........ (0.18)% 9.36%
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 28.47 $ 19.60 $ 21.64
Income from operations:
Net investment income (loss) ........................................... 1.64 2.35 (0.06)
Net realized and unrealized gain (loss) on investment .................. 3.06 6.52 (1.98)
-------- -------- -------
Net income (loss) from operations ..................................... 4.70 8.87 (2.04)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 33.17 $ 28.47 $ 19.60
======== ======== =======
Total return (a) ......................................................... 16.50% 45.29% (9.45)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $576,115 $532,646 $409,881
Ratios of net investment income (loss) to average net assets (b) ........ 5.22% 9.81% (0.28)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
40
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 24.10 $ 20.55
Income from operations:
Net investment income (loss) ........................................... 0.83 2.55
Net realized and unrealized gain (loss) on investment .................. 6.01 1.00
-------- --------
Net income (loss) from operations ..................................... 6.84 3.55
-------- --------
Accumulation unit value, end of year ..................................... $ 30.94 $ 24.10
======== ========
Total return (a) ......................................................... 28.40% 17.28%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $298,285 $261,317
Ratios of net investment income (loss) to average net assets (b) ........ 2.97% 11.01%
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 16.29 $ 13.40 $ 13.54
Income from operations:
Net investment income (loss) ........................................... 1.62 0.42 0.45
Net realized and unrealized gain (loss) on investment .................. 2.64 2.47 (0.59)
-------- -------- -------
Net income (loss) from operations ..................................... 4.26 2.89 (0.14)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 20.55 $ 16.29 $ 13.40
======== ======== =======
Total return (a) ......................................................... 26.15% 21.53% (0.99)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $221,185 $141,425 $144,705
Ratios of net investment income (loss) to average net assets (b) ........ 8.60% 2.89% 3.40%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 18.60 $ 15.46
Income from operations:
Net investment income (loss) ........................................... 0.56 1.34
Net realized and unrealized gain (loss) on investment .................. 0.98 1.80
-------- --------
Net income (loss) from operations ..................................... 1.54 3.14
-------- --------
Accumulation unit value, end of year ..................................... $ 20.14 $ 18.60
Total return (a) ......................................................... 8.28% 20.34%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $160,783 $164,259
Ratios of net investment income (loss) to average net assets (b) ....... 2.95% 7.83%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT
December 31,
-------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 13.61 $ 11.06 $11.25
Income from operations:
Net investment income (loss) ........................................... 0.68 0.59 0.16
Net realized and unrealized gain (loss) on investment .................. 1.17 1.96 (0.35)
-------- -------- ------
Net income (loss) from operations ..................................... 1.85 2.55 (0.19)
-------- -------- ------
Accumulation unit value, end of year ..................................... $ 15.46 $ 13.61 $11.06
Total return (a) ......................................................... 13.57% 23.11% (1.7)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $136,789 $116,374 $88,607
Ratios of net investment income (loss) to average net assets (b) ....... 4.75% 4.74% 1.43%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 23.10 $ 19.26
Income from operations:
Net investment income (loss) ........................................... 0.69 1.85
Net realized and unrealized gain (loss) on investment .................. 7.54 1.99
-------- --------
Net income (loss) from operations ..................................... 8.23 3.84
-------- --------
Accumulation unit value, end of year ..................................... $ 31.33 $ 23.10
======== ========
Total return (a) ......................................................... 35.63% 19.95%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $201,838 $165,848
Ratios of net investment income (loss) to average net assets (b) ........ 2.69% 8.73%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 16.40 $ 11.31 $ 12.37
Income from operations:
Net investment income (loss) ........................................... 0.63 0.51 (0.13)
Net realized and unrealized gain (loss) on investment .................. 2.23 4.58 (0.93)
-------- -------- -------
Net income (loss) from operations ..................................... 2.86 5.09 (1.06)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 19.26 $ 16.40 $ 11.31
======== ======== =======
Total return (a) ......................................................... 17.41% 44.97% (8.51)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $143,282 $115,797 $83,480
Ratios of net investment income (loss) to average net assets (b) ........ 3.42% 3.68% (1.21)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
41
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
December 31,
------------------------
1998 1997
------------ -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 17.86 $ 14.56
Income from operations:
Net investment income (loss) ........................................... 1.13 1.42
Net realized and unrealized gain (loss) on investment .................. 7.24 1.88
-------- -------
Net income (loss) from operations ..................................... 8.37 3.30
-------- -------
Accumulation unit value, end of year ..................................... $ 26.23 $ 17.86
======== =======
Total return (a) ......................................................... 46.84% 22.71%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $106,742 $74,544
Ratios of net investment income (loss) to average net assets (b) ........ 5.39% 8.51%
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994 (c)
----------- ----------- ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 13.35 $ 9.79 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.25 0.29 (0.08)
Net realized and unrealized gain (loss) on investment .................. 0.96 3.27 (0.13)
------- ------- -------
Net income (loss) from operations ..................................... 1.21 3.56 (0.21)
------- ------- -------
Accumulation unit value, end of year ..................................... $ 14.56 $ 13.35 $ 9.79
======= ======= =======
Total return (a) ......................................................... 9.07% 36.31% (2.08)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $63,843 $65,666 $18,555
Ratios of net investment income (loss) to average net assets (b) ........ 1.77% 2.28% (1.04)%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 13.99 $ 12.09
Income from operations:
Net investment income (loss) ........................................... 0.17 1.32
Net realized and unrealized gain (loss) on investment .................. 0.61 0.58
------- -------
Net income (loss) from operations ..................................... 0.78 1.90
------- -------
Accumulation unit value, end of year ..................................... $ 14.77 $ 13.99
======= =======
Total return (a) ......................................................... 5.60% 15.65%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $19,730 $17,324
Ratios of net investment income (loss) to average net assets (b) ........ 1.19% 10.01%
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994 (c)
----------- ----------- ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 11.06 $ 9.35 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.26 0.29 0.21
Net realized and unrealized gain (loss) on investment .................. 0.77 1.42 (0.86)
------- ------- --------
Net income (loss) from operations ..................................... 1.03 1.71 (0.65)
------- ------- --------
Accumulation unit value, end of year ..................................... $ 12.09 $ 11.06 $ 9.35
======= ======= ========
Total return (a) ......................................................... 9.34% 18.31% (6.52)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $13,598 $11,343 $ 9,379
Ratios of net investment income (loss) to average net assets (b) ........ 2.29% 2.85% 2.63%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 15.89 $ 12.91
Income from operations:
Net investment income (loss) ........................................... 0.66 2.06
Net realized and unrealized gain (loss) on investment .................. (0.38) 0.92
------- -------
Net income (loss) from operations ...................................... 0.28 2.98
------- -------
Accumulation unit value, end of year ..................................... $ 16.17 $ 15.89
======= =======
Total return (a) ......................................................... 1.77% 23.10%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $16,502 $14,056
Ratios of net investment income (loss) to average net assets (b) ........ 4.17% 14.87%
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994 (c)
----------- ----------- ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ............................... $ 11.71 $ 9.46 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.50 0.45 0.32
Net realized and unrealized gain (loss) on investment .................. 0.70 1.80 (0.86)
------- ------- --------
Net income (loss) from operations ...................................... 1.20 2.25 (0.54)
------- ------- --------
Accumulation unit value, end of year ..................................... $ 12.91 $ 11.71 $ 9.46
======= ======= ========
Total return (a) ......................................................... 10.25% 23.70% (5.37)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $12,397 $11,890 $ 5,506
Ratios of net investment income (loss) to average net assets (b) ........ 4.17% 4.26% 4.07%
</TABLE>
The notes to the financial statements are an integral part of
this report.
42
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
December 31,
-----------------------------------------------
1998 1997 1996 1995 (d)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 15.43 $ 13.40 $ 11.86 $ 10.00
Income from operations:
Net investment income (loss) .......................................... 1.40 1.02 0.46 0.58
Net realized and unrealized gain (loss) on investment ................. (0.32) 1.01 1.08 1.28
------- ------- ------- -------
Net income (loss) from operations .................................... 1.08 2.03 1.54 1.86
------- ------- ------- -------
Accumulation unit value, end of year .................................... $ 16.51 $ 15.43 $ 13.40 $ 11.86
======= ======= ======= =======
Total return (a) ........................................................ 6.98% 15.14% 13.00% 18.61%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $85,428 $77,923 $62,195 $34,910
Ratios of net investment income (loss) to average net assets (b) ....... 8.72% 6.99% 3.71% 5.25%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996 (e)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 15.77 $ 13.88 $ 12.87
Income from operations:
Net investment income (loss) .......................................... 1.27 3.15 0.39
Net realized and unrealized gain (loss) on investment ................. (1.08) (1.26) 0.62
------- ------- -------
Net income (loss) from operations .................................... 0.19 1.89 1.01
------- ------- -------
Accumulation unit value, end of year .................................... $ 15.96 $ 15.77 $ 13.88
======= ======= =======
Total return (a) ........................................................ 1.20% 13.60% 7.84%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $14,161 $17,677 $ 3,612
Ratios of net investment income (loss) to average net assets (b) ....... 8.11% 20.61% 4.43%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996 (f)
----------- ---------- ------------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 10.75 $ 10.52 $ 10.00
Income from operations:
Net investment income (loss) .......................................... 0.11 0.39 (0.01)
Net realized and unrealized gain (loss) on investment ................. 0.80 (0.16) 0.53
------- ------- -------
Net income (loss) from operations .................................... 0.91 0.23 0.52
------- ------- -------
Accumulation unit value, end of year .................................... $ 11.66 $ 10.75 $ 10.52
======= ======= =======
Total return (a) ........................................................ 8.47% 2.15% 5.19%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $ 1,433 $ 2,361 $ 2,417
Ratios of net investment income (loss) to average net assets (b) ....... 0.95% 3.54% (0.09)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
43
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996 (f)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $13.86 $ 11.22 $ 10.00
Income from operations:
Net investment income (loss) .......................................... 0.89 0.07 0.02
Net realized and unrealized gain (loss) on investment ................. (1.71) 2.57 1.20
------ ------- -------
Net income (loss) from operations ..................................... (0.82) 2.64 1.22
------ ------- -------
Accumulation unit value, end of year .................................... $13.04 $ 13.86 $ 11.22
====== ======= =======
Total return (a) ........................................................ (.96)% 23.49% 12.25%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $38,640 $49,376 $16,679
Ratios of net investment income (loss) to average net assets (b) ....... 6.44% 0.55% 0.30%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
SUB-ACCOUNT
December 31,
---------------------------
1998 1997 (g)
------------ ------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 10.62 $ 10.00
Income from operations:
Net investment income (loss) .......................................... (0.14) (0.05)
Net realized and unrealized gain (loss) on investment ................. 1.35 0.67
------- -------
Net income (loss) from operations .................................... 1.21 0.62
------- -------
Accumulation unit value, end of year .................................... $ 11.83 $ 10.62
======= =======
Total return (a) ........................................................ 11.45% 6.17%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $ 6,783 $ 6,377
Ratios of net investment income (loss) to average net assets (b) ....... (1.16)% (0.52)%
</TABLE>
<TABLE>
<CAPTION>
U.S. EQUITY
SUB-ACCOUNT
December 31,
-------------------------
1998 1997 (g)
----------- -----------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 12.54 $ 10.00
Income from operations:
Net investment income (loss) .......................................... 0.54 0.75
Net realized and unrealized gain (loss) on investment ................. 2.14 1.79
------- -------
Net income (loss) from operations .................................... 2.68 2.54
------- -------
Accumulation unit value, end of year .................................... $ 15.22 $ 12.54
======= =======
Total return (a) ........................................................ 21.35% 25.44%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $23,419 $12,377
Ratios of net investment income (loss) to average net assets (b) ....... 3.90% 6.37%
</TABLE>
The notes to the financial statements are an integral part of
this report.
44
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
THIRD AVENUE
VALUE
SUB-ACCOUNT
December 31,
1998 (h)
-------------
<S> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 10.00
Income from operations:
Net investment income (loss) .......................................... (0.08)
Net realized and unrealized gain (loss) on investment ................. (0.72)
-------
Net income (loss) from operations .................................... (0.80)
-------
Accumulation unit value, end of year .................................... $ 9.20
=======
Total return (a) ........................................................ (7.99)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $ 5,921
Ratios of net investment income (loss) to average net assets (b) ....... (0.89)%
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
December 31,
1998 (i)
-------------
<S> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .............................. $ 10.00
Income from operations:
Net investment income (loss) .......................................... (0.07)
Net realized and unrealized gain (loss) on investment ................. (1.49)
--------
Net income (loss) from operations .................................... (1.56)
--------
Accumulation unit value, end of year .................................... $ 8.44
========
Total return (a) ........................................................ (15.65)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $ 571
Ratios of net investment income (loss) to average net assets (b) ....... (1.26)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
45
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 11.55 $ 11.12
Income from operations:
Net investment income (loss) ........................................... 0.44 0.43
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00
------- -------
Net income (loss) from operations ..................................... 0.44 0.43
------- -------
Accumulation unit value, end of year ..................................... $ 11.99 $ 11.55
======= =======
Total return (a) ......................................................... 3.83% 3.84%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $93,982 $62,152
Ratios of net investment income (loss) to average net assets (b) ........ 3.72% 3.78%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
December 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 10.73 $ 10.32 $ 10.11
Income from operations:
Net investment income (loss) ........................................... 0.39 0.41 0.21
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 0.00
------- ------- -------
Net income (loss) from operations ..................................... 0.39 0.41 0.21
------- ------- -------
Accumulation unit value, end of year ..................................... $ 11.12 $ 10.73 $ 10.32
======= ======= =======
Total return (a) ......................................................... 3.65% 3.96% 2.07%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $58,415 $28,524 $28,537
Ratios of net investment income (loss) to average net assets (b) ........ 3.57% 3.89% 2.26%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 13.41 $ 12.46
Income from operations:
Net investment income (loss) .......................................... 0.60 0.67
Net realized and unrealized gain (loss) on investment ................. 0.44 0.28
------- -------
Net income (loss) from operations .................................... 1.04 0.95
------- -------
Accumulation unit value, end of year .................................... $ 14.45 $ 13.41
======= =======
Total return (a) ........................................................ 7.80% 7.64%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $91,784 $64,376
Ratios of net investment income (loss) to average net assets (b) ....... 4.31% 5.26%
<CAPTION>
BOND SUB-ACCOUNT
December 31,
-------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 12.61 $ 10.40 $ 11.33
Income from operations:
Net investment income (loss) .......................................... 0.56 0.64 0.52
Net realized and unrealized gain (loss) on investment ................. (0.71) 1.57 (1.45)
------- ------- -------
Net income (loss) from operations .................................... (0.15) 2.21 (0.93)
------- ------- -------
Accumulation unit value, end of year .................................... $ 12.46 $ 12.61 $ 10.40
======= ======= =======
Total return (a) ........................................................ (1.25)% 21.28% (8.23)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $38,055 $32,772 $17,614
Ratios of net investment income (loss) to average net assets (b) ....... 4.60% 5.45% 4.91%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 18.57 $ 16.02
Income from operations:
Net investment income (loss) ........................................... (0.08) 1.87
Net realized and unrealized gain (loss) on investment .................. 11.63 0.68
------- --------
Net income (loss) from operations ..................................... 11.55 2.55
------- --------
Accumulation unit value, end of year ..................................... $ 30.12 $ 18.57
======= ========
Total return (a) ......................................................... 62.19% 15.91%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $826,236 $432,125
Ratios of net investment income (loss) to average net assets (b) ........ (0.33)% 10.53%
<CAPTION>
GROWTH SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 13.77 $ 9.49 $ 10.50
Income from operations:
Net investment income (loss) ........................................... 0.95 1.30 (0.03)
Net realized and unrealized gain (loss) on investment .................. 1.30 2.98 (0.98)
-------- -------- -------
Net income (loss) from operations ..................................... 2.25 4.28 (1.01)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 16.02 $ 13.77 $ 9.49
======== ======== =======
Total return (a) ......................................................... 16.32% 45.08% (9.58)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $317,705 $198,139 $112,383
Ratios of net investment income (loss) to average net assets (b) ........ 6.21% 11.07% (0.26)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
46
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 23.92 $ 20.43
Income from operations:
Net investment income (loss) .......................................... 0.88 2.85
Net realized and unrealized gain (loss) on investment ................. 5.87 0.64
-------- --------
Net income (loss) from operations .................................... 6.75 3.49
-------- --------
Accumulation unit value, end of year .................................... $ 30.67 $ 23.92
======== ========
Total return (a) ........................................................ 28.21% 17.10%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $524,585 $371,512
Ratios of net investment income (loss) to average net assets (b). ...... 3.16% 12.33%
<CAPTION>
GLOBAL SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 16.22 $ 13.36 $ 13.52
Income from operations:
Net investment income (loss) .......................................... 1.79 0.43 0.53
Net realized and unrealized gain (loss) on investment ................. 2.42 2.43 (0.69)
-------- -------- -------
Net income (loss) from operations .................................... 4.21 2.86 (0.16)
-------- -------- -------
Accumulation unit value, end of year .................................... $ 20.43 $ 16.22 $ 13.36
======== ======== =======
Total return (a) ........................................................ 25.96% 21.35% (1.14)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $227,955 $111,958 $95,829
Ratios of net investment income (loss) to average net assets (b). ...... 9.45% 2.96% 3.95%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 18.47 $ 15.37
Income from operations:
Net investment income (loss) ........................................... 0.59 1.42
Net realized and unrealized gain (loss) on investment .................. 0.91 1.68
-------- --------
Net income (loss) from operations ..................................... 1.50 3.10
-------- --------
Accumulation unit value, end of year ..................................... $ 19.97 $ 18.47
======== ========
Total return (a) ......................................................... 8.11% 20.16%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $328,728 $279,355
Ratios of net investment income (loss) to average net assets (b) ........ 3.11% 8.31%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 13.56 $ 11.03 $ 11.24
Income from operations:
Net investment income (loss) ........................................... 0.94 0.59 0.16
Net realized and unrealized gain (loss) on investment .................. 0.87 1.94 (0.37)
-------- -------- -------
Net income (loss) from operations ..................................... 1.81 2.53 (0.21)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 15.37 $ 13.56 $ 11.03
======== ======== =======
Total return (a) ......................................................... 13.40% 22.93% (1.92)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $196,305 $101,651 $71,733
Ratios of net investment income (loss) to average net assets (b) ........ 6.55% 4.76% 1.49%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 22.94 $ 19.15
Income from operations:
Net investment income (loss) ........................................... 0.72 2.00
Net realized and unrealized gain (loss) on investment .................. 7.40 1.79
-------- --------
Net income (loss) from operations ..................................... 8.12 3.79
-------- --------
Accumulation unit value, end of year ..................................... $ 31.06 $ 22.94
======== ========
Total return (a) ......................................................... 35.42% 19.77%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $381,421 $258,730
Ratios of net investment income (loss) to average net assets (b). ....... 2.80% 9.45%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
December 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 16.34 $ 11.29 $ 12.35
Income from operations:
Net investment income (loss) ........................................... 0.73 0.54 (0.15)
Net realized and unrealized gain (loss) on investment .................. 2.08 4.51 (0.91)
-------- -------- -------
Net income (loss) from operations ..................................... 2.81 5.05 (1.06)
-------- -------- -------
Accumulation unit value, end of year ..................................... $ 19.15 $ 16.34 $ 11.29
======== ======== =======
Total return (a) ......................................................... 17.23% 44.75% (8.65)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $179,589 $105,115 $62,615
Ratios of net investment income (loss) to average net assets (b). ....... 3.96% 3.85% (1.33)%
</TABLE>
The notes to the financial statements are an integral part of
this report.
47
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 17.77 $ 14.50
Income from operations:
Net investment income (loss) .......................................... 1.17 1.60
Net realized and unrealized gain (loss) on investment ................. 7.11 1.67
-------- --------
Net income (loss) from operations .................................... 8.28 3.27
-------- --------
Accumulation unit value, end of year .................................... $ 26.05 $ 17.77
======== ========
Total return (a) ........................................................ 46.62% 22.52%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $281,507 $162,401
Ratios of net investment income (loss) to average net assets (b) ....... 5.57% 9.55%
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
December 31,
-------------------------------------
1996 1995 1994 (c)
------------ ----------- ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year .............................. $ 13.31 $ 9.78 $ 10.00
Income from operations:
Net investment income (loss) .......................................... 0.31 0.40 (0.10)
Net realized and unrealized gain (loss) on investment ................. 0.88 3.13 (0.12)
-------- ------- -------
Net income (loss) from operations .................................... 1.19 3.53 (0.22)
-------- ------- -------
Accumulation unit value, end of year .................................... $ 14.50 $ 13.31 $ 9.78
======== ======= =======
Total return (a) ........................................................ 8.91% 36.10% (2.18)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................... $100,832 $60,420 $11,403
Ratios of net investment income (loss) to average net assets (b) ....... 2.22% 3.04% (1.19)%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 13.91 $ 12.05
Income from operations:
Net investment income (loss) ........................................... 0.17 1.40
Net realized and unrealized gain (loss) on investment .................. 0.59 0.46
------- -------
Net income (loss) from operations ..................................... 0.76 1.86
------- -------
Accumulation unit value, end of year ..................................... $ 14.67 $ 13.91
======= =======
Total return (a) ......................................................... 5.45% 15.47%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $59,018 $43,902
Ratios of net investment income (loss) to average net assets (b) ........ 1.19% 10.72%
<CAPTION>
BALANCED SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994 (c)
----------- ----------- ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 11.03 $ 9.34 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.30 0.32 0.27
Net realized and unrealized gain (loss) on investment .................. 0.72 1.37 (0.93)
------- ------- --------
Net income (loss) from operations ..................................... 1.02 1.69 (0.66)
------- ------- --------
Accumulation unit value, end of year ..................................... $ 12.05 $ 11.03 $ 9.34
======= ======= ========
Total return (a) ......................................................... 9.18% 18.13% (6.61)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $28,734 $16,069 $ 7,936
Ratios of net investment income (loss) to average net assets (b) ........ 2.69% 3.16% 3.48%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME
SUB-ACCOUNT
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 15.80 $ 12.85
Income from operations:
Net investment income (loss) ........................................... 0.66 2.52
Net realized and unrealized gain (loss) on investment .................. (0.40) 0.43
------- -------
Net income (loss) from operations ..................................... 0.26 2.95
------- -------
Accumulation unit value, end of year ..................................... $ 16.06 $ 15.80
======= =======
Total return (a) ......................................................... 1.62% 22.92%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $52,148 $36,591
Ratios of net investment income (loss) to average net assets (b) ........ 4.20% 18.15%
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT
December 31,
------------------------------------
1996 1995 1994 (c)
----------- ----------- ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 11.68 $ 9.45 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.68 0.47 0.33
Net realized and unrealized gain (loss) on investment .................. 0.49 1.76 (0.88)
------- ------- --------
Net income (loss) from operations ..................................... 1.17 2.23 (0.55)
------- ------- --------
Accumulation unit value, end of year ..................................... $ 12.85 $ 11.68 $ 9.45
======= ======= ========
Total return (a) ......................................................... 10.08% 23.52% (5.47)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $19,972 $10,086 $ 3,786
Ratios of net investment income (loss) to average net assets (b) ........ 5.68% 4.50% 4.18%
</TABLE>
The notes to the financial statements are an integral part of
this report.
48
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
December 31,
--------------------------------------------------
1998 1997 1996 1995 (d)
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 15.36 $ 13.36 $ 11.84 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.43 1.06 0.47 0.82
Net realized and unrealized gain (loss) on investment .................. (0.38) 0.94 1.05 1.02
-------- -------- -------- -------
Net income (loss) from operations ..................................... 1.05 2.00 1.52 1.84
-------- -------- -------- -------
Accumulation unit value, end of year ..................................... $ 16.41 $ 15.36 $ 13.36 $ 11.84
======== ======== ======== =======
Total return (a) ......................................................... 6.82% 14.97% 12.83% 18.43%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $237,896 $194,084 $125,577 $72,300
Ratios of net investment income (loss) to average net assets (b) ........ 8.92% 7.30% 3.72% 7.29%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996 (f)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 12.22 $ 10.77 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.06 1.34 0.36
Net realized and unrealized gain (loss) on investment .................. (0.93) 0.11 0.41
------- ------- -------
Net income (loss) from operations ..................................... 0.13 1.45 0.77
------- ------- -------
Accumulation unit value, end of year ..................................... $ 12.35 $ 12.22 $ 10.77
======= ======= =======
Total return (a) ......................................................... 1.05% 13.43% 7.73%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $37,580 $31,995 $12,542
Ratios of net investment income (loss) to average net assets (b) ........ 8.79% 11.31% 5.46%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SECTOR SUB-ACCOUNT
December 31,
---------------------------------------
1998 1997 1996 (f)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 10.72 $ 10.51 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.17 0.69 0.04
Net realized and unrealized gain (loss) on investment .................. 0.72 (0.48) 0.47
------- ------- -------
Net income (loss) from operations ..................................... 0.89 0.21 0.51
------- ------- -------
Accumulation unit value, end of year ..................................... $ 11.61 $ 10.72 $ 10.51
======= ======= =======
Total return (a) ......................................................... 8.31% 1.99% 5.09%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $10,131 $10,344 $ 3,509
Ratios of net investment income (loss) to average net assets (b) ........ 1.48% 6.30% 0.59%
</TABLE>
The notes to the financial statements are an integral part of
this report.
49
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
December 31,
----------------------------------------
1998 1997 1996 (f)
------------ ----------- -----------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 13.83 $ 11.21 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.91 0.08 0.02
Net realized and unrealized gain (loss) on investment .................. (1.76) 2.54 1.19
------- ------- -------
Net income (loss) from operations ..................................... (0.85) 2.62 1.21
------- ------- -------
Accumulation unit value, end of year ..................................... $ 12.98 $ 13.83 $ 11.21
======= ======= =======
Total return (a) ......................................................... (6.10)% 23.30% 12.13%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $92,217 $97,272 $23,759
Ratios of net investment income (loss) to average net assets (b) ........ 6.63% 0.63% 0.33%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
SUB-ACCOUNT
December 31,
--------------------------
1998 1997 (g)
------------ -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 10.60 $ 10.00
Income from operations:
Net investment income (loss) ........................................... (0.15) (0.06)
Net realized and unrealized gain (loss) on investment .................. 1.35 0.66
------- -------
Net income (loss) from operations ..................................... 1.20 0.60
------- -------
Accumulation unit value, end of year ..................................... $ 11.80 $ 10.60
======= =======
Total return (a) ......................................................... 11.28% 6.01%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $19,376 $11,141
Ratios of net investment income (loss) to average net assets (b) ........ (1.31)% (0.58)%
</TABLE>
<TABLE>
<CAPTION>
U.S. EQUITY
SUB-ACCOUNT
December 31,
-------------------------
1998 1997 (g)
----------- -----------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 12.53 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.62 0.95
Net realized and unrealized gain (loss) on investment .................. 2.03 1.58
------- -------
Net income (loss) from operations ..................................... 2.65 2.53
------- -------
Accumulation unit value, end of year ..................................... $ 15.18 $ 12.53
======= =======
Total return (a) ......................................................... 21.16% 25.26%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $73,456 $26,822
Ratios of net investment income (loss) to average net assets (b) ........ 4.55% 7.99%
</TABLE>
The notes to the financial statements are an integral part of
this report.
50
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
THIRD AVENUE
VALUE
SUB-ACCOUNT
December 31,
1998 (h)
-------------
<S> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 10.00
Income from operations:
Net investment income (loss) ........................................... (0.09)
Net realized and unrealized gain (loss) on investment .................. (0.72)
-------
Net income (loss) from operations ..................................... (0.81)
-------
Accumulation unit value, end of year ..................................... $ 9.19
=======
Total return (a) ......................................................... (8.13)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 9,419
Ratios of net investment income (loss) to average net assets (b) ........ (1.03)%
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
December 31,
1998 (i)
-------------
<S> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ............................... $ 10.00
Income from operations:
Net investment income (loss) ........................................... (0.08)
Net realized and unrealized gain (loss) on investment .................. (1.49)
--------
Net income (loss) from operations ..................................... (1.57)
--------
Accumulation unit value, end of year ..................................... $ 8.43
========
Total return (a) ......................................................... (15.73)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 1,324
Ratios of net investment income (loss) to average net assets (b) ........ (1.41)%
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
<TABLE>
<S> <C>
* Per unit information has been computed using average units outstanding throughout each year.
(a) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) The inception date of this Sub-Account was March 1, 1994.
(d) The inception date of this Sub-Account was January 3, 1995.
(e) This Sub-Account option became effective May 1, 1996.
(f) The inception date of this Sub-Account was May 1, 1996.
(g) The inception date of this Sub-Account was January 2, 1997.
(h) The inception date of this Sub-Account was January 2, 1998.
(i) The inception date of this Sub-Account was May 1, 1998.
</TABLE>
The notes to the financial statements are an integral part of
this report.
51
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Annuity Account (the "Annuity Account"), was established as
a variable accumulation deferred annuity separate account of Western Reserve
Life Assurance Co. of Ohio ("WRL") and is registered as a unit investment trust
("Trust") under the Investment Company Act of 1940, as amended. The Annuity
Account encompasses various contract types: the WRL Freedom Variable Annuity
and the WRL Freedom Attainer ("Class A"); the WRL Freedom Bellwether, the WRL
Freedom Conqueror, and the WRL Freedom Wealth Creator ("Class B"). Each
contract type contains seventeen investment options referred to as sub-accounts.
Each sub-account invests in the corresponding portfolio of the WRL Series Fund,
Inc. (collectively referred to as the "Fund" and individually as a
"Portfolio"), a registered management investment company under the Investment
Company Act of 1940, as amended.
The Fund has entered into annually renewable investment advisory
agreements for each Portfolio with WRL Investment Management, Inc. ("WRL
Management") as investment adviser. Costs incurred in connection with the
advisory services rendered by WRL Management are paid by each Portfolio. WRL
Management has entered into sub-advisory agreements with various management
companies, some of which are affiliates of WRL. Each sub-adviser is compensated
directly by WRL Management.
On January 2, 1998 and May 1, 1998, WRL made initial contributions
totaling $900,000 to the Annuity Account. The respective amounts of the
contributions and units received are as follows:
<TABLE>
<CAPTION>
Sub-Account Contribution Units
- ----------------------------------------------- -------------- -------
<S> <C> <C>
Third Avenue Value -- Class A .............. $150,000 15,000
Third Avenue Value -- Class B .............. $150,000 15,000
Real Estate Securities -- Class A .......... $300,000 30,000
Real Estate Securities -- Class B .......... $300,000 30,000
</TABLE>
The Annuity Account sub-accounts hold assets to support the benefits under
certain flexible payment variable accumulation deferred annuity contracts (the
"Contracts") issued by WRL. The Annuity Account equity transactions are
accounted for using the appropriate effective date at the corresponding
accumulation unit value.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles, have been consistently applied
in the preparation of the Trust's financial statements. The preparation of
financial statements required management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
52
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset value
("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt
of sale or redemption orders without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Annuity 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 current Internal Revenue Code, the investment
income of the Annuity 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 Contracts.
A. CONTRACT CHARGES
No deduction for sales expenses is made from the purchase payments. A
contingent deferred sales charge may, however, be assessed against contract
values when withdrawn or surrendered.
On each anniversary through maturity date, WRL will deduct an annual
contract charge as partial compensation for providing administrative services
under the Contracts.
B. SUB-ACCOUNT CHARGES
A daily charge is assessed to compensate WRL for assumption of mortality
and expense risks and administrative services in connection with issuance and
administration of the Contracts. This charge (not assessed at the individual
contract level) effectively reduces the value of a unit outstanding during the
year. The charge is 1.25% and 1.40% of average daily net assets for Class A and
Class B respectively.
NOTE 3. DIVIDENDS AND DISTRIBUTIONS
Dividends are not declared by the Annuity Account, since the increase in
the value of the underlying investment in the Fund is reflected daily in the
unit price used to calculate the equity value within the Annuity Account.
Consequently, a dividend distribution by the underlying Fund does not change
either the unit price or equity values within the Annuity Account.
53
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. SECURITIES TRANSACTIONS
Securities transactions for the year ended December 31, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Purchase of Proceeds of
Sub-Account Securities Securities
- ------------------------------------------ ------------- ------------
<S> <C> <C>
Money Market .......................... $367,408 $325,384
Bond .................................. 73,953 44,732
Growth ................................ 211,889 191,220
Global ................................ 147,870 113,198
Strategic Total Return ................ 67,667 42,974
Emerging Growth ....................... 99,470 75,879
Aggressive Growth ..................... 106,771 55,391
Balanced .............................. 24,859 10,654
Growth & Income ....................... 36,832 16,008
Tactical Asset Allocation ............. 85,336 26,271
C.A.S.E. Growth ....................... 24,942 17,980
Global Sector ......................... 3,410 5,344
Value Equity .......................... 61,347 54,729
International Equity .................. 20,250 13,547
U.S. Equity ........................... 73,939 27,750
Third Avenue Value Equity (a) ......... 21,084 4,758
Real Estate Securities (b) ............ 3,063 1,192
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
NOTE 5. OTHER MATTERS
At December 31, 1998 net unrealized appreciation (depreciation) on
investments was as follows (in thousands):
<TABLE>
<CAPTION>
Sub-Account
- --------------------------------------
<S> <C>
Money Market ...................... $ 0
Bond .............................. 1,463
Growth ............................ 706,637
Global ............................ 172,009
Strategic Total Return ............ 80,249
Emerging Growth ................... 171,421
Aggressive Growth ................. 106,388
Balanced .......................... 5,588
Growth & Income ................... (603)
Tactical Asset Allocation ......... 9,010
C.A.S.E. Growth ................... (4,379)
Global Sector ..................... 84
Value Equity ...................... (12,843)
International Equity .............. 675
U.S. Equity ....................... 7,688
Third Avenue Value Equity ......... (624)
Real Estate Securities ............ (68)
</TABLE>
54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1998 and 1997, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the statutory-basis financial
statement schedules required by Regulation S-X, Article 7. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the balance sheets of the Company. The Separate Account
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the data included
for the Separate Account, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1998 and 1997, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1998.
However, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
55
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .............................. $ 73,808 $ 13,896
Bonds ........................................................ 184,697 255,919
Common stocks:
Affiliated entities (cost: 1998 - $243; 1997 - $150)......... 704 319
Other (cost: 1998 and 1997 - $302)........................... 384 428
Mortgage loans on real estate ................................ 9,916 4,824
Home office properties ...................................... 34,583 19,964
Investment properties ....................................... 11,594 --
Policy loans ................................................ 112,982 76,741
Other invested assets ....................................... 396 --
---------- ----------
Total cash and invested assets ................................ 429,064 372,091
Premiums deferred and uncollected ............................. 900 1,928
Accrued investment income ..................................... 2,867 4,088
Transfers from separate accounts .............................. 350,633 279,958
Cash surrender value of life insurance policies ............... 45,445 --
Other assets .................................................. 9,239 5,221
Separate account assets ....................................... 6,999,290 4,814,594
---------- ----------
Total admitted assets ......................................... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
56
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ............................................ $ 231,596 $ 186,523
Annuity ......................................... 265,418 296,290
Policy and contract claim reserves ............... 9,233 10,929
Other policyholders' funds ....................... 38,080 3,877
Remittances and items not allocated .............. 20,569 9,184
Federal income taxes payable ..................... 5,716 2,283
Asset valuation reserve .......................... 2,848 2,436
Interest maintenance reserve ..................... 9,684 9,134
Short-term note payable to affiliate ............. 44,200 8,200
Payable to affiliate ............................. 37,907 1,925
Other liabilities ................................ 31,151 19,257
Separate account liabilities ..................... 6,997,456 4,812,979
---------- ----------
Total liabilities ................................. 7,693,858 5,363,017
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding ............. 1,500 1,500
Paid-in surplus .................................. 120,107 88,015
Unassigned surplus ............................... 21,973 25,348
---------- ----------
Total capital and surplus ......................... 143,580 114,863
---------- ----------
Total liabilities and capital and surplus ......... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
57
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ........................................................................... $ 476,053 $ 394,370 $ 293,590
Annuity ........................................................................ 794,841 822,149 740,125
Net investment income ........................................................... 36,315 40,013 36,067
Amortization of interest maintenance reserve .................................... 744 1,576 1,335
Commissions and expense allowances on reinsurance ceded ......................... 15,333 11 11
Other income .................................................................... 67,751 3,016 13,398
---------- ---------- ----------
1,391,037 1,261,135 1,084,526
Benefits and expenses:
Benefits paid or provided for:
Life ........................................................................... 42,982 28,060 21,256
Surrender benefits ............................................................. 551,528 431,939 286,406
Other benefits ................................................................. 31,280 28,112 23,270
Increase (decrease) in aggregate reserves for policies
and contracts:
Life .......................................................................... 42,940 29,485 80,139
Annuity ....................................................................... (30,872) (35,940) 12,877
Other ......................................................................... 32,178 794 422
---------- ---------- ----------
670,036 482,450 424,370
Insurance expenses:
Commissions .................................................................... 205,939 179,106 140,261
General insurance expenses ..................................................... 102,611 70,546 47,406
Taxes, licenses and fees ....................................................... 15,545 13,101 10,848
Net transfer to separate accounts .............................................. 402,618 519,214 452,471
Other expenses ................................................................. 59 21 60
---------- ---------- ----------
726,772 781,988 651,046
---------- ---------- ----------
1,396,808 1,264,438 1,075,416
---------- ---------- ----------
Gain (loss) from operations before federal income taxes (benefit) and realized
capital gains (losses) on investments ........................................... (5,771) (3,303) 9,110
Federal income tax expense (benefit) ............................................. (347) 469 9,297
---------- ---------- ----------
Loss from operations before realized capital gains
(losses) on investments ......................................................... (5,424) (3,772) (187)
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to interest
maintenance reserve) ............................................................ 1,494 747 (811)
---------- ---------- ----------
Net loss ......................................................................... $ (3,930) $ (3,025) $ (998)
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
58
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 .............................. $1,500 $ 68,015 $ 28,424 $ 97,939
Net loss for 1996 ...................................... -- -- (998) (998)
Net unrealized capital gains ........................... -- -- 1,294 1,294
Change in non-admitted assets .......................... -- -- 199 199
Change in asset valuation reserve ...................... -- -- (120) (120)
Change in surplus in separate accounts ................. -- -- 237 237
Change in reserve valuation ............................ -- -- (2,995) (2,995)
------ -------- -------- --------
Balance at December 31, 1996 ............................ 1,500 68,015 26,041 95,556
Net loss for 1997 ...................................... -- -- (3,025) (3,025)
Change in non-admitted assets .......................... -- -- (702) (702)
Change in asset valuation reserve ...................... -- -- 3,274 3,274
Change in surplus in separate accounts ................. -- -- (2,115) (2,115)
Change in reserve valuation ............................ -- -- (1,872) (1,872)
Capital contribution ................................... -- 20,000 -- 20,000
Tax effect of capital loss carry-forward utilized by
affiliates ........................................... -- -- 3,747 3,747
------ -------- -------- --------
Balance at December 31, 1997 ............................ 1,500 88,015 25,348 114,863
Net loss for 1998 ...................................... -- -- (3,930) (3,930)
Net unrealized capital gains ........................... -- -- 248 248
Change in non-admitted assets .......................... -- -- (1,815) (1,815)
Change in asset valuation reserve ...................... -- -- (412) (412)
Change in surplus in separate accounts ................. -- -- (341) (341)
Change in reserve valuation ............................ -- -- (2,132) (2,132)
Capital contribution ................................... -- 32,092 -- 32,092
Settlement of prior period tax returns ................. -- -- 353 353
Tax benefits on stock options exercised ................ -- -- 4,654 4,654
------ -------- -------- --------
Balance at December 31, 1998 ............................ $1,500 $120,107 $ 21,973 $143,580
====== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
59
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ...... $1,356,732 $1,223,898 $1,046,548
Net investment income ...................................... 38,294 43,802 38,666
Life and accident and health claims ........................ (44,426) (26,005) (20,655)
Surrender benefits and other fund withdrawals .............. (551,528) (431,939) (286,406)
Other benefits to policyholders ............................ (31,231) (28,147) (22,129)
Commissions, other expenses and other taxes ................ (326,080) (262,901) (196,373)
Net transfers to separate accounts ......................... (461,982) (596,347) (658,326)
Federal income taxes received (paid) ....................... 11,956 5,006 (9,449)
Interest paid .............................................. -- (731) --
Other, net ................................................. (7,109) (14,901) 28,325
---------- ---------- ----------
Net cash used in operating activities ...................... (15,374) (88,265) (79,799)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks ................................ 143,449 146,963 122,820
Mortgage loans on real estate ............................. 221 2,116 132
Real estate ............................................... -- -- 4,304
Other ..................................................... -- -- 175
---------- ---------- ----------
143,670 149,079 127,431
Cost of investments acquired ...............................
Bonds and preferred stocks ................................ (68,202) (40,418) (26,826)
Common stocks ............................................. (93) (150) (4)
Mortgage loans on real estate ............................. (5,313) (891) --
Real estate ............................................... (26,213) (12,002) (7,837)
Policy loans .............................................. (36,241) (24,137) (15,479)
Other ..................................................... (414) -- (5)
---------- ---------- -----------
(136,476) (77,598) (50,151)
---------- ---------- ----------
Net cash provided by investing activities .................. 7,194 71,481 77,280
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate ........... 36,000 8,200 --
Capital contribution ....................................... 32,092 20,000 --
---------- ---------- ----------
Net cash provided by financing activities .................. 68,092 28,200 --
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ..... 59,912 11,416 (2,519)
Cash and short-term investments at beginning of year ....... 13,896 2,480 4,999
---------- ---------- ----------
Cash and short-term investments at end of year ............. $ 73,808 $ 13,896 $ 2,480
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
60
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and
variable annuity areas of the life insurance business. The Company is licensed
in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the
Company's products are through financial planners, independent representatives,
financial institutions and stockbrokers. The majority of the Company's new life
insurance written and a substantial portion of new annuities written is done
through one marketing organization; the Company expects to maintain this
relationship for the foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Ohio ("Insurance Department"), which practices differ from
generally accepted accounting principles. The more significant of these
differences are as follows: (a) bonds are generally reported at amortized cost
rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are expensed as incurred rather than deferred and amortized over
the life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement amounts and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest
61
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in
which the employers provide service; and (l) the financial statements of
wholly-owned affiliates are not consolidated with those of the Company. The
effects of these variances have not been determined by the Company, but are
presumed to be material.
In 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. Codification will require
adoption by the various states before it becomes the prescribed statutory basis
of accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State
of Ohio must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time it is unclear whether the State of Ohio will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
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
62
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
when such assumptions are changed due to experience and/or expected future
patterns. Common stocks of unaffiliated companies are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without
any adjustment for federal income taxes. Common stocks of the Company's
wholly-owned affiliates are recorded at the equity in net assets. Home office
and investment properties are reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other "admitted assets" are
valued, principally at cost, as required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC and
are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve
(IMR), the portion of realized gains and losses on sales of fixed income
investments, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates and amortizes those deferrals over the
remaining period to maturity of the security.
During 1998, 1997 and 1996, net realized capital gains of $1,294, $3,259
and $2,394, respectively, were credited to the IMR rather than being
immediately recognized in the statements of operations. Amortization of these
net gains aggregated $744, $1,576 and $1,335 for the years ended December 31,
1998, 1997 and 1996, respectively.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. No investment income due and accrued
has been excluded for the years ended December 31, 1998, 1997 and 1996, with
respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25 to 5.50 percent and are computed principally on the Net Level Premium
Valuation and the
63
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Commissioners' Reserve Valuation Methods. Reserves for universal life policies
are based on account balances adjusted for the Commissioners' Reserve Valuation
Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 8.75 percent and mortality rates, where appropriate, from a
variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any
minimum guarantees and the investment risks associated with market value
changes are borne entirely by the policyholders. The Company received variable
contract premiums of $1,240,858, $1,164,013 and $997,513 in 1998, 1997 and
1996, respectively. All variable account contracts are subject to discretionary
withdrawal by the policyholder at the market value of the underlying assets
less the current surrender charge. Separate account contractholders have no
claim against the assets of the general account.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not
64
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
record any expense related to this plan, as the expense is recognized by AEGON
N.V. However, the Company is allowed to record a deduction in the consolidated
tax return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. Statement of Financial Accounting Standards No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
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.
65
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
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.
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments .............. $ 73,808 $ 73,808 $ 13,896 $ 13,896
Bonds ........................................ 184,697 192,556 255,919 267,763
Common stocks, other than affiliates ......... 384 384 428 428
Mortgage loans on real estate ................ 9,916 10,390 4,824 5,143
Policy loans ................................. 112,982 112,982 76,741 76,741
Separate account assets ...................... 6,999,290 6,999,290 4,814,594 4,814,594
LIABILITIES
Investment contract liabilities .............. 297,349 294,105 280,121 276,113
Separate account annuities ................... 5,096,680 5,038,296 3,615,255 3,565,557
</TABLE>
66
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies ......... $ 4,749 $ 83 $ -- $ 4,832
State, municipal and other government ......... 3,234 117 -- 3,351
Public utilities .............................. 18,792 818 251 19,359
Industrial and miscellaneous .................. 96,332 6,685 577 102,440
Mortgage-backed securities .................... 61,590 1,235 251 62,574
-------- ------- ------ --------
Total bonds .................................... $184,697 $ 8,938 1,079 $192,556
======== ======= ====== ========
DECEMBER 31, 1997
Bonds:
United States Government and agencies ......... $ 3,675 $ 9 $ 30 $ 3,654
State, municipal and other government ......... 3,855 360 -- 4,215
Public utilities .............................. 15,794 904 403 16,295
Industrial and miscellaneous .................. 121,513 7,700 710 128,503
Mortgage-backed securities .................... 111,082 4,198 184 115,096
-------- ------- ------ --------
Total bonds .................................... $255,919 $13,171 $1,327 $267,763
======== ======= ====== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1998 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 2,706 $ 2,743
Due one through five years ......................... 61,340 64,696
Due five through ten years ......................... 43,233 45,352
Due after ten years ................................ 15,828 17,191
-------- --------
123,107 129,982
Mortgage and other asset backed securities ......... 61,590 62,574
-------- --------
$184,697 $192,556
======== ========
</TABLE>
67
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds .............................. $ 17,150 $ 25,723 $ 33,969
Dividends on equity investments from subsidiary 13,233 10,855 --
Interest on mortgage loans ..................... 499 478 559
Rental income on real estate ................... 2,839 1,371 919
Interest on policy loans ....................... 6,241 4,656 3,339
Other investment income ........................ 540 26 9
-------- -------- --------
Gross investment income ........................ 40,502 43,109 38,795
Investment expenses ............................ (4,187) (3,096) (2,728)
-------- -------- --------
Net investment income .......................... $ 36,315 $ 40,013 $ 36,067
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $143,449 $146,963 $122,820
======== ======== ========
Gross realized gains .......... $ 4,641 $ 3,921 $ 2,984
Gross realized losses ......... 899 626 791
-------- -------- --------
Net realized gains ............ $ 3,742 $ 3,295 $ 2,193
======== ======== ========
</TABLE>
At December 31, 1998, bonds with an aggregate carrying value of $4,297
were on deposit with certain state regulatory authorities or were restrictively
held in bank custodial accounts for benefit of such state regulatory
authorities, as required by statute.
Realized investment gains (losses) and changes in unrealized gains
(losses) for investments are summarized below:
68
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
REALIZED
-----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Debt securities .............................. $ 3,742 $ 3,295 $ 2,193
Real estate .................................. -- -- (606)
Other invested assets ........................ (18) -- (4)
-------- -------- ---------
3,724 3,295 1,583
Tax expense .................................. (936) (711) --
Transfer to interest maintenance reserve ..... (1,294) (3,259) (2,394)
-------- -------- --------
Net realized gains (losses) .................. $ 1,494 $ 747 $ (811)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
------------ ---------- -------------
<S> <C> <C> <C>
Debt securities ................................. $ (3,985) $ (896) $ (14,442)
Common stock .................................... 248 -- (66)
-------- ------ ---------
Change in unrealized appreciation (depreciation) $ (3,737) $ (896) $ (14,508)
======== ====== =========
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
REALIZED
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
-------- ------ -------
<S> <C> <C> <C>
Unrealized gains ............. $ 579 $295 $295
Unrealized losses ............ (36) -- --
----- ---- ----
Net unrealized gains ......... $ 543 $295 $295
===== ==== ====
</TABLE>
During 1998, the Company issued one mortgage loan with an interest rate of
6.71%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 75%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
During 1998, 1997 and 1996, no mortgage loans were foreclosed and
transferred to real estate. During 1998 and 1997, the Company held a mortgage
loan loss reserve in the asset valuation reserve of $112 and $54, respectively.
69
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1998, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed
its established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums .............. $1,345,752 $1,219,271 $1,034,757
Reinsurance assumed .......... 461 2,389 2,063
Reinsurance ceded ............ (75,319) (5,141) (3,105)
---------- ---------- ----------
Net premiums earned .......... $1,270,894 $1,216,519 $1,033,715
---------- ---------- ----------
</TABLE>
The Company received reinsurance recoveries in the amount of $5,260,
$2,288 and $2,156 during 1998, 1997 and 1996, respectively. At December 31,
1998 and 1997, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $1,003 and $2,721,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of
$2,849 and $1,369, respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a
tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to gain (loss) from operations
before income taxes (benefit) and realized capital gains (losses) on
investments for the following reasons:
70
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ---------
<S> <C> <C> <C>
Computed tax (benefit) at federal statutory rate (35%) ..... $ (2,019) $ (1,156) $3,189
Deferred acquisition costs -- tax basis .................... 9,672 9,164 7,172
Tax reserve valuation ...................................... 1,513 (194) (696)
Excess tax depreciation .................................... (442) (127) (65)
Amortization of IMR ........................................ (260) (552) (467)
Dividend received deduction ................................ (6,657) (5,326) --
Prior year over-accrual .................................... (2,322) (1,541) (9)
Other, net ................................................. 168 201 173
-------- -------- ------
Federal income tax expense (benefit) ....................... $ (347) $ 469 $9,297
-------- -------- ------
</TABLE>
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation, but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($293 at December 31, 1998). To the extent dividends are paid
from the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $103.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for 1994 and 1995 resulting in a tax refund of $300 and interest
received of $53.
71
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
----------------------- ----------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with market value adjustment ..... $ 12,810 $ 13,812 1%
Subject to discretionary withdrawal at book value less surrender
charge .............................................................. 76,289 1% 68,376 2
Subject to discretionary withdrawal at market value .................. 5,096,680 94 3,615,255 91
Subject to discretionary withdrawal at book value (minimal or no
charges or adjustments) ............................................. 210,270 4 201,457 5
Not subject to discretionary withdrawal provision .................... 15,681 1 16,572 1
---------- -- ---------- --
5,411,730 100% 3,915,472 100%
=== ===
Less reinsurance ceded ............................................... 1,131 --
---------- ----------
Total policy reserves on annuities and deposit fund liabilities ...... $5,410,599 $3,915,472
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of operations of the separate
accounts statement:
Transfers to separate accounts ...................................... $1,240,858 $1,164,013 $ 997,513
Transfers from separate accounts .................................... 847,507 646,477 339,523
---------- ---------- ----------
Net transfers to separate accounts ................................... 393,351 517,536 657,990
Reconciling adjustments -- change in accruals for investment
management, administration fees and contract guarantees, and
separate account surplus ............................................ 9,267 1,678 (205,519)
---------- ---------- ----------
Transfers as reported in the summary of operations of the life,
accident and health annual statement ................................ $ 402,618 $ 519,214 $ 452,471
========== ========== ==========
</TABLE>
72
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
Reserves on the Company's traditional life products are computed using
mean reserving methodologies. These methodologies result in the establishment
of assets for the amount of the net valuation premiums that are anticipated to
be received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- --------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1998
Ordinary direct renewal business ............ $1,101 $201 $ 900
------ ---- ------
$1,101 $201 $ 900
====== ==== ======
DECEMBER 31, 1997
Ordinary direct first year business ......... $ 2 $ 1 $ 1
Ordinary direct renewal business ............ 1,350 140 1,210
Group life direct business .................. 717 -- 717
------ ---- ------
$2,069 $141 $1,928
====== ==== ======
</TABLE>
In 1994, the NAIC enacted a guideline to clarify reserving methodologies
for contracts that require immediate payment of claims upon proof of death of
the insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $2,132,
$1,872 and $2,995 was made for the years ended December 31, 1998, 1997 and
1996, respectively, related to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Ohio, on
the payment of dividends to its parent company. Generally, dividends during any
twelve month period may not be paid; without prior regulatory approval, in
excess of the lesser of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to the availability of unassigned surplus at the time
of such dividend, the maximum payment which may be made in 1999, without the
prior approval of insurance regulatory authorities, is $14,657.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored
by AEGON. The Company has no legal obligation for the plan. The Company
recognizes pension expense equal to its allocation from AEGON. The pension
expense is allocated among the participating companies based on the FASB
Statement No. 87 expense as a percent of salaries. The benefits are based on
years of service and the employee's compensation during the highest five
consecutive years of employment. Pension expense aggregated
73
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
$917, $659 and $581 for the years ended December 31, 1998, 1997 and 1996,
respectively. The plan is subject to the reporting and disclosure requirements
of the Employee Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k) of
the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Pension expense related to this plan was $632, $448 and
$184 for the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under
the Internal Revenue Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON
also sponsors an employee stock option plan for individuals employed at least
three years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
for or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $157, $99 and $98 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $12,763, $10,040 and $10,038, respectively, for
such services, which approximates their costs to the affiliates. The Company
provides office space, marketing and administrative services to certain
affiliates. During 1998, 1997 and 1996,
74
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
the Company received $5,125, $4,395 and $3,271, respectively, for such
services, which approximates their cost. The Company had a net payable with
affiliates of $33,449 and $1,925 at December 31, 1998 and 1997, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 4.74% at December 31, 1998. During 1998,
1997 and 1996, the Company paid net interest of $1,090, $364 and $138,
respectively, to affiliates.
The Company received capital contributions of $32,092 and $20,000 from its
parent in 1998 and 1997, respectively.
At December 31, 1998 and 1997, the Company had short-term note payables to
an affiliate of $44,200 and $8,200, respectively. Interest on these notes
ranged from 5.13% to 5.54% at December 31, 1998 and was 5.60% at December 31.
1997.
During 1998, the Company purchased life insurance policies covering the
lives of certain employees of the Company. Premiums of $43,500 were paid to an
affiliate for these policies. At December 31, 1998, the cash surrender value of
these policies is $45,445.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Association. Potential future obligations for
unknown insolvencies are not determinable by the Company. The Company has
established a reserve of $3,489 and $4,007 and an offsetting premium tax
benefit of $828 and $1,070 at December 31, 1998 and 1997, respectively, for its
estimated share of future guaranty fund assessments related to several major
insurer insolvencies. The guaranty fund expense (credit) was $(74), $0 and $212
at December 31, 1998, 1997 and 1996, respectively.
75
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)
The term Year 2000 Issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address
the Year 2000 issue as it affects the Company's internal IT and non-IT systems,
and to assess Year 2000 issues relating to third parties with whom the Company
has critical relationships.
The Plan for addressing internal systems generally includes an assessment
of internal IT and non-IT systems and equipment affected by the Year 2000
issue; definition of strategies to address affected systems and equipment;
remediation of identified systems and equipment; internal testing and
certification that each internal system is Year 2000 compliant; and a review of
existing and revised business resumption and contingency plans to address
potential Year 2000 issues. The Company has remediated and tested substantially
all of its mission-critical internal IT systems as of December 31, 1998. The
Company continues to remediate and test certain non-critical internal IT
systems, internal non-IT systems and will continue with a revalidation testing
program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers around
cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance
cannot currently be predicted with accuracy because the implementation of Year
2000 readiness will vary from one company to another.
The Company does have some exposure to date sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance and financial services organization providing
76
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
insurance, annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone
related equipment. This type of hardware can have date sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could experience
an interruption in the ability to collect and process premiums or deposits,
process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and or perform adequate customer
service. Should the worst case scenario occur, it could, dependent upon its
duration, have a material impact on the Company's business and financial
condition. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period could have a more serious impact. For this reason,
the Company is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should be noted that the Year
2000 computer problem, and its resolution, is complex and multifaceted, and any
company's success cannot be conclusively known until the Year 2000 is reached.
In spite of its efforts or results, the Company's ability to function
unaffected to and through the Year 2000 may be adversely affected by actions
(or failure to act) of third parties beyond our knowledge or control. It is
anticipated that there may be problems that will have to be resolved in the
ordinary course of business on and after the Year 2000. However, the Company
does not believe that the problems will have a material adverse affect on the
Company's operations or financial condition.
77
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as
reported in the Annual Statement filed with the Insurance Department of the
State of Ohio, to the amounts reported in the accompanying financial
statements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1998
-------------- ------------------
TOTAL CAPITAL
AND SURPLUS NET INCOME/(LOSS)
-------------- ------------------
<S> <C> <C>
Amounts reported in Annual Statement ............. $148,038 $ 528
Adjustment to federal income tax benefit ......... (4,458) (4,458)
-------- --------
Amounts reported herein .......................... $143,580 $ (3,930)
======== ========
</TABLE>
78
<PAGE>
WRL Series Annuity Account
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements for the WRL Series Annuity Account
and Western Reserve Life Assurance Co. of Ohio ("Western
Reserve") are included in Part B.
(b) Exhibits
(1) Copy of resolution of the Board of Directors
of Western Reserve establishing the Series Account. 1/
(2) Not Applicable
(3) Distribution of Contracts
(a) Form of Master Service and Distribution Compliance
Agreement. 1/
(b) Amendment to Master Service and Distribution
Compliance Agreement. 6/
(c) Form of Broker/Dealer Supervisory and Service
Agreement. 6/
(d) Principal Underwriting Agreement. 6/
(e) First Amendment to Principal Underwriting
Agreement. 6/
(4) (a) Specimen Flexible Payment Variable Accumulation
Deferred Annuity Contract. 2/
(b) Endorsement (EA128)
(c) Endorsement (EA 124)
(5) Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract. 3/
(6) (a) Copy of Second Amended Articles of Incorporation
of Western Reserve. 1/
(b) Copy of Amended Code of Regulations of Western
Reserve. 1/
(7) Not Applicable
(8) Not Applicable
(9) Opinion and Consent of Thomas E. Pierpan, Esq. as to
Legality of Securities Being Registered. 3/
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP
(b) Written Consent of Ernst & Young LLP
(c) Written Consent of PricewaterhouseCoopers LLP
(11) Not Applicable
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<PAGE>
(12) Not Applicable
(13) Schedules for Computation of Performance Quotations 5/
(14) Not Applicable
(15) (a) Powers of Attorney 1/
(b) Power of Attorney - James R. Walker 4/
- -------------------------------------
1/ This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 dated April 20, 1998 (File No. 33-49556) and is incorporated
herein by reference.
2/ This exhibit was previously filed on Form N-4 dated April 11, 1997 (File
No. 333-24959) and is incorporated herein by reference.
3/ This exhibit was previously filed on Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement dated June 26, 1997 (File No. 333-24959)
and is incorporated herein by reference.
4/ This exhibit was previously filed on Post-Effective Amendment No. 7 to the
Form N-4 Registration Statement dated December 23, 1996 (File No.
33-49556) and is incorporated herein by reference.
5/ This exhibit was previously filed on Post-Effective Amendment No. 28 to
the Form N-1A Registration Statement dated April 24, 1997 (File No.
33-507) and is incorporated herein by reference.
6/ This exhibit was previously filed on Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement dated April 21, 1999 (File No. 333-23359)
and is incorporated herein by reference.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
John R. Kenney (1) Chairman of the Board,
Chief Executive Officer
and President
Patrick S. Baird 4333 Edgewood Rd. N.E. Director
Cedar Rapids, Iowa 52499
Lyman H. Treadway 30195 Chagrin Blvd. Director
Suite 210N
Cleveland, Ohio 44124
Jack E. Zimmerman 507 St. Michel Circle Director
Kettering, Ohio 45429
James R. Walker 3320 Office Park Drive Director
Dayton, Ohio 45439
Alan M. Yaeger (1) Executive Vice President,
Actuary and Chief
Financial Officer
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<PAGE>
G. John Hurley (1) Executive Vice President
William H. Geiger (1) Senior Vice President,
Secretary and General
Counsel
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
- ------------------------
(1) 570 Carillon Parkway, St. Petersburg, FL 33716.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON Netherlands Membership Association
AEGON N.V. Netherlands Corporation (53.63%)
AEGON Netherland N.V. Netherlands Corporation (100%)
AEGON Nevark Holding B.V. Netherlands Corporation (100%)
Groninger Financieringen B.V. Netherlands Corporation (100%)
AEGON International N.V. Netherlands Corporation (100%)
Voting Trust - (Trustees - K.J. Storm, Donald J. Shepard, H.B. Van
Wijk, Dennis Hersch)
AEGON U.S. Holding Corporation (DE) (100%)
Short Hills Management Company (NJ) (100%)
CORPA Reinsurance Company (NY) (100%)
AEGON Management Company (IN) (100%)
RCC North America Inc. (DE) (100%)
AEGON USA, Inc. - Holding Co. (IA) (100%
First AUSA Life Insurance Company - Insurance Holding Co. (MD) (100%)
AUSA Life Insurance Company, Inc. - Insurance (NY) (100%)
Life Investors Insurance Company of America - Insurance (IA) (100%)
Bankers United Life Assurance Company - Insurance (IA) (100%)
PFL Life Insurance Company - Insurance (IA) (100%)
Southwest Equity Life Insurance Company - Insurance (AZ) (100%
Voting Common)
Iowa Fidelity Life Insurance Company - Insurance (AZ) (100%
Voting Common)
Western Reserve Life Assurance Company of Ohio - Insurance (OH)
(100%)
WRL Series Fund, Inc. - Mutual fund (MD)
Monumental Life Insurance Company - Insurance (MD) (100%)
Monumental General Casualty Company - Insurance (MD) (100%)
United Financial Services, Inc. - General Agency (MD) (100%)
Bankers Financial Life Insurance Company - Insurance (AZ)
The Whitestone Corporation - Insurance agency (MD) (100%)
Cadet Holding Corp. - Holding company (IA) (100%)
AUSA Holding Company - Holding company (MD) (100%)
Monumental General Insurance Group, Inc. - Holding company (MD)
(100%)
Monumental General Administrators, Inc. - Provides management
services to
C-3
<PAGE>
unaffiliated third party administrator (MD) (100%)
Executive Management and Consultant Services, Inc. -
Provides actuarial consulting services (MD) (100%)
Monumental General Mass Marketing, Inc. - Marketing arm for
sale of mass marketed insurance coverages (MD) (100%)
AUSA Financial Markets, Inc. - Marketing (IA) (100%)
Universal Benefits Corporation - Third party administrator (IA)
(100%)
Investors Warranty of America, Inc. - Provider of automobile
extended maintenance contracts (IA) (100%)
Massachusetts Fidelity Trust Company - Trust company (IA) (100%)
Money Services, Inc. - Provides financial counseling for employees
and agents of affiliated companies (DE) (100%)
Zahorik Company, Inc. - Broker-dealer (CA) (100%)
ZCI, Inc. (AL) (100%)
InterSecurities, Inc. - Broker-dealer (DE) (100%)
ISI Insurance Agency Inc. & its Subsidiaries - Insurance agency
(CA) (100%)
Associated Mariner Financial Group, Inc. - Holding company
management services (MI) (100%)
Mariner Financial Services, Inc. - Broker/Dealer (MI) (100%)
Mariner/ISI Planning Corporation - Financial planning
(MI) (100%)
Associated Mariner Agency, Inc. and its Subsidiaries- Insurance
agency (MI) (100%)
Mariner Mortgage Corporation - Mortgage origination (MI)
(100%)
Idex Investor Services, Inc. - Shareholder services (FL) (100%)
Idex Management, Inc. - Investment advisor (DE) (50%)
Idex Series Fund - Mutual fund (MA)
Transunion Casualty Company - Insurance (IA) (100%)
AUSA Institutional Marketing Group, Inc. - Insurance agency (MN)
(100%)
Colorado Annuity Agency, Inc. - Insurance agency (MN) (100%)
Diversified Investment Advisors, Inc. - Registered investment
advisor (DE) (100%)
Diversified Investors Securities Corporation - Broker-dealer
(DE) (100%)
AEGON USA Securities, Inc. - Broker-dealer (IA) (100%)
AEGON USA Managed Portfolios, Inc. - Mutual fund (MD)
American Forum for Fiscal Fitness, Inc. - Marketing (IA) (100%)
Supplemental Insurance Division, Inc. - Insurance (TN) (100%)
Creditor Resources, Inc. - Credit insurance (MI) (100%)
CRC Creditor Resources Canadian Dealer Network Inc. -
Insurance agency (Canada)
AEGON USA Investment Management, Inc. - Investment advisor (IA)
(100%)
AEGON USA Realty Advisors, Inc. - Provides real estate
administrative and real estate investment services (IA) (100%)
QUANTRA Corporation - (DE) (100%)
QUANTRA Software Corporation - (DE) (100%)
Landauer Realty Advisors, Inc. - Real estate counseling (IA)
(100%)
Landauer Associates, Inc. - Real estate counseling (DE) (100%)
AEGON USA Realty Management, Inc. - Real estate management (IA)
(100%)
Realty Information Systems, Inc. - Information systems for real
estate investment management (IA) (100%)
USP Real Estate Investment Trust - Real estate investment trust
(IA)
Cedar Income Fund Ltd. - Real estate investment trust (IA)
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<PAGE>
Item 27. NUMBER OF CONTRACTOWNERS.
As of March 31, 1999, 4,826 non-qualified contracts and 7,782
qualified contracts were In Force.
Item 28. INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended
Code of Regulations of Western Reserve whereby Western Reserve may
indemnify certain persons against certain payments incurred by such
persons. The following excerpts contain the substance of these
provisions.
OHIO GENERAL CORPORATION LAW
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against
a director is pursuant to section 1701.95 of the Revised Code.
C-5
<PAGE>
(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 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.
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<PAGE>
(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' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of
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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 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.
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(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.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
Western Reserve pursuant to the foregoing provisions or otherwise, Western
Reserve 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 Western Reserve of expenses
incurred or paid by a director, officer or controlling person of Western Reserve
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, Western Reserve 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 of 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.
C-9
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Item 29. PRINCIPAL UNDERWRITER
(a) AFSG Securities Corporation ("AFSG") is the principal underwriter
for the Contracts. AFSG currently serves as principal underwriter
for the PFL Endeavor VA Separate Account, the PFL Retirement
Builder Variable Annuity Account, the PFL Life Variable Annuity
Account A, the PFL Wright Variable Annuity Account, the AUSA
Endeavor Variable Annuity Account, Separate Account C of First
Providian Life and Health Insurance Company, and the Separate
Account I, Separate Account II, and Separate Account V of
Providian Life and Health Insurance Company, WRL Series Life
Account, WRL Series Annuity Account B and AUSA Series Life
Account.
(b) Directors and Officers of AFSG
PRINCIPAL POSITION AND OFFICES
NAME BUSINESS ADDRESS WITH UNDERWRITER
Larry N. Norman (1) Director and President
Harvey E. Willis (1) Vice President and Secretary
Lisa Wachendorf (1) Compliance Officer
Debra C. Cubero (1) Vice President
Gregory J. Garvin (1) Vice President
Michael F. Lane (1) Vice President
Sara J. Stange (1) Director and Vice President
Brenda K. Clancy (1) Vice President
Michael G. Ayers (1) Treasurer/Controller
Colleen S. Lyons (1) Assistant Secretary
John F. Reesor (1) Assistant Secretary
Anne Spaes (1) Vice President
Priscilla I. Hechler (2) Assistant Vice President and
Assistant Secretary
Thomas E. Pierpan (2) Assistant Secretary
Richard C. Hicks (2) Assistant Vice President
and Assistant Secretary
C-10
<PAGE>
Nancy C. Hassett (2) Assistant Secretary
Gina A. Babka (2) Assistant Secretary
- --------------------------------------
(1) 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, FL 33716-1202
(c) Compensation to Principal Underwriter
Not Applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by the Registrant through Western Reserve, 570
Carillon Parkway, St. Petersburg, Florida 33716.
Item 31. MANAGEMENT SERVICES
Not Applicable
Item 32. UNDERTAKINGS
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.
Item 33. SECTION 403(b)(11) REPRESENTATION
Registrant represents that in connection with its offering of
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986,
Registrant is relying on the no-action letter issued by the Office
of Insurance Products and Legal Compliance, Division of Investment
Management, to the American Council of Life Insurance dated November
28, 1988 (Ref. No. IP-6-88), and that the provisions of paragraphs
(1)-(4) thereof have been complied with.
TEXAS ORP REPRESENTATION
The Registrant intends to offer Contracts to participants in the
Texas Optional Retirement Program. In connection with that offering,
the Registrant is relying on Rule 6c-7 under the Investment Company
Act of 1940, as amended, and is complying with, or shall comply
with, paragraphs (a)-(d) of that Rule.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 3 to its Registration Statement to be signed
on its behalf by the undersigned, thereunder duly authorized, in the City of St.
Petersburg, State of Florida, on this 20th day of April, 1999
WRL SERIES ANNUITY ACCOUNT
(Registrant)
By: /s/ JOHN R. KENNEY
----------------------------------------
John R. Kenney, Chairman of the Board,
Chief Executive Officer and President of
Western Reserve Life Assurance Co. of
Ohio
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(Depositor)
By: /s/ JOHN R. KENNEY
---------------------------------------
John R. Kenney, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ JOHN R. KENNEY Chairman of the Board, April 20, 1999
- --------------------- Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
/s/ ALAN M. YAEGER Executive Vice President, April 20, 1999
- --------------------- Actuary & Chief Financial
Alan M. Yaeger Officer
<PAGE>
/s/ ALLAN J. HAMILTON Vice President, Treasurer April 20, 1999
- --------------------- and Controller
Allan J. Hamilton
/s/ PATRICK S. BAIRD Director April 20, 1999
- ---------------------
Patrick S. Baird */
/s/ LYMAN H. TREADWAY Director April 20, 1999
- ---------------------
Lyman H. Treadway */
/s/JACK E. ZIMMERMAN Director April 20, 1999
- ---------------------
Jack E. Zimmerman */
/s/ JAMES R. WALKER Director April 20, 1999
- ---------------------
James R. Walker */
*/ /s/ THOMAS E. PIERPAN
---------------------------
Signed by Thomas E. Pierpan
As Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
4(b) Endorsement (EA128)
4(c) Endorsement (EA124)
10(a) Written Consent of Sutherland Asbill & Brennan LLP
10(b) Written Consent of Ernst & Young LLP
10(c) Written Consent of PricewaterhouseCoopers LLP
EXHIBIT 4(b)
Endorsement (EA128)
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
ENDORSEMENT
- --------------------------------------------------------------------------------
This endorsement is attached to and forms a part of the Contract.
The Death Benefit Proceeds provision of the Death Benefit Provisions is hereby
expanded by adding the following:
If the Annuitant dies during the Accumulation Period, the Death Benefit
Proceeds, if payable, will be the greater of:
1. the Death Benefit Proceeds as determined under the existing Death
Benefit Proceeds provision; or
2. the highest Annuity Value as of any Contract Anniversary occurring
between the effective date of this endorsement and the earlier of (a)
the date of death of the Annuitant, or (b) the Contract Anniversary
nearest the 80th birthday of the Annnuitant. The highest Annuity Value
will be increased for purchase payments made and decreased for adjusted
partial withdrawals taken following the date of the Contract
Anniversary on which the highest Annuity Value occurred.
The adjusted partial withdrawal is equal to (a) times (b) where:
(a) is the ratio of the Death Benefit Proceeds to the Annuity Value,
calculated on the date the partial withdrawal is processed, but prior
to the processing; and
(b) is the amount of the partial withdrawal.
EFFECTIVE DATE. This endorsement is effective as of the Contract Date unless a
different Effective Date is shown here.
- --------------------------------------------------------------------------------
Signed for Us at Our Administrative Office in Clearwater, Florida on the
Effective Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
SECRETARY PRESIDENT
EXHIBIT 4(c)
Endorsement (EA124)
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
ENDORSEMENT
- -------------------------------------------------------------------------------
This Endorsement is part of the Contract. It is issued in connection with
contracts purchased for use in conjunction with Net Income Makeup Charitable
Remainder Unitrusts.
The Withdrawal Charge provision of the Contract Value Provisions is hereby
deleted in its entirety and replaced with the following:
WITHDRAWAL CHARGE. Upon the Surrender or partial withdrawal of purchase
payments paid beyond the Withdrawal Charge Period shown on Page Three, no
withdrawal charge will be imposed.
Upon the partial withdrawal of purchase payments within the Withdrawal
Charge Period, the withdrawal charge will equal the purchase payments paid
within the Withdrawal Charge Period times the applicable Withdrawal Charge
Percentage shown on Page Three. Once each calendar quarter, the Owner may
withdraw any portion of the Annuity Value in excess of the total purchase
payments made without a withdrawal charge.
Upon the Surrender of purchase payments within the Withdrawal Charge
Period, the withdrawal charge will equal the purchase payments paid within
the Withdrawal Charge Period times the applicable Withdrawal Charge
Percentage shown on Page Three. Upon Surrender, the purchase payments
subject to the withdrawal charge will not be reduced by any portion of the
Annuity Value previously withdrawn which did not incur a withdrawal
charge.
- -------------------------------------------------------------------------------
Signed for Us at Our Administrative Office in Clearwater, Florida.
/s/ WILLIAM G. GEIGER /s/ JOHN R. KENNEY
Secretary President
EXHIBIT 10(a)
Written Consent of Sutherland Asbill & Brennan LLP
<PAGE>
S.A.&B. letterhead
April 20, 1999
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Annuity Account
570 Carillon Parkway
St. Petersburg, FL 33716
RE: WRL Series Annuity Account
FILE NO. 333-24959
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information incorporated by reference in
Post-Effective Amendment No. 3 to the Registration Statement on Form N-4 (File
No. 333-24959) of the WRL Series Annuity 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 10(b)
Written Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Accountants" and to the use of our report dated February 19, 1999, with respect
to the statutory-basis financial statements and schedules of Western Reserve
Life Assurance Co. of Ohio included in Post-Effective Amendment No. 3 to the
Registration Statement (Form N-4 No. 333-24959) and related Prospectus of WRL
Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 20, 1999
EXHIBIT 10(c)
Written Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of the WRL Freedom Wealth Creator Post-Effective Amendment No.
3 to the Registration Statement on Form N-4 of our report dated January 29,
1999, relating to the financial statements and financial highlights of the
sub-accounts constituting the WRL Freedom Variable Annuity, WRL Freedom
Attainer, WRL Freedom Bellwether, WRL Freedom Conqueror and WRL Freedom Wealth
Creator Contracts of the WRL Series Annuity Account, which appears in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Independent Accountants" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 20, 1999
