As filed with the Securities and Exchange Commission on September 24, 1999
Registration Nos. 333-82705/811-5672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1 (x)
POST-EFFECTIVE AMENDMENT NO. ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 71 (X)
(Check appropriate box or boxes)
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
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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. 20004-2415
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Title of securities being registered: Units of interest in the separate account
under flexible premium variable accumulation deferred annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
WRL FREEDOM PREMIER(SM)
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
OCTOBER , 1999
This prospectus gives you important information about the WRL Freedom
Premier(SM), a flexible premium variable accumulation deferred annuity contract.
Please read this prospectus and the 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 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>
If you would like more information about the WRL Freedom Premier(SM), you
can obtain a free copy of the Statement of Additional Information (SAI) dated
October , 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 FUND:
o ARE NOT BANK DEPOSITS
o ARE NOT FEDERALLY INSURED
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
o 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>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
DEFINITIONS OF SPECIAL TERMS ............................................. 1
SUMMARY .................................................................. 3
ANNUITY CONTRACT FEE TABLE ............................................... 9
EXAMPLE .................................................................. 11
1. THE ANNUITY CONTRACT ............................................... 13
The Contract ..................................................... 13
Other Contracts .................................................. 13
2. ANNUITY PAYMENTS (THE INCOME PHASE) ................................ 14
Annuity Payment Options Under the Contract ....................... 14
Fixed Annuity Options ............................................ 15
Variable Annuity Options ......................................... 16
Guaranteed Minimum Income Benefit Rider .......................... 17
3. PURCHASE ........................................................... 19
Contract Issue Requirements ...................................... 19
Premium Payments ................................................. 20
Initial Premium Requirements ..................................... 20
Additional Premium Payments ...................................... 20
Maximum Annual Premium Payments .................................. 20
Allocation of Premium Payments ................................... 20
Reallocation Account ............................................. 21
Annuity Value .................................................... 21
Accumulation Units ............................................... 21
4. INVESTMENT CHOICES ................................................. 22
The Separate Account ............................................. 22
The Fixed Account ................................................ 24
Transfers ........................................................ 24
Dollar Cost Averaging Program .................................... 25
Asset Rebalancing Program ........................................ 26
Telephone or Fax Transactions .................................... 26
Third Party Investment Services .................................. 27
5. EXPENSES ........................................................... 27
Mortality and Expense Risk Charge ................................ 27
Administrative Charge ............................................ 28
Guaranteed Minimum Income Benefit Rider Charge ................... 28
Separate Account Annuitization Charge ............................ 28
Annual Contract Charge ........................................... 29
Transfer Charge .................................................. 29
Loan Processing Fee .............................................. 29
Premium Taxes .................................................... 29
Federal, State and Local Taxes ................................... 29
Surrender Charge ................................................. 29
Portfolio Management Fees ........................................ 33
Reduced or Waived Charges and Expenses to Employees .............. 33
</TABLE>
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<TABLE>
<S> <C>
6. TAXES .............................................................. 33
Annuity Contracts in General ..................................... 33
Qualified and Nonqualified Contracts ............................. 33
Partial and Complete Surrenders -- Nonqualified Contracts ........ 34
Multiple Contracts ............................................... 35
Diversification and Distribution Requirements .................... 35
Partial Surrenders -- Qualified Contracts ........................ 35
Partial Surrenders -- 403(b) Contracts ........................... 35
Partial and Complete Surrenders .................................. 36
Taxation of Death Benefit Proceeds ............................... 36
Annuity Payments ................................................. 36
Transfers, Assignments or Exchanges of Contracts ................. 37
Possible Tax Law Changes ......................................... 37
7. ACCESS TO YOUR MONEY ............................................... 37
Partial and Complete Surrenders .................................. 37
Delay of Payment and Transfers ................................... 39
Systematic Partial Surrenders .................................... 39
Contract Loans For Qualified Contracts ........................... 39
8. PERFORMANCE ........................................................ 41
9. DEATH BENEFIT ...................................................... 42
When We Pay A Death Benefit ...................................... 42
When We Do Not Pay A Death Benefit ............................... 43
Standard Death Benefit ........................................... 44
Compounding Minimum Death Benefit ................................ 44
Effect of Adjusted Partial Surrender on Certain Death Benefits ... 44
Alternate Payment Elections ...................................... 45
10. OTHER INFORMATION .................................................. 45
Ownership ........................................................ 45
Assignment ....................................................... 45
Western Reserve Life Assurance Co. of Ohio ....................... 45
The Separate Account ............................................. 46
Voting Rights .................................................... 46
Distribution of the Contracts .................................... 47
Non-Participating Contract ....................................... 47
Variations in Contract Provisions ................................ 47
Year 2000 Readiness Disclosure ................................... 47
IMSA ............................................................. 48
Legal Proceedings ................................................ 48
Financial Statements ............................................. 48
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............. 49
APPENDIX A -- CONDENSED FINANCIAL INFORMATION ............................ 50
APPENDIX B -- HISTORICAL PERFORMANCE DATA ................................ 58
</TABLE>
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DEFINITIONS OF SPECIAL TERMS
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accumulation The period between the Contract date and the maturity date
period while the Contract is in force.
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accumulation An accounting unit of measure used to calculate subaccount
unit value values during the 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
value payments from the subaccounts after the maturity date.
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age The issue age is the annuitant's age on his/her birthday
immediately preceding the Contract date. Attained age is the
issue age plus the number of completed Contract years. When
we use the term "age" in this prospectus, it has the same
meaning as "attained age" in the Contract.
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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
surrender 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 premium payment
is received and the date that the properly completed
application is received at Western Reserve's administrative
office. It is also the date when, depending on your state of
residence, we allocate your premium payment(s) either to the
reallocation account or to the fixed account and the
subaccounts you selected on your application. We measure
Monthiversaries, Contract years and Contract anniversaries
from the Contract date.
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death report day The valuation date on which we receive proof of annuitant's
death and your beneficiary's election regarding payment.
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fixed account An allocation option under the Contract, other than the
separate account, that provides for accumulation of premium
payments, and options for annuity payments on a fixed basis.
The fixed account may not be available in all states.
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fixed account During the accumulation period, a Contract's value allocated
value to the fixed account.
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fund 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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Monthiversary The same day in the month as the Contract date. When there
is no date in a calendar month that coincides with the
Contract date, the Monthiversary is the first day of the
next month.
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1
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NYSE New York Stock Exchange.
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nonqualified Contracts issued other than in connection with retirement
Contracts plans.
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owner (you, The person(s) entitled to exercise all rights under the
your) Contract. The annuitant 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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premium Amounts paid by an owner or on the owner's behalf to
payments Western Reserve as consideration for the benefits provided
by the Contract. When we use the term "premium payment" in
this prospectus, it has the same meaning as "net premium
payment" in the Contract, which means the premium payment
less any applicable premium taxes.
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qualified Contracts issued in connection with retirement plans that
Contracts qualify for special federal income tax treatment under the
Code.
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reallocation The WRL J.P. Morgan Money Market subaccount.
account
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reallocation date The date shown on the schedule page of your Contract when
we reallocate all annuity value held in the reallocation
account to the fixed account and subaccounts you selected.
We place your premium in the reallocation account only if
your state requires us to return the full premium in the
event you exercise your right to cancel. In all other
states, the reallocation date is the Contract date.
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separate account WRL Series Annuity Account, a separate account composed of
subaccounts established to receive and invest premium
payments not allocated to the fixed account.
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separate account During the accumulation period, a Contract's value in the
value separate account, which equals the total value in each
subaccount.
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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 accumulation 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 NYSE is open for trading, except when
a subaccount's corresponding portfolio does not value its
shares. Western Reserve is open for business on each day
that the NYSE is open.
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valuation period The period of time over which we determine the change in the
value of the subaccounts in order to price accumulation
units and annuity units. Each valuation period begins at the
close of normal trading on the NYSE (currently 4:00 p.m.
Eastern time on each valuation date) and ends at the close
of normal trading of the NYSE on the next valuation date.
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2
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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 Premier(SM) is a flexible premium variable accumulation
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 also allows you to select a compounding minimum death benefit
(see page 44) and a Guaranteed Minimum Income Benefit Rider (see page 17).
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 Contract's 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
<PAGE>
3. PURCHASE
You can buy this Contract with $5,000 ($1,000 for traditional or Roth IRAs
and $50 for other qualified Contracts) under most circumstances. You can add as
little as $50 at any time during the accumulation period.
4. INVESTMENT CHOICES
You can invest your money in any of the 23 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
[ ] WRL VKAM Emerging Growth International Equity
[ ] WRL AEGON Balanced [ ] WRL GE U.S. Equity
[ ] WRL AEGON Bond [ ] WRL Goldman Sachs Growth
[ ] WRL LKCM Strategic Total Return [ ] WRL Goldman Sachs Small Cap
[ ] WRL Federated Growth & Income [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL J.P. Morgan Money Market [ ] WRL T. Rowe Price Small Cap
[ ] WRL J.P. Morgan Real Estate Securities [ ] WRL Salomon All Cap
[ ] WRL Third Avenue Value [ ] WRL Pilgrim Baxter Mid Cap Growth
[ ] WRL NWQ Value Equity [ ] WRL Dreyfus Mid Cap
</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 premium payments to the fixed account. The
fixed account may not be available in all states.
5. EXPENSES
We do not take any deductions from premium payments at the time you buy
the Contract. You invest the full amount of each premium payment in one or more
of the investment choices.
We deduct a daily mortality and expense risk charge of 1.00% (1.25% if you
select the compounding minimum death benefit) and an administrative charge of
0.40% each year from the money you have invested in the subaccounts.
During the accumulation period, we deduct an annual Contract charge of $30
from the annuity value on each Contract anniversary and at the time of
surrender. We currently waive this charge if either your annuity value, or the
total premiums you have paid us, minus all partial surrenders, equals or
exceeds $50,000 on the Contract anniversary when this charge is payable.
We impose a $10 charge per transfer if you make more than 12 transfers
among the subaccounts per Contract year.
4
<PAGE>
We will deduct state premium taxes, which currently range from 0% to
3.50%, if you surrender the Contract, or partially surrender its value, or if
we pay out death benefit 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 make a partial surrender or fully surrender your Contract, we will
deduct a surrender charge for premium payments surrendered within seven years
after we receive the premium payment. This charge is 7% if the surrender occurs
within 24 months or less of our receipt of the premium payment, and then
declines gradually to 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 surrender charge -- 85 months or more.
When we calculate surrender charges, we treat partial surrenders as coming
first from the oldest premium payment, then the next oldest and so forth. For
partial surrenders or systematic partial surrenders you make in any Contract
year, we will waive all or a portion of the surrender charge on partial
surrenders up to the maximum free amount. Partial surrenders in excess of the
maximum free amount will be subject to a surrender charge. We will deduct the
full surrender charge if you surrender your Contract completely. We waive this
charge under certain circumstances. See Expenses -- Surrender Charge for how we
calculate the surrender charge waived.
The portfolios deduct investment fees and expenses from amounts you have
invested in the portfolios. These charges range from 0.46% to 1.50% annually,
depending on the portfolio. See the Annuity Contract Fee Table in this
prospectus and How The Fund Is Managed And Organized in the fund prospectus.
If you select the Guaranteed Minimum Income Benefit Rider, there is an
annual charge during the accumulation phase of 0.30% of the minimum
annuitization value. We deduct the Rider charge from your annuity value on each
Contract anniversary and on the termination date of the Rider. If you annuitize
under the Rider, we will assess a daily separate account annuitization charge
at an annual rate of 2.50% of the daily net assets in the subaccounts; this
charge will be reflected in your variable payments. The separate account
annuitization charge is paid in place of the mortality and expense risk charge
and the administrative charge.
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 also 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.
5
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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 surrender if it reduces the cash
value below $5,000. No partial surrenders 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. Surrender charges may apply.
You may also have to pay federal income tax and a penalty tax on any money you
take out.
Partial surrenders may reduce the death benefit (and certain values under
the Guaranteed Minimum Income Benefit Rider) by more than the amount
surrendered.
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 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 will 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:
o the annuity value of your Contract on the death report day;
o the total premium payments you make to the Contract (less partial
surrenders);
o the monthly step-up; or
o if selected, the compounding minimum death benefit.
10. OTHER INFORMATION
RIGHT TO CANCEL PERIOD. You may return your Contract for a refund within
10 days after you receive it. In most states, the amount of the refund will be
the total premium payments we have received, plus (or minus) any gains (or
losses) in the amounts you invested in the subaccounts. If state law requires,
we will refund your original premium payment(s). In those states, we will place
your premium payment(s) in the reallocation account until the reallocation
date. 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
6
<PAGE>
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.
ADDITIONAL FEATURES. This Contract has additional features that might
interest you. These include the following:
o REDUCED MINIMUM INITIAL PREMIUM PAYMENT (FOR NONQUALIFIED
CONTRACTS) -- You may make a minimum initial premium 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.
o SYSTEMATIC PARTIAL SURRENDERS -- You can arrange to have money
automatically sent to you while your Contract is in the accumulation
period. You may take systematic partial surrenders monthly, quarterly,
semi-annually or annually without paying surrender charges. Amounts you
receive may be included in your gross income and, in certain
circumstances, may be subject to penalty taxes.
o DOLLAR COST AVERAGING -- You can arrange to have a certain amount
of money automatically transferred monthly from one or any combination
of the fixed account, the WRL J.P. Morgan Money Market or WRL AEGON Bond
subaccounts to your choice of subaccounts. Dollar cost averaging does
not guarantee a profit and does not protect against a loss if market
prices decline.
o ASSET REBALANCING -- We will, upon your request, automatically
transfer amounts periodically among the subaccounts on a regular basis
to maintain a desired allocation of the annuity value among the various
subaccounts.
o TELEPHONE OR FAX TRANSACTIONS -- You may make transfers, partial
surrenders and/or change the allocation of additional premium payments
by telephone or fax.
o NURSING CARE FACILITY WAIVER -- If you are confined to a nursing
care facility, you may take partial surrenders or surrender your
Contract completely without paying the surrender charge, under certain
circumstances.
o MEDICALLY-RELATED SURRENDERS -- Under a terminal condition
endorsement, if certain medically-related circumstances occur, we will
allow you to fully or partially surrender your money without a surrender
charge.
o CONTRACT LOANS -- If you own a qualified Contract, you can take
out Contract loans during the accumulation period, subject to certain
restrictions.
o GUARANTEED MINIMUM INCOME BENEFIT RIDER -- You may add this Rider
for an additional charge. It assures you of a minimum level of income in
the future, provided you satisfy certain conditions and annuitize under
the options available in the Rider.
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o COMPOUNDING MINIMUM DEATH BENEFIT -- You may add this feature for
an additional charge. You must select this feature on your application.
This feature ensures that any death benefit payable on the death of the
annuitant will be no less than total premium payments, plus interest at
an effective annual rate of 6% (in most states) from the date of the
premium payment to date of death, less any adjusted partial
surrender(s), including interest on any partial surrender at the 6% rate
from the date of partial surrender to the date of death. Interest is not
credited after your 81st birthday.
These features may not be 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 for details.
11. INQUIRIES
If you need more 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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OWNER TRANSACTION EXPENSES
Sales Load On Premium Payments .......... None
Maximum Surrender Charge(1)(2)
(as a % of premium payments) ......... 7%
Transfer Charge ......................... $10 After 12 Per Year
Loan Processing Fee(3) .................. $30 Per Loan
Guaranteed Minimum Income
Benefit Rider Charge during the
accumulation period
(optional)(4)(5) ..................... 0.30%
===============================================================
ANNUAL CONTRACT CHARGE(2)(6) ............ $30 Per Contract Year
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE SEPARATE ACCOUNT VALUE
DURING THE ACCUMULATION PERIOD)
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UNDER STANDARD DEATH BENEFIT:
Mortality and Expense Risk Charge(5) ......... 1.00%
Administrative Charge(5) ..................... 0.40%
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TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES .................................. 1.40%
WITH COMPOUNDING MINIMUM DEATH BENEFIT
ADDED:
Mortality and Expense Risk Charge(5) ......... 1.25%
Administrative Charge(5) ..................... 0.40%
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TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES .................................. 1.65%
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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
PORTFOLIO 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) 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(12) 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(13) 0.90% 0.10% 1.00%
WRL Goldman Sachs Small Cap(13) 0.90% 0.10% 1.00%
WRL T. Rowe Price Dividend Growth(13) 0.90% 0.10% 1.00%
WRL T. Rowe Price Small Cap(13) 0.75% 0.25% 1.00%
WRL Salomon All Cap(13) 0.90% 0.10% 1.00%
WRL Pilgrim Baxter Mid Cap Growth(13) 0.90% 0.10% 1.00%
WRL Dreyfus Mid Cap(13) 0.85% 0.15% 1.00%
</TABLE>
(1) The surrender charge decreases based on the number of years since each
premium payment was made, from 7% in the first two years after the premium
payment was made to 0% in the eighth year after the
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<PAGE>
premium payment was made. To calculate surrender charges, the first premium
payment made is considered to come out first. This charge is waived under
certain circumstances.
(2) We may reduce or waive the surrender 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) This Rider is optional. You may add this Rider when we issue the Contract,
or within each 30-day period following each Contract anniversary. If you
add it, we will impose during the accumulation period an annual Rider
charge equal to 0.30% of the minimum annuitization value on each Contract
anniversary and on the termination date of the Rider (which includes
upgrades of the minimum annuitization value and Contract surrender). We
may change the Rider charge percentage in the future if you choose to
upgrade the minimum annuitization value, or for future issues of the
Rider, but the charge will never exceed 0.50% annually. If the annuity
value on any Contract anniversary exceeds the Rider charge threshold times
the minimum annuitization value, we will waive the Rider charge otherwise
payable on that Contract anniversary.
If you later choose to annuitize under this Rider, we will impose a daily
separate account annuitization charge equal to an annual rate of 2.50% of
the daily net asset values in the subaccounts in place of the mortality and
expense risk and administrative charges. We may change this charge in the
future if you choose to upgrade the minimum annuitization value, or for
future issues of the Rider, but it will never be greater than 3.50%.
(5) These charges apply to each subaccount. They do not apply to the fixed
account. The mortality and expense risk charge of 1.00% applies when you
have selected the standard death benefit. If you select the compounding
minimum death benefit, then the mortality and expense risk charge will
increase to 1.25%. These charges apply during the accumulation period.
After the maturity date, we will charge a daily separate account
annuitization charge equal to an annual rate of 1.40% in place of the
mortality and expense risk and administrative charges. If you select the
Guaranteed Minimum Income Benefit Rider, and you choose to annuitize under
the Rider, then we will impose a daily separate account annuitization
charge equal to an annual rate of 2.50% of the daily net asset values in
the subaccounts, in place of the mortality and expense risk and
administrative charges.
(6) We currently waive this charge if either the annuity value, or the total
premium payments, minus all partial surrenders, equals or exceeds $50,000
on the Contract anniversary for which the charge is payable.
(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 to be 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
total 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 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
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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. WRL Management currently waives 0.025% of its advisory fee for the
first $3 billion of the portfolio's average daily net assets (net fee --
0.775%); and 0.05% for the portfolio's average daily net assets above $3
billion (net fee -- 0.75%). This waiver is voluntary and may be terminated
at any time upon 90 days' written notice to the fund.
(11) For WRL Janus Global, WRL Management will waive 0.025% of its advisory fee
once portfolio average daily net assets reach $2 billion (net fee --
0.775%.) This waiver is voluntary and may be terminated at any time upon
90 days' written notice to the fund.
(12) 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.
(13) 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 3, 1999, the percentages set forth as "Other Expenses"
and "Total Portfolio Annual Expenses" are estimates.
EXAMPLE
You would pay the following expenses on a $10,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire $10,000 is
invested in the subaccount listed.
The expenses reflect both mortality and expense risk and administrative
charges totaling 1.65% of account value (assuming that the compounding minimum
death benefit has been added) plus the Guaranteed Minimum Income Benefit Rider
charge of 0.30% of minimum annuitization value (MAV).
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<PAGE>
<TABLE>
<CAPTION>
IF THE CONTRACT IS ANNUITIZED* AT
IF THE CONTRACT IS SURRENDERED THE END OF THE APPLICABLE
AT THE END OF THE APPLICABLE TIME PERIOD OR IF THE CONTRACT
SUBACCOUNTS TIME PERIOD IS NOT 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 $1,026 $1,594 $2,073 $3,454 $313 $ 959 $1,633 $3,454
WRL Janus Global 1,037 1,627 2,129 3,568 325 995 1,692 3,568
WRL Alger Aggressive Growth 1,034 1,616 2,110 3,530 321 983 1,673 3,530
WRL VKAM Emerging Growth 1,032 1,611 2,101 3,511 319 977 1,663 3,511
WRL AEGON Balanced 1,034 1,616 2,110 3,530 321 983 1,673 3,530
WRL AEGON Bond 999 1,512 1,935 3,170 284 872 1,489 3,170
WRL LKCM Strategic Total Return 1,029 1,602 2,087 3,483 316 968 1,648 3,483
WRL Federated Growth & Income 1,033 1,613 2,105 3,521 320 980 1,668 3,521
WRL J.P. Morgan Money Market 992 1,490 1,896 3,091 276 848 1,449 3,091
WRL J.P. Morgan Real Estate Securities 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL Third Avenue Value 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL NWQ Value Equity 1,032 1,611 2,101 3,511 319 977 1,663 3,511
WRL Dean Asset Allocation 1,029 1,602 2,087 3,483 316 968 1,648 3,483
WRL C.A.S.E. Growth 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL GE/Scottish Equitable
International Equity 1,088 1,779 2,383 4,075 380 1,157 1,958 4,075
WRL GE U.S. Equity 1,047 1,655 2,176 3,663 335 1,024 1,741 3,663
WRL Goldman Sachs Growth 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL Goldman Sachs Small Cap 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL T. Rowe Price Dividend Growth 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL T. Rowe Price Small Cap 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL Salomon All Cap 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL Pilgrim Baxter Mid Cap Growth 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
WRL Dreyfus Mid Cap 1,042 1,641 2,152 3,616 330 1,010 1,717 3,616
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
The table above 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 table does not reflect premium taxes which may
range up to 3.50%, depending on the jurisdiction.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES PAID 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.
The example above assumes that no transfer charges have been assessed. In
addition, the $30 annual Contract charge is reflected as a charge of 0.30%,
based on an annuity value of $10,000. The Guaranteed Minimum Income Benefit
Rider charge has been calculated assuming a Rider charge of 0.30% of MAV and
assuming an MAV annual growth rate of 6%.
We have included in Appendix A a financial history of the accumulation
unit values for the subaccounts that reflect the cost of the standard death
benefit (total separate account annual expenses of 1.40%). We will determine
separate sets of accumulation unit values that reflect the cost of the
compounding minimum death benefit (total separate account annual expenses of
1.65%).
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<PAGE>
1. THE ANNUITY CONTRACT
THE CONTRACT
This prospectus describes the WRL Freedom Premier(SM) 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 the
annuitant 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 premium variable accumulation deferred annuity.
You can use the Contract to accumulate funds for retirement or other long-term
financial planning purposes.
It is a "flexible premium" Contract because after you purchase it, you can
generally make additional investments of $50 or more at any time, 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 investment 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. If you elect to receive
variable annuity payments during the income phase of your Contract, the amount
of your annuity payments will also depend 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 which are greater than the guaranteed rate. The
interest rates we set will be credited for periods of at least one year
measured from each payment or transfer date.
The fixed account may not be available in all states. Residents of
Washington and Massachusetts may not direct 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 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.
13
<PAGE>
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 maturity date cannot be later than the Contract month following the
month in which the annuitant reaches age 95. 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. After the maturity date, you may make transfers among the subaccounts,
but you may not make transfers from or to the fixed account; we may limit
subaccount transfers to one per Contract year.
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.
If you have added the Guaranteed Minimum Income Benefit Rider to your
Contract and choose to annuitize under the Rider, then you must select one of
the annuity payment options contained in the Rider.
SUPPLEMENTAL CONTRACT. Once you annuitize and if you have selected a fixed
annuity 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 UNDER THE CONTRACT
The Contract provides five annuity payment options that are described
below. You may choose any annuity payment option under your Contract. 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 $20, 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:
o The amount of the annuity proceeds on the maturity date;
o The interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 3%); and
o The specific payment option you choose.
VARIABLE ANNUITY INCOME PAYMENTS WITHOUT THE GUARANTEED MINIMUM INCOME
BENEFIT RIDER. 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 matched the
Contract's assumed investment return of 5% at all times, then the amount of the
next variable annuity payment would remain the same. 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 daily separate account
annuitization charge equal to an annual rate of 1.40% in place of the mortality
and expense risk and administrative charges) in order to avoid a decrease in
the dollar amount of variable annuity payments. For more information on 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.
o NO PERIOD CERTAIN -- We will make level payments only during
the annuitant's lifetime; or
o 10 OR 20 YEARS CERTAIN -- We will make level payments for the
longer of the annuitant's lifetime or 10 or 20 years; or
o 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.
15
<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:
o NO PERIOD CERTAIN -- We will make variable payments only during the
annuitant's lifetime; or
o 10 YEARS CERTAIN -- We will make variable payments for the longer of
the annuitant's lifetime or 10 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.
Other annuity payment options may be arranged by agreement with us.
NOTE CAREFULLY:
If:
o you choose Life Income with No Period Certain or a Joint and
Survivor Life Income (fixed or variable); and
o the annuitant(s) dies, for example, before the due date of the
second annuity payment;
Then:
o we may make only one annuity payment.
If:
o you choose Fixed Installments, Life Income with 10 or 20 Years
Certain, Life Income with Guaranteed Return of Annuity Proceeds, or
Variable Life Income with 10 Years Certain; and
o the person receiving payments dies prior to the end of the guaranteed
period;
Then:
o 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.
16
<PAGE>
GUARANTEED MINIMUM INCOME BENEFIT RIDER (THE "RIDER")
The Rider assures you of a minimum level of income in the future by
guaranteeing a minimum annuitization value (discussed below) after 10 years.
You may elect to purchase this Rider, which guarantees the total amount you
will have to apply ("minimum annuitization value") to a variable annuity
payment option specified in the Rider, and which guarantees a minimum dollar
payment once you begin receiving payments. By electing this Rider, you are
guaranteed a minimum level of income in the future based on the minimum
annuitization value, while you remain invested in the subaccounts.
MINIMUM ANNUITIZATION VALUE. The minimum annuitization value is:
o the annuity value on the date the Rider is issued, plus
o any additional premiums paid after the Rider is issued,
o minus an adjustment for any partial surrenders made after the date the
Rider is issued,
o accumulated at the annual growth rate.
The annual growth rate is currently 6% per year. For Contracts issued in a
few states, this rate will be less than 6%. We may, at our discretion, change
the rate in the future for new riders, but the rate will never be less than 3%
per year. Once the Rider is added to your Contract, the annual growth rate, the
Rider charge, the Rider charge waiver threshold, the separate account
annuitization charge and the waiting period before you can annuitize under the
Rider will not change during the life of the Rider. Partial surrenders may
reduce the minimum annuitization value on a basis greater than
dollar-for-dollar. See the SAI for more information.
The minimum annuitization value is used to calculate the annuity payments
and charges under the Rider and adjustments to partial surrenders. This value
does not establish or guarantee an annuity value or guarantee performance of
any subaccount. IF YOU CHOOSE TO ANNUITIZE UNDER THE RIDER, WE WILL USE YOUR
MINIMUM ANNUITIZATION VALUE (LESS ANY OUTSTANDING LOAN AMOUNT AND ANY LOAN
INTEREST YOU OWE) -- NOT YOUR CURRENT ANNUITY VALUE EVEN IF IT IS GREATER -- TO
DETERMINE THE AMOUNT OF YOUR VARIABLE ANNUITY PAYMENTS UNDER THE RIDER. The
minimum annuitization value may not be used to annuitize with any of the
annuity payment options under the Contract.
ANNUITY PAYMENT OPTIONS. The only payment options available under the
Rider are the following variable annuity options:
o LIFE INCOME -- An election may be made for "No Period Certain" or "10
Years Certain." Payments will be made as long as the annuitant is
living. In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will
be continued to the beneficiary.
o JOINT AND FULL SURVIVOR -- An election may be made for "No Period
Certain" or "10 Years Certain." Payments will be made as long as either
the annuitant
17
<PAGE>
or joint annuitant is living. In the event of the death of both the
annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
MINIMUM ANNUITIZATION VALUE UPGRADE. You can elect, in writing, to upgrade
the minimum annuitization value to the current annuity value within 30 days
after any Contract anniversary before your 85th birthday (earlier if required
by your state).
If you elect to upgrade, the current Rider will terminate, we will assess
the Rider charge, and a new rider will be issued with a new rider date, new
waiting period before you can annuitize under the rider, and new guaranteed
benefits and charges. The benefits and charges under the new rider may differ
from the previous Rider's benefits and charges prior to upgrading.
CONDITIONS TO ANNUITIZE UNDER THE RIDER. You can only annuitize under the
Rider within 30 days after the end of the waiting period (currently the tenth
Contract anniversary after you select the Rider) or on a later Contract
anniversary. In the case of an upgrade of the minimum annuitization value, you
can only annuitize at the end of the new rider's waiting period (currently the
tenth Contract anniversary following the upgrade) or on a later Contract
anniversary. We may, at our discretion, lengthen or shorten the waiting period
before you can annuitize under the Rider. You cannot, however, annuitize under
the Rider after the 30-day period following the Contract anniversary after your
94th birthday (earlier if required by your state).
NOTE CAREFULLY -- You may only annuitize under the Rider at the times indicated
above.
GUARANTEED MINIMUM INCOME BENEFIT RIDER. We guarantee that future annuity
payments under the Rider to be never less than the initial variable annuity
payment. See the SAI for information concerning the calculation of the initial
variable annuity payment. We will also "stabilize" the payments (hold them
constant) during each Contract year. During the first Contract year after you
annuitize under the Rider, each payment will equal the initial payment. On each
Contract anniversary thereafter, the variable annuity payment will increase or
decrease (but never below the initial payment) depending on the performance of
the subaccounts you selected, and then be held constant at that amount for that
Contract year. The payment on each Contract anniversary will equal the greater
of the initial payment or the payment supportable by the annuity units in the
subaccounts. We will calculate each subsequent payment using a 5% assumed
investment return. The portfolio in which you are invested must grow at a rate
greater than the 5% assumed investment return, plus the separate account
annuitization charge of 2.50%, in order to increase the dollar amount of
variable annuity payments. See the SAI for additional information concerning
how payments are determined under the Rider.
RIDER CHARGE. Prior to annuitization, a Rider charge, currently 0.30%
annually of the minimum annuitization value, is deducted from the annuity value
on each Contract anniversary and on the termination date of the Rider. We may
change the Rider charge percentage in the future if you choose to upgrade the
minimum annuitization value, or for future issues of the Rider, but it will
never be greater than 0.50% annually. We deduct the Rider charge from the fixed
account and from each subaccount in proportion to the amount of annuity value
in each account.
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<PAGE>
We will waive the Rider charge on any Contract anniversary if the annuity
value exceeds the Rider charge waiver threshold (currently 2.0) times the
minimum annuitization value. For instance, if your annuity value on the seventh
Contract anniversary is $100,000, your minimum annuitization value is $45,000
and the Rider charge waiver threshold is 2.0, we will waive the Rider charge on
that anniversary because $100,000 is greater than $90,000 ($45,000 X 2.0). We
may, at our discretion, change the Rider charge waiver threshold in the future
if you choose to upgrade the minimum annuitization value, or for future issues
of the Rider, but it will never be greater than 2.5 times the minimum
annuitization value.
SEPARATE ACCOUNT ANNUITIZATION CHARGE. If you annuitize under the Rider, a
daily separate account annuitization charge, equal to an annual rate of 2.50%
of the daily net asset values in the subaccounts, is reflected in the amount of
the variable payments you receive. We may change the separate account
annuitization charge in the future, if you choose to upgrade the minimum
annuitization value or for future issues of the Rider, but it will never be
greater than 3.50%. The separate account annuitization charge is deducted in
place of the Contract's mortality and expense risk charge and the
administrative charge.
TERMINATION. The Rider is irrevocable. You have the option not to
annuitize under the Rider but you will not receive a refund of any charges you
have paid and you will not be able to use the minimum annuitization value. The
Rider will terminate upon the earliest of the following:
o annuitization (once the guaranteed minimum payments begin);
o the date you elect to upgrade (although a new irrevocable rider will be
issued);
o the date your Contract terminates;
o 30 days following the Contract anniversary after your 94th birthday
(earlier if required by your state); or
o the date you change the annuitant (although a new irrevocable
rider will be issued).
THE GUARANTEED MINIMUM INCOME BENEFIT RIDER DOES NOT ESTABLISH OR
GUARANTEE ANNUITY VALUE OR GUARANTEE PERFORMANCE OF ANY SUBACCOUNT. Because
this Rider is based on conservative actuarial factors, the level of lifetime
income that it guarantees may be less than the level that might be provided by
application of the annuity value at the Contract's applicable annuity factors.
Therefore, the Guaranteed Minimum Income Benefit Rider should be regarded as a
safety net.
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
We will issue a Contract IF:
o we receive information needed to issue the Contract;
o we receive a minimum initial premium payment; and
o the annuitant is age 85 or younger.
19
<PAGE>
PREMIUM PAYMENTS
You should make checks or drafts for premium payments payable only to
"Western Reserve Life" and send them to our administrative office. Your check
or draft must be honored in order for us to pay any associated payments and
benefits due under the Contract.
INITIAL PREMIUM REQUIREMENTS
The initial premium payment for nonqualified Contracts must be at least
$5,000. However, you may make a minimum initial premium 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 premium payment is $1,000 and
for qualified Contracts other than traditional or Roth IRAs, the minimum
initial premium payment is $50.
We will credit your initial premium 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 premium payment, we will
contact you within five business days and explain why. We will also return your
initial premium payment at that time unless you tell us to keep it. We will
credit your initial premium payment as soon as we receive all necessary
application information.
The date on which we credit your initial premium 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 premium payments for any reason permitted
by law.
ADDITIONAL PREMIUM PAYMENTS
You are not required to make any additional premium payments. However, you
can make additional premium payments as often as you like during the lifetime
of the annuitant and prior to the maturity date. Additional premium payments
must be at least $50 ($100 monthly in the case of nonqualified Contracts with a
$1,000 initial premium payment and $1,000 if by wire). We will credit
additional premium payments to your Contract as of the business day we receive
your premium payment and required information.
MAXIMUM ANNUAL PREMIUM PAYMENTS
We allow premium payments up to a total of $1,000,000 in any Contract year
without prior approval.
ALLOCATION OF PREMIUM PAYMENTS
When you purchase a Contract, we will allocate your premium payment to the
investment choices you selected on your application, or we will place your
premium
20
<PAGE>
payment(s) in the reallocation account until the reallocation date. Your
allocation must be in whole percentages which must total 100%. We will allocate
additional premium payments as you selected on your application, unless you
request a different allocation.
Unless we consent otherwise, we will restrict allocations and transfers to
the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000.
You may change allocations for future additional premium payments by
sending written instructions or by telephone, subject to the limitations
described under Telephone or Fax Transactions on page 26. The allocation change
will apply to premium payments received after the date we receive the change
request.
You should review periodically how your payments are divided among the
subaccounts because market conditions and your overall financial objectives may
change.
REALLOCATION ACCOUNT
If your state requires us to return your initial premium in the event you
exercise your right to cancel, we will allocate the initial premium on the
Contract date to the reallocation account. While held in the reallocation
account, your premium will be credited with gains and losses of the WRL J.P.
Morgan Money Market subaccount. The premium will remain in the reallocation
account for the number of days in your state's right to cancel period plus five
days. Please contact your agent for details concerning the right to cancel
period for your state.
On the first valuation date on or after the reallocation date, we will
reallocate all annuity value from the reallocation account to the fixed account
and/or subaccounts you selected on your application.
For states which do not require full refund of the initial premium, the
reallocation date is the same as the Contract date and we will allocate your
initial premium on the Contract date to the fixed account and/or subaccounts in
accordance with the instructions you gave us on your application.
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 valuation
date and ends at the close of business on the next succeeding valuation date. A
valuation date is any day the NYSE is open. Our business day closes at the
close of normal trading on the NYSE, usually 4:00 p.m. Eastern time. We observe
the same holidays as the NYSE.
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.
21
<PAGE>
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 valuation date.
If you partially surrender 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 valuation date. The new value reflects the
investment performance of the underlying portfolio and the daily deduction of
the mortality and expense risk charge and the administrative charge. For a
detailed discussion of how we determine accumulation unit values, see the SAI.
We will determine separate sets of accumulation unit values that reflect
the cost of the standard death benefit and the compounding minimum death
benefit.
4. INVESTMENT CHOICES
THE SEPARATE ACCOUNT
The separate account currently consists of 23 subaccounts.
The Fund. Each subaccount invests exclusively in one portfolio of the
fund. The portfolios and their sub-adviser(s) are listed below.
22
<PAGE>
<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 WRL GE/Scottish Equitable International Equity
LIMITED AND GE INVESTMENT MANAGEMENT
INCORPORATED
- ----------------------------------------------------------------------------------------------
GE INVESTMENT MANAGEMENT INCORPORATED WRL GE U.S. Equity
- ----------------------------------------------------------------------------------------------
GOLDMAN SACHS ASSET MANAGEMENT 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 will be comparable to those portfolios offered by
this prospectus.
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. YOU SHOULD READ THE FUND PROSPECTUS CAREFULLY BEFORE YOU INVEST.
23
<PAGE>
THE FIXED ACCOUNT
Premium 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 disclosure in this prospectus which
relates 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 current
interest rates. We establish the interest rate, at our sole discretion, for
each premium 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. You may not transfer money between the fixed
account and the subaccounts during the income phase.
When you request a transfer or partial surrender 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
surrenders from the fixed account unless we consent.
Unless we otherwise consent, we will restrict allocations and transfers to
the fixed account if the fixed account value following the allocation or
transfer would exceed $500,000.
The fixed account may not be available in all states. Residents of
Washington and Massachusetts may not direct or transfer any money to 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 surrenders.
Transfers from the fixed account are allowed only once each Contract year.
The amount that may be transferred is 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.
24
<PAGE>
During the income phase of your Contract, you may transfer values from one
subaccount to another. No transfers may be made to or from the fixed account.
The minimum amount that can be transferred during this phase is the lesser of
$10 of monthly income, or the entire monthly income of the variable annuity
units in the subaccount from which the transfer is being made. We may limit
subaccount transfers to one per Contract year.
The fixed account may not be available in all states. Residents of
Washington and Massachusetts may not transfer any of their Contract value to the
fixed account.
Transfers may be made by telephone or fax, subject to limitations
described below under Telephone or Fax Transactions on page 26.
If you make more than 12 transfers from the subaccounts in any Contract
year, we will charge you $10 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 potentially disrupt the management of the portfolios and
increase transaction costs. Accordingly, we have established a policy of
limiting excessive transfer activity. We will limit transfer activity to two
substantive transfers (at least 30 days apart) from each portfolio, except from
WRL J.P. Morgan Money Market, during any 12-month period. We interpret
"substantive" to mean either a dollar amount large enough to have a negative
impact on a portfolio's operations, or a series of movements between
portfolios. We will not limit non-substantive transfers.
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
valuation date 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 fixed account, the WRL J.P. Morgan Money Market
subaccount, the WRL AEGON Bond subaccount or any combination of these accounts,
to a different subaccount. You may specify the dollar amount to be transferred
monthly; however, you must transfer at least $100 monthly. To qualify, a
minimum of $5,000 must be in each subaccount from which we make transfers.
Transfers must be scheduled for a minimum of 6 months but no more than 24
months. 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
25
<PAGE>
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.
If you establish dollar cost averaging from the fixed account, we may
credit higher interest rates for those dollar cost averaging amounts. We call
these "enhanced" fixed account interest rates, and they will apply only to
those amounts dollar cost averaged from the fixed account. These enhanced
interest rates will be credited monthly and will apply temporarily for varying
time periods. If you discontinue the dollar cost averaging program before its
completion, then the interest credited on amounts remaining in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective fixed account annual interest rate of 3%. The interest
rate adjustment will not apply to any interest already credited.
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 surrenders.
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 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
surrenders, or if you request any other transfer. Asset rebalancing ignores
amounts in the fixed account. You can choose to rebalance monthly, 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 premium 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, request partial surrenders and change the
allocation of additional premium payments by telephone. Telephone partial
surrenders are not allowed in the following situations:
o for qualified retirement accounts (except IRAs);
o if the amount you want to withdraw is greater than $50,000; or
o 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 partial surrenders for
you. If you do not want the ability to make transfers or partial surrenders by
telephone, you should notify us in writing.
26
<PAGE>
You may make telephone transfers or request partial surrenders 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. We may also require written confirmation of your request. We will
not be liable for following telephone requests that we believe are genuine.
You may also fax your transfer or partial surrender request to us at
727-299-1648. We will not be responsible for transmittal problems which are not
reported to us within five business days. Any reports must be accompanied by
proof of the faxed transmittal.
Telephone or fax requests must be received before 4:00 p.m. Eastern time
to assure same-day pricing of the transaction. We 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 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. Unless we indicate otherwise,
the expenses described below apply only during the accumulation period.
MORTALITY AND EXPENSE RISK CHARGE
We charge a fee as compensation for bearing certain mortality and expense
risks under the Contract. Examples of our risks 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 1.00% of the average daily net assets that you have
27
<PAGE>
invested in each subaccount. If you add the compounding minimum death benefit,
the mortality and expense risk charge increases to 1.25%. This charge is
deducted from the subaccounts during the accumulation period. During the income
phase, we charge an annual separate account annuitization charge of 1.40% in
place of the mortality and expense risk and administrative charges. If you
annuitize under the Guaranteed Minimum Income Benefit Rider, we charge a
separate account annuitization charge, currently 2.50%, not to exceed 3.50%, in
place of the mortality and expense risk and administrative charges.
If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge more than covers actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
ADMINISTRATIVE CHARGE
We deduct an annual administrative charge to cover the costs of
administering the Contracts. This charge is assessed daily and is equal to
0.40% per year of the average daily net assets that you have invested in each
subaccount. This charge is deducted from the subaccounts during the
accumulation period.
GUARANTEED MINIMUM INCOME BENEFIT RIDER CHARGE
Prior to annuitization, a Rider charge, currently 0.30% annually of the
minimum annuitization value, is deducted from the annuity value on each
Contract anniversary and on the termination date of the Rider (including
Contract surrender). We may change the Rider charge percentage in the future if
you choose to upgrade the minimum annuitization value, or for future issues of
the Rider, but it will never be greater than 0.50% annually. We deduct the
Rider charge from the fixed account and from each subaccount in proportion to
the amount of annuity value in each account.
We will waive the Rider charge on any Contract anniversary if the annuity
value exceeds the Rider charge waiver threshold (currently 2.0) times the
minimum annuitization value. For instance, if your annuity value on the seventh
Contract anniversary is $100,000, your minimum annuitization value is $45,000
and the Rider charge waiver threshold is 2.0, we will waive the Rider charge on
that anniversary because $100,000 is greater than $90,000 ($45,000 X 2.0). We
may, at our discretion, change the Rider charge waiver threshold in the future
if you choose to upgrade the minimum annuitization value, or for future issues
of the Rider, but it will never be greater than 2.5 times the minimum
annuitization value.
SEPARATE ACCOUNT ANNUITIZATION CHARGE
If you annuitize under the Rider, a daily separate account annuitization
charge, equal to an annual rate of 2.50% of the daily net asset values in the
subaccounts, is reflected in the amount of the variable payments you receive.
We may change the separate account annuitization charge in the future if you
choose to upgrade the minimum annuitization value, or for future issues of the
Rider, but it will never be greater than 3.50%. The separate account
annuitization charge is deducted in place of the Contract's mortality and
expense risk charge and the administrative charge.
28
<PAGE>
ANNUAL CONTRACT CHARGE
We deduct an annual Contract charge of $30 from your annuity value on each
Contract anniversary and at surrender. We deduct this charge to cover our costs
of administering the Contracts. We currently waive this charge if either the
annuity value, or the total premium payments, minus all partial surrenders
(including any surrender charges), equals or exceeds $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 $10 for each additional
transfer. We deduct the charge from the amount transferred. Dollar cost
averaging and asset rebalancing transfers 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.
PREMIUM TAXES
Some states assess premium taxes on the premium payments you make.
Currently, we do not deduct these taxes at the time you make a premium payment.
However, we will deduct the total amount of premium taxes, if any, from the
annuity value when:
o you elect to begin receiving annuity payments;
o you surrender the Contract;
o you request a partial surrender; or
o 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.
SURRENDER CHARGE
During the accumulation period, you may surrender part or all of the
annuity value. We impose a surrender 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 partial or complete surrender.
If you take a partial surrender or if you surrender your Contract
completely, we will deduct a surrender charge of up to 7.0% of premium payments
surrendered within seven
29
<PAGE>
years after we receive a premium payment. To calculate surrender charges, we
treat surrenders as coming first from the oldest premium payment, then the next
oldest and so forth.
Unless we otherwise consent, the minimum amount available each time you
request a partial surrender is $500.
The following schedule shows the surrender charges that apply during the
seven years following each premium payment:
- --------------------------------------------------------------------------------
NUMBER OF MONTHS SINCE SURRENDER
PREMIUM PAYMENT DATE CHARGE
- --------------------------------------------------------------------------------
12 or less 7%
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
Keep in mind that partial and complete surrenders may be taxable, and if
made before age 59 1/2, may be subject to a 10% federal penalty tax. For tax
purposes, partial and complete surrenders are considered to come from earnings
first.
There are two ways that you may make a partial surrender and we will not
deduct the full surrender charge:
1. PARTIAL SURRENDERS UP TO THE FREE AMOUNT. During any Contract year, you
may request a partial surrender and we will not impose a surrender charge on
any amount up to the maximum free amount. For the first partial surrender under
the Contract, the maximum free amount you can partially surrender without a
surrender charge is equal to (A) earnings in the Contract, plus (B) 10% of
premiums. For all subsequent partial surrenders, the maximum free amount you
can partially surrender without a surrender charge is (A) plus (B), adjusted to
reflect prior partial surrenders, according to the following formula:
(A) is equal to:
i. the annuity value on the date of the partial surrender; plus
ii. any amounts previously surrendered using the calculation in (B)
below; plus
iii. any amounts previously surrendered that were subject to surrender
charges; minus
iv. the total of all premiums you have paid.
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<PAGE>
and
(B) is equal to:
i. 10% of the annuity value on the date of the partial surrender; minus
ii. any amounts you partially surrendered during the Contract year in
which you requested the partial surrender using the calculation in
(B)(i).
For example, assume that you make a $100,000 premium payment to your
Contract at issue and make no more premium payments. Also assume at the end of
the 13th Contract month there is an annuity value of $108,000 before a partial
surrender of $11,000 is taken out surrender charge free ($8,000 is surrender
charge free under (A) ($108,000 - $100,000 = $8,000), and $3,000 is surrender
charge free under (B) ($100,000 X 10% = $10,000 maximum amount under (B)). If,
at the end of the 19th Contract month, there is an annuity value of $106,000
before a partial surrender of $20,000 is taken out, the surrender charge on
this partial surrender will be calculated as follows:
(A)i. -- $106,000 is the annuity value on the date of the partial
surrender; and is added to
(A)ii. -- $3,000 is the amount of the surrender that occurred in the 13th
month surrendered under (B) of the formula (see paragraph
above); plus
(A)iii. -- $0 are amounts previously surrendered that were subject to
surrender charges; minus
(A)iv. -- $100,000 is the total of all premiums paid.
The total for (A) is: $106,000 + $3,000 + $0 - $100,000 = $9,000
AND
(B)i. -- $9,700 is 10% of the remaining annuity value following the
determination of (A) above on the date of partial surrender
[$106,000 - $9,000 = $97,000 (remaining annuity value) X 10% =
$9,700]; minus
(B)ii. -- $3,000 is the amount partially surrendered under (B)i. above
during the Contract year in which the current partial surrender
is requested.
The total for (B) is: $9,700 - $3,100 = $6,700.
The maximum amount of this partial surrender available without a surrender
charge is $9,000 (A) + $6,700 (B) = $15,700.
The portion of this partial surrender which is subject to a surrender
charge is $20,000 - $15,700 = $4,300.
The surrender charge is calculated to be $323.66 (7% of $4,624).
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The total amount we will deduct from your annuity value for the surrender
will be $20,323.66 which includes the surrender charge. You will receive
$20,000.
2. SYSTEMATIC PARTIAL SURRENDERS. During any Contract year, you may make a
systematic partial surrender on a monthly, quarterly, semi-annual or annual
basis without a surrender charge. Systematic partial surrenders must be at
least $50. The amount of the systematic partial surrender may not exceed 10% of
the annuity value at the time the surrender is made, divided by the number of
surrenders made per calendar year. We reserve the right to discontinue
systematic partial surrenders if any surrender would reduce your annuity value
below $5,000.
You may elect to begin or discontinue systematic partial surrenders at any
time. However, we must receive written notice at least 30 days prior to the
date systematic partial surrenders are to be discontinued. (See Systematic
Partial Surrenders on p. 39.)
NURSING CARE FACILITY WAIVER. If your Contract contains a nursing care
facility waiver endorsement, we will waive the surrender charge, provided:
o you (or any joint owner) have been confined to a nursing care
facility for 30 consecutive days or longer;
o your confinement began after the Contract date; and
o you provide us with satisfactory written evidence of your confinement,
including dates, at the time you make each request for partial
surrender or complete surrender.
We will waive the surrender charge under the endorsement only for partial
and complete surrenders made during your confinement or within two months after
your confinement ends. This endorsement is not available in all states.
TERMINAL CONDITION WAIVER. If your Contract contains a terminal condition
waiver endorsement, we will waive the surrender charge upon a complete or
partial surrender, provided:
o you (or any joint owner) provide a written statement acceptable to us
and signed by a physician;
o the written statement provides the physician's diagnosis and
prognosis of your (or any joint owner's) non-correctable medical
condition; and
o the written statement says with reasonable medical certainty that the
non-correctable medical condition will result in death within 12 months
from the date of the written statement, taking into consideration
ordinary and reasonable medical care, advice and treatment available in
the same or similar communities.
We will waive all surrender charges upon receipt of a complete or partial
surrender request if you include such a written statement from a physician with
your request. The
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minimum amount that you may partially surrender under this endorsement is
$1,000. If you request a complete surrender, or a partial surrender for an
amount that reduces the annuity value below the minimum balance required under
your Contract, we will pay you the Contract's complete annuity value and your
Contract will terminate.
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 fund prospectus and in the Annuity Contract Fee Table section of this
prospectus.
REDUCED OR WAIVED CHARGES AND EXPENSES TO EMPLOYEES
We may reduce or waive the surrender 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 nonqualified (discussed below).
You will not be taxed on increases in the value of your Contract until a
distribution occurs - either as a partial or complete surrender or as annuity
payments.
When a non-natural person (e.g., corporation or certain other entities
other than tax-qualified trusts) owns a nonqualified Contract, the Contract
will generally not be treated as an annuity for tax purposes.
QUALIFIED AND NONQUALIFIED 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.
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If you purchase the Contract as an individual and not under a qualified
Contract, your Contract is referred to as a nonqualified Contract.
Because variable annuity contracts provide tax deferral whether purchased
as a qualified Contract or nonqualified Contract, you should consider whether
the features and benefits unique to variable annuities are appropriate for your
needs when purchasing a qualified Contract.
A qualified Contract may be used in connection with the following plans:
o 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.
o 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.
o CORPORATE PENSION, 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.
o 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.
PARTIAL AND COMPLETE SURRENDERS -- NONQUALIFIED CONTRACTS
If you make a partial surrender from your Contract, the Code treats that
surrender as first coming from earnings and then from your premium payments.
When you make a partial surrender you are taxed on the amount of the surrender
that is earnings. When you make a complete surrender you are generally taxed on
the amount that your surrender proceeds exceeds your premiums paid. Different
rules apply for annuity payments.
The Code also provides that surrendered 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 surrenders will be exempt from the penalty. They
include any amounts:
o paid on or after the taxpayer reaches age 59 1/2;
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o paid after the taxpayer dies;
o paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
o paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
o paid under an immediate annuity; or
o which come from premium payments made prior to August 14, 1982.
MULTIPLE CONTRACTS
All nonqualified, 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 nonqualified
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. A nonqualified 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. We may
modify the Contract to attempt to maintain favorable tax treatment.
PARTIAL SURRENDERS -- QUALIFIED CONTRACTS
The above information describing the taxation of nonqualified 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
partially surrendered 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.
PARTIAL SURRENDERS -- 403(B) CONTRACTS
The Code limits partial surrenders of premium payments from certain 403(b)
Contracts. Partial surrenders generally can only be made when an owner:
o reaches age 59 1/2;
o leaves his/her job;
o dies;
o becomes disabled (as that term is defined in the Code); or
o in the case of hardship. However, in the case of hardship, the owner
can only partially surrender the premium payments and not any earnings.
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PARTIAL AND COMPLETE SURRENDERS
In the case of a partial surrender, systematic partial surrender, 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 premium 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 surrender, systematic partial
surrender, or complete surrender under a nonqualified Contract before the
maturity date, amounts received are first treated as taxable income to the
extent that the annuity value immediately before the partial surrender,
systematic partial surrender, or complete surrender exceeds the "investment in
the contract" at that time. Any additional amount partially surrendered,
applied to a systematic partial surrender or complete surrender is not taxable.
In the event of a partial surrender or systematic partial surrender from, or
complete surrender of, a nonqualified 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 nonqualified Contracts are taxed in the
same manner as partial surrenders 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:
o if distributed in a lump sum, these amounts are taxed in the same
manner as a complete surrender; or
o 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 premium payments, less amounts received which were
not includable in gross income.
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment
option you select, in general, for nonqualified and certain qualified
Contracts, only a portion of the annuity payments you receive will be
includable in your gross income.
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The excludable portion of each annuity payment you receive generally will
be determined as follows:
o 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.
o 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 we permit you to 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 change 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.
7. ACCESS TO YOUR MONEY
PARTIAL AND COMPLETE SURRENDERS
You can have access to the money in your Contract in several ways:
o by making either a partial or complete surrender; or
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o by taking annuity payments.
If you want to surrender your Contract completely, you will receive the
cash value, which equals the annuity value of your Contract, minus:
o any surrender charges;
o any premium taxes;
o any loans;
o the annual Contract charge; and
o the Guaranteed Minimum Income Benefit Rider charge, if applicable.
No partial surrender is permitted if it would reduce the cash value below
$5,000. You may not make partial surrenders from the fixed account unless we
consent. Unless you tell us otherwise, we will take the partial surrender from
each of the investment choices in proportion to the cash value.
Remember that any partial surrender you make will reduce the annuity
value, and might reduce the amount of the death benefit. Under some
circumstances, a partial surrender will reduce the death benefit (and the
minimum annuitization value under the Guaranteed Minimum Income Benefit Rider)
by more than the dollar amount of the partial surrender. See Section 9, Death
Benefit, for more details.
Income taxes, federal tax penalties and certain restrictions may apply to
any partial or complete surrender you make.
We must receive a properly completed surrender request which must contain
your original signature. If you live in a community property state, your spouse
must also sign the surrender request. We will accept fax or telephone requests
for partial surrenders as long as the surrender proceeds are being sent to the
address of record. The maximum 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 or complete 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:
o all requests for partial or complete surrenders over $500,000; or
o where the partial or complete surrender proceeds will be sent to an
address other than the address of record.
All signature guarantees must be made by:
o a national or state bank;
o a member firm of a national stock exchange; or
o any institution that is an eligible guarantor under SEC rules and
regulations.
Notarization is not an acceptable form of signature guarantee.
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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 surrender. 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 partial or
complete surrender, a death benefit, or the death of the owner of a
nonqualified 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:
o the NYSE is closed for other than usual weekends or holidays or trading
on the Exchange is otherwise restricted; or
o an emergency exists as defined by the SEC or the SEC requires that
trading be restricted; or
o 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 or complete surrenders and loan amounts
from the fixed account for up to six months.
SYSTEMATIC PARTIAL SURRENDERS
You can elect to receive regular payments from your Contract by using
systematic partial surrenders. You can partially surrender up to 10% of your
cash value annually (or up to 10% of your initial premium payment if a new
Contract), in equal monthly, quarterly, semi-annual or annual payments of at
least $50. Your initial premium payment, if a new Contract, or your annuity
value, if an existing Contract, must equal at least $25,000. We will not
process a systematic partial surrender if the cash value for the entire
Contract would be reduced below $5,000. No systematic partial surrenders are
permitted from the fixed account without our prior consent.
You may stop systematic partial surrenders at any time. We reserve the
right to discontinue offering systematic partial surrenders 30 days after we
send you written notice. Systematic partial surrenders 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 surrender you receive.
CONTRACT LOANS FOR QUALIFIED CONTRACTS
You can take Contract loans during the accumulation period when the
Contract:
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o is used in connection with a Tax Sheltered Annuity Plan under Section
403(b) of the Code;
o is purchased by a pension, profit-sharing, or other similar plan under
Section 401(a) of the Code (including Section 401(k) plans); and
o has been in force for at least 10 days.
The maximum amount you may borrow against the Contract is the lesser of:
o 50% of the annuity value; or
o $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
accrued interest due on the loan exceed the amount in the loan reserve, we will
withdraw the difference 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 premium 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 exceeds 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 no longer exceeds the cash value. If the excess amount is not paid within
31 days after we mail the notices, the Contract will terminate without value.
You can repay any Contract loan in full:
o while the Contract is in force, and
o 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 balance plus interest from:
o the amount of any death benefit proceeds; or
o the amount we pay upon a partial or complete surrender; or
o the amount we apply on the maturity date to provide annuity payments;
or
o the minimum annuitization value if you selected the Guaranteed Minimum
Income Benefit Rider and elect to annuitize under the Rider.
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:
o in level quarterly or monthly payments over a 5-year period; or
o 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:
o a repayment is not received within 31 days from the original due date;
Then:
o a distribution of all Contract loans and unpaid accrued interest, and
any applicable charges, including any surrender 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
not to 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 charge 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 to one per Contract year.
Contract loans may not be available in all states.
8. PERFORMANCE
We periodically advertise 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 assessed during the accumulation
period under the Contract, including the mortality and expense risk charges,
the administrative charge, the annual
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Contract charge, the Guaranteed Minimum Income Benefit Rider charge and the
surrender 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 will not be reduced by the surrender 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 the 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. The 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 the beneficiary, under certain
circumstances, if you are both the 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:
o you are both the annuitant and the owner of the Contract; and
o 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.
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AFTER THE MATURITY DATE. The death benefit payable, if any, on or after
the maturity date depends on the annuity payment option selected.
If:
o you are not the annuitant; and
o you die on or after the maturity date; and
o the entire interest in the Contract has not been paid to you;
Then:
o 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:
o you are not the annuitant; and
o the annuitant dies prior to the maturity date;
Then:
o you will become the new annuitant and the Contract will continue.
If:
o you are not the annuitant; and
o you die prior to the maturity date;
Then:
o if there is a surviving joint owner, then that person becomes the new
owner. The new owner generally 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 we receive 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 successor owner is named in
a written notice received by us.
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STANDARD 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. If the annuitant dies during
the accumulation period, the standard death benefit will be the greatest of:
o ANNUITY VALUE -- on the death report day;
o RETURN OF PREMIUM -- total premium payments, less partial surrenders;
or
o MONTHLY STEP-UP -- on each Monthiversary before the annuitant's 81st
birthday, a new "stepped-up" death benefit is determined. The
stepped-up death benefit is equal to:
o the highest annuity value on any Monthiversary before the
annuitant's 81st birthday, increased for any premium payments you
have made and decreased for any adjusted partial surrenders we
have paid to you, following the Monthiversary on which the highest
annuity value occurs.
COMPOUNDING MINIMUM DEATH BENEFIT
On the Contract application, you may select the compounding minimum death
benefit to the Contract for an additional charge. This option is not available
to annuitants age 74 or older. You may not select this option after the
Contract has been issued.
This option provides the greater of:
o the standard death benefit; or
o the compounding minimum death benefit. This benefit equals total
premium payments, plus interest at an effective annual rate of 6%
(in most states) from the date of the premium payment to the date of
death, less any adjusted partial surrender(s), including interest on
any partial surrender at the 6% rate from the date of partial surrender
to the date of death. Interest is not credited after the annuitant's
81st birthday. If you select this option, then the mortality and
expense risk charge will increase to 1.25%.
EFFECT OF ADJUSTED PARTIAL SURRENDER ON CERTAIN DEATH BENEFITS
When you request a partial surrender, we will reduce certain death
benefits under the Contract by an "adjusted partial surrender." Adjusted
partial surrenders will reduce:
o the compounding minimum death benefit, if selected; and
o the monthly step-up death benefit.
A partial surrender will reduce the compounding minimum death benefit, if
selected, and the monthly step-up death benefit, by the amount of the partial
surrender times the ratio of:
o the amount of the compounding minimum death benefit (and/or monthly
step-up death benefit) immediately before the partial surrender, to
o the annuity value immediately before the partial surrender.
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We have included a more detailed explanation of this adjustment in the
SAI.
If the compounding minimum death benefit or the monthly step-up death
benefit is greater than the annuity value prior to the partial surrender, the
adjusted partial surrender may be more than the amount of your request. For
this reason, if a death benefit is paid after you have made a partial
surrender, then the total amount paid as the death benefit could be less than
the total premium payments.
Partial surrenders will also be adjusted to reduce certain benefits under
the Guaranteed Minimum Income Benefit Rider. See the SAI for details.
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.
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
45
<PAGE>
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 reserves 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 policies 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.
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 proportion to 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
46
<PAGE>
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 ("AFSG") 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 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.
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 sales commissions in an amount equal to 6% of premium payments.
In addition, broker-dealers may receive trail commissions of 0.90% of the
annuity value in each Contract year, starting with the eighth Contract year,
provided the Contract has an annuity value of $5,000 or more. These commissions
are not deducted from premium payments. Certain production, persistency and
managerial bonuses may also be paid. Alternatively, compensation schedules may
be structured to pay lower compensation amounts on premium payments with trail
commissions starting at an earlier duration. Subject to applicable federal and
state laws and regulations, 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. 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.
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.
The fixed account may not be available in all states. Residents of
Washington and Massachusetts may not direct or transfer any money to the fixed
account.
YEAR 2000 READINESS DISCLOSURE
We have 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 the
date of this prospectus, all of our
47
<PAGE>
mission-critical systems are Year 2000 compliant and ready. The Plan is
continuing as scheduled, 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, we have identified and made available
what we believe are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
Our actions under the Plan are intended to reduce significantly our risk
of a material business interruption based on the Year 2000 issues. Resolving
the Year 2000 computer problem is complex and multifaceted. We cannot know
conclusively whether a response plan is successful until the Year 2000 arrives
(or an earlier date if the systems or equipment address Year 2000 data prior to
the Year 2000). In spite of our 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. See the
fund prospectus for information on its preparation for Year 2000.
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 Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales, advertising and
servicing of individual life insurance and annuity products. Companies must
undergo a rigorous self and independent assessment of their practices to become
a member of IMSA. The IMSA logo in our sales literature shows our ongoing
commitment to these standards.
LEGAL PROCEEDINGS
Western Reserve, like other life insurance companies, is involved in
lawsuits. We are not aware of any class action lawsuits naming us as a
defendant or involving the separate account. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, we believe that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the separate account, AFSG or Western Reserve.
FINANCIAL STATEMENTS
The financial statements of Western Reserve and the separate account are
included in the SAI. The financial statements of the separate account are not
fully representative of the subaccounts listed in this prospectus, as the
subaccounts that deduct a separate account annual expense of 1.65% have not yet
commenced operations.
48
<PAGE>
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 an SAI should be directed to:
Western Reserve Life
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
49
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accumulation unit values and the number of accumulation units
outstanding for each subaccount from the date of inception are shown in the
following tables. The number of accumulation units combines the units
outstanding for three variable annuity contracts issued by Western Reserve
through the subaccount. The subaccounts that deduct a separate account annual
expense of 1.65% have not yet commenced operations. Therefore, there is no
history of accumulation unit values for these subaccounts.
<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 8,326,400
- --------------------------------------------------------------------------------
12/31/94 $10.500 $ 9.493 11,839,096
- --------------------------------------------------------------------------------
12/31/95 $ 9.493 $13.771 14,387,637
- --------------------------------------------------------------------------------
12/31/96 $13.771 $16.019 19,832,582
- --------------------------------------------------------------------------------
12/31/97 $16.019 $18.568 23,272,252
- --------------------------------------------------------------------------------
12/31/98 $18.568 $30.116 27,434,976
- --------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<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 1,524,761
- --------------------------------------------------------------------------------
12/31/94 $11.330 $10.400 1,693,632
- --------------------------------------------------------------------------------
12/31/95 $10.400 $12.613 2,598,178
- --------------------------------------------------------------------------------
12/31/96 $12.613 $12.455 3,055,305
- --------------------------------------------------------------------------------
12/31/97 $12.455 $13.407 4,801,744
- --------------------------------------------------------------------------------
12/31/98 $13.407 $14.452 6,350,826
- --------------------------------------------------------------------------------
</TABLE>
<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 $10.110 869,019
- --------------------------------------------------------------------------------
12/31/94 $10.110 $10.319 2,765,589
- --------------------------------------------------------------------------------
12/31/95 $10.319 $10.728 2,658,931
- --------------------------------------------------------------------------------
12/31/96 $10.728 $11.119 5,253,582
- --------------------------------------------------------------------------------
12/31/97 $11.119 $11.546 5,382,846
- --------------------------------------------------------------------------------
12/31/98 $11.546 $11.989 7,839,228
- --------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
<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 2,212,212
- --------------------------------------------------------------------------------
12/31/94 $13.520 $13.364 7,170,632
- --------------------------------------------------------------------------------
12/31/95 $13.364 $16.217 6,903,573
- --------------------------------------------------------------------------------
12/31/96 $16.217 $20.428 11,159,128
- --------------------------------------------------------------------------------
12/31/97 $20.428 $23.921 15,530,666
- --------------------------------------------------------------------------------
12/31/98 $23.921 $30.669 17,104,721
- --------------------------------------------------------------------------------
</TABLE>
<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 2,059,530
- --------------------------------------------------------------------------------
12/31/94 $12.350 $11.286 5,547,915
- --------------------------------------------------------------------------------
12/31/95 $11.286 $16.337 6,434,051
- --------------------------------------------------------------------------------
12/31/96 $16.337 $19.152 9,376,917
- --------------------------------------------------------------------------------
12/31/97 $19.152 $22.938 11,279,603
- --------------------------------------------------------------------------------
12/31/98 $22.938 $31.063 12,278,821
- --------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<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 2,518,263
- --------------------------------------------------------------------------------
12/31/94 $11.240 $11.027 6,504,999
- --------------------------------------------------------------------------------
12/31/95 $11.027 $13.555 7,498,916
- --------------------------------------------------------------------------------
12/31/96 $13.555 $15.372 12,770,554
- --------------------------------------------------------------------------------
12/31/97 $15.372 $18.471 15,124,297
- --------------------------------------------------------------------------------
12/31/98 $18.471 $19.969 16,461,563
- --------------------------------------------------------------------------------
</TABLE>
<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 1,165,716
- --------------------------------------------------------------------------------
12/31/95 $ 9.782 $13.313 4,538,244
- --------------------------------------------------------------------------------
12/31/96 $13.313 $14.500 6,954,084
- --------------------------------------------------------------------------------
12/31/97 $14.500 $17.766 9,141,315
- --------------------------------------------------------------------------------
12/31/98 $17.766 $26.048 10,807,100
- --------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
<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 $ 9.339 849,727
- --------------------------------------------------------------------------------
12/31/95 $ 9.339 $11.032 1,456,512
- --------------------------------------------------------------------------------
12/31/96 $11.032 $12.045 2,385,500
- --------------------------------------------------------------------------------
12/31/97 $12.045 $13.909 3,156,354
- --------------------------------------------------------------------------------
12/31/98 $13.909 $14.666 4,024,017
- --------------------------------------------------------------------------------
</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 $ 9.453 400,544
- --------------------------------------------------------------------------------
12/31/95 $ 9.453 $11.676 863,789
- --------------------------------------------------------------------------------
12/31/96 $11.676 $12.853 1,553,811
- --------------------------------------------------------------------------------
12/31/97 $12.853 $15.799 2,315,992
- --------------------------------------------------------------------------------
12/31/98 $15.799 $16.055 3,248,069
- --------------------------------------------------------------------------------
</TABLE>
54
<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 6,104,685
- --------------------------------------------------------------------------------
12/31/96 $11.843 $13.363 9,397,631
- --------------------------------------------------------------------------------
12/31/97 $13.363 $15.363 12,633,177
- --------------------------------------------------------------------------------
12/31/98 $15.363 $16.411 14,496,370
- --------------------------------------------------------------------------------
</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 2,118,820
- --------------------------------------------------------------------------------
12/31/97 $11.213 $13.827 7,035,132
- --------------------------------------------------------------------------------
12/31/98 $13.827 $12.983 7,102,945
- --------------------------------------------------------------------------------
</TABLE>
<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 1,164,233
- --------------------------------------------------------------------------------
12/31/97 $10.773 $12.220 2,618,284
- --------------------------------------------------------------------------------
12/31/98 $12.220 $12.348 3,043,446
- --------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<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 1,050,984
- --------------------------------------------------------------------------------
12/31/98 $10.601 $11.797 1,642,437
- --------------------------------------------------------------------------------
</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 2,141,414
- --------------------------------------------------------------------------------
12/31/98 $12.526 $15.177 4,840,127
- --------------------------------------------------------------------------------
</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 1,025,234
- --------------------------------------------------------------------------------
</TABLE>
56
<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 $8.427 157,193
- --------------------------------------------------------------------------------
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
- --------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations of these subaccounts.
Because the WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T.
Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap subaccounts did not
commence operations until May 3, 1999, there is no condensed financial
information for these subaccounts for the year ended December 31, 1998.
57
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STANDARDIZED PERFORMANCE DATA
We 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%, assuming no
surrender and selection of the standard death benefit without the Guaranteed
Minimum Income Benefit Rider.
OTHER SUBACCOUNTS. The yield of a subaccount of the separate account,
other than the WRL J.P. Morgan Money Market subaccount, refers to the
annualized income generated by an investment under a Contract 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 $10,000 in the subaccount as of the
last day of each period.
The yield and total return calculations for a subaccount 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
1.00% for the mortality and expense risk charge, 0.40% for the administrative
charge, $30 for the annual Contract charge and the applicable surrender charge
(based on an annuity value of $10,000, the annual Contract charge translates
into a charge of 0.30%). Total returns shown in Table 2 reflect the standard
total
58
<PAGE>
returns of Table 1, adjusted to reflect 1.25% for the mortality and expense
risk charge (assuming addition of the compounding minimum death benefit), 0.40%
for the administrative charge, 0.30% for the Guaranteed Minimum Income Benefit
Rider, and $30 for the annual Contract charge. The Guaranteed Minimum Income
Benefit Rider charge has been calculated assuming a Rider charge of 0.30% of
minimum annuitization value ("MAV") and assuming an MAV annual growth rate of
6%. Total returns also assume a complete surrender of the Contract at the end
of the period; therefore, the surrender charge is deducted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TABLE 1
STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT SELECTION OF ANNUAL EXPENSES: 1.40%)
- ------------------------------------------------------------------------------------------------------
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 54.89% 22.99% 19.63% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL Janus Global 20.91% 17.23% 19.99% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Bond 0.50% 4.06% 5.78% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Balanced -1.85% N/A 7.39% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 39.32% N/A 21.34% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 28.12% 19.72% 21.10% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 0.81% 11.47% 12.11% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL Federated Growth & Income -5.68% N/A 9.49% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market* -3.47% 2.49% 2.48% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -22.93% N/A -22.93% 05/01/98
- ------------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -15.43% N/A -15.43% 01/02/98
- ------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -13.40% N/A 8.07% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation -0.48% N/A 12.13% 01/03/95
- ------------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth -6.25% N/A 5.95% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 3.98% N/A 5.07% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 13.86% N/A 20.13% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
</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.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
59
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TABLE 2
STANDARD AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ------------------------------------------------------------------------------------------------------
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 54.19% 22.52% 19.18% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL Janus Global 20.29% 16.74% 19.55% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Bond -0.07% 3.49% 5.24% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Balanced -2.42% N/A 6.84% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 38.66% N/A 20.86% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 27.49% 19.25% 20.65% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 0.25% 10.96% 11.61% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL Federated Growth & Income -6.23% N/A 8.96% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market* -4.03% 1.91% 1.90% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -23.44% N/A -23.44% 05/01/98
- ------------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -15.96% N/A -15.96% 01/02/98
- ------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -13.94% N/A 7.47% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation -1.05% N/A 11.60% 01/03/95
- ------------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth -6.80% N/A 5.34% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 3.40% N/A 4.51% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 13.26% N/A 19.61% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
</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.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
60
<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 advertise or 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 surrenders 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 non-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 3 below. Total returns shown reflect deductions of
1.00% for the mortality and expense risk charge, 0.40% for the administrative
charge and $30 for the annual Contract charge (based on an annuity value of
$10,000, the annual Contract charge translates into a charge of 0.30%). Total
returns shown in Table 4 reflect the non-standard total returns of Table 3
adjusted to deduct 1.25% for the mortality and expense risk charge (assuming
addition of the compounding minimum death benefit), 0.40% for the
administrative charge, 0.30% for the Guaranteed Minimum Income Benefit Rider,
and $30 for the annual Contract charge. The Guaranteed Minimum Income Benefit
Rider charge has been calculated assuming a Rider charge of 0.30% of MAV and
assuming an MAV annual growth rate of 6%. Total returns also assume that the
Contract is not surrendered and therefore the surrender charge is not deducted.
61
<PAGE>
The non-standardized average annual total return figures shown in Tables 3
and 4 are based on the assumption that the Contract is not surrendered, and
therefore the surrender charge is not imposed.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TABLE 3
NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ------------------------------------------------------------------------------------------------------
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 61.89% 23.33% 19.76% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL Janus Global 27.91% 17.65% 20.12% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Bond 7.50% 4.73% 6.02% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Balanced 5.15% N/A 8.01% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 46.32% N/A 21.73% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 35.12% 20.11% 21.30% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 7.81% 11.99% 12.40% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL Federated Growth & Income 1.32% N/A 10.07% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market* 3.53% 3.20% 2.77% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -15.93% N/A -15.93% 05/01/98
- ------------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -8.43% N/A -8.43% 01/02/98
- ------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -6.40% N/A 10.02% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation 6.52% N/A 13.01% 01/03/95
- ------------------------------------------------------------------------------------------------------
WRL C.A.S.E Growth 0.75% N/A 7.96% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 10.98% N/A 8.36% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 20.86% N/A 23.02% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
</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.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
62
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TABLE 4
NON-STANDARD AVERAGE TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ------------------------------------------------------------------------------------------------------
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 61.17% 22.87% 19.32% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL Janus Global 27.27% 17.17% 19.68% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Bond 6.91% 4.17% 5.49% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL AEGON Balanced 4.57% N/A 7.47% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 45.64% N/A 21.25% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 34.47% 19.63% 20.85% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 7.23% 11.48% 11.91% 03/01/93
- ------------------------------------------------------------------------------------------------------
WRL Federated Growth & Income 0.75% N/A 9.54% 03/01/94
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market* 2.95% 2.63% 2.19% 12/03/92
- ------------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -16.46% N/A -16.46% 05/01/98
- ------------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -8.97% N/A -8.97% 01/02/98
- ------------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -6.95% N/A 9.42% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation 5.94% N/A 12.49% 01/03/95
- ------------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth 0.18% N/A 7.35% 05/01/96
- ------------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 10.39% N/A 7.81% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 20.25% N/A 22.50% 01/02/97
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ------------------------------------------------------------------------------------------------------
</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.
*** Refers to the inception date of the subaccount with separate account annual
expenses of 1.40%.
63
<PAGE>
ADJUSTED HISTORICAL PERFORMANCE DATA. We may disclose historic performance
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, 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 5 and Table 6 below, we may disclose average annual
total returns for the portfolios reduced by all charges under the Contract, as
if the Contract had been in existence since the inception of the portfolio. In
Table 5, such fees and charges include the 1.00% mortality and expense risk
charge, the administrative charge of 0.40% and the annual Contract charge of
$30. Total returns shown in Table 6 reflect deductions of 1.25% for the
mortality and expense risk charge (assuming addition of the compounding minimum
death benefit), 0.40% for the administrative charge, 0.30% for the Guaranteed
Minimum Income Benefit Rider and $30 for the annual Contract charge (based on
an annuity value of $10,000, the annual Contract charge translates into a
charge of 0.30%). The Guaranteed Minimum Income Benefit Rider charge has been
calculated assuming a Rider charge of 0.30% of MAV and assuming an MAV annual
growth rate of 6%. Tables 5 and 6 assume a complete surrender of the Contract
at the end of the period, and therefore the surrender charge is deducted.
Tables 7 and 8 assumes that the Contract is not surrendered, and therefore the
surrender charge is not deducted.
64
<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 12/31/98 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 5
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ----------------------------------------------------------------------------------------------------
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth*/dagger/ 54.89% 22.99% 20.85% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL Janus Global 20.91% 17.23% 19.99% 12/03/92
- ----------------------------------------------------------------------------------------------------
WRL AEGON Bond*/dagger/ 0.50% 4.06% 7.47% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL AEGON Balanced -1.85% N/A 7.39% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 39.32% N/A 21.34% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 28.12% 19.72% 21.10% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 0.81% 11.47% 12.11% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL Federated Growth & Income -5.68% N/A 9.49% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market*/dagger/ -3.47% 2.49% 3.34% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -22.93% N/A -22.93% 05/01/98
- ----------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -15.43% N/A -15.43% 01/02/98
- ----------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -13.40% N/A 8.07% 05/01/96
- ----------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation -0.48% N/A 12.13% 01/03/95
- ----------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth* -6.25% N/A 12.25% 05/01/95
- ----------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 3.98% N/A 5.07% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 13.86% N/A 20.13% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
</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.
/dagger/ Ten Year Date.
65
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 6
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ----------------------------------------------------------------------------------------------------
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth*/dagger/ 54.19% 22.52% 20.47% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL Janus Global 20.29% 16.74% 19.55% 12/03/92
- ----------------------------------------------------------------------------------------------------
WRL AEGON Bond*/dagger/ -0.07% 3.49% 7.01% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL AEGON Balanced -2.42% N/A 6.84% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 38.66% N/A 20.86% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 27.49% 19.25% 20.65% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 0.25% 10.96% 11.61% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL Federated Growth & Income -6.23% N/A 8.96% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market*/dagger/ -4.03% 1.91% 2.81% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -23.44% N/A -23.44% 05/01/98
- ----------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -15.96% N/A -15.96% 01/02/98
- ----------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -13.94% N/A 7.47% 05/01/96
- ----------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation -1.05% N/A 11.60% 01/03/95
- ----------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth* -6.80% N/A 11.77% 05/01/95
- ----------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 3.40% N/A 4.51% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 13.26% N/A 19.61% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
</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.
/dagger/ Ten Year Date.
66
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 7
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ----------------------------------------------------------------------------------------------------
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth*/dagger/ 61.89% 23.33% 20.85% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL Janus Global 27.91% 17.65% 20.12% 12/03/92
- ----------------------------------------------------------------------------------------------------
WRL AEGON Bond*/dagger/ 7.50% 4.73% 7.47% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL AEGON Balanced 5.15% N/A 8.01% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 46.32% N/A 21.73% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 35.12% 20.11% 21.30% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 7.81% 11.99% 12.40% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL Federated Growth & Income 1.32% N/A 10.07% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market*/dagger/ 3.53% 3.20% 3.34% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -15.93% N/A -15.93% 05/01/98
- ----------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -8.43% N/A -8.43% 01/02/98
- ----------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -6.40% N/A 10.02% 05/01/96
- ----------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation 6.52% N/A 13.01% 01/03/95
- ----------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth* 0.75% N/A 13.19% 05/01/95
- ----------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 10.98% N/A 8.36% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 20.86% N/A 23.02% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
</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.
/dagger/ Ten Year Date.
67
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TABLE 8
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ----------------------------------------------------------------------------------------------------
CORRESPONDING
10 YEARS PORTFOLIO
PORTFOLIO 1 YEAR 5 YEARS OR INCEPTION INCEPTION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WRL Janus Growth*/dagger/ 61.17% 22.87% 20.47% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL Janus Global 27.27% 17.17% 19.68% 12/03/92
- ----------------------------------------------------------------------------------------------------
WRL AEGON Bond*/dagger/ 6.91% 4.17% 7.01% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL AEGON Balanced 4.57% N/A 7.47% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL Alger Aggressive Growth 45.64% N/A 21.25% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL VKAM Emerging Growth 34.47% 19.63% 20.85% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL LKCM Strategic Total Return 7.23% 11.48% 11.91% 03/01/93
- ----------------------------------------------------------------------------------------------------
WRL Federated Growth & Income 0.75% N/A 9.54% 03/01/94
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Money Market*/dagger/ 2.95% 2.63% 2.81% 10/02/86
- ----------------------------------------------------------------------------------------------------
WRL J.P. Morgan Real Estate Securities** -16.46% N/A -16.46% 05/01/98
- ----------------------------------------------------------------------------------------------------
WRL Third Avenue Value** -8.97% N/A -8.97% 01/02/98
- ----------------------------------------------------------------------------------------------------
WRL NWQ Value Equity -6.95% N/A 9.42% 05/01/96
- ----------------------------------------------------------------------------------------------------
WRL Dean Asset Allocation 5.94% N/A 12.49% 01/03/95
- ----------------------------------------------------------------------------------------------------
WRL C.A.S.E. Growth* 0.18% N/A 12.71% 05/01/95
- ----------------------------------------------------------------------------------------------------
WRL GE/Scottish Equitable International Equity 10.39% N/A 7.81% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL GE U.S. Equity 20.25% N/A 22.50% 01/02/97
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Goldman Sachs Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Dividend Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL T. Rowe Price Small Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Salomon All Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Pilgrim Baxter Mid Cap Growth N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
WRL Dreyfus Mid Cap N/A N/A N/A 05/03/99
- ----------------------------------------------------------------------------------------------------
</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.
/dagger/ Ten Year Date.
68
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM PREMIER(SM)
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 Premier(SM) Variable Annuity offered by
Western Reserve Life Assurance Co. of Ohio. You may obtain a copy of the
prospectus dated October ____, 1999, by calling 1-800-851-9777, or by writing to
the administrative office, Western Reserve Life, Annuity Department, P.O. Box
9051, Clearwater, Florida 33758-9051. 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 ("SAI") IS NOT A PROSPECTUS AND SHOULD
BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT AND THE WRL
SERIES ANNUITY ACCOUNT.
DATED: OCTOBER ___, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS............................................... 1
THE CONTRACT--GENERAL PROVISIONS........................................... 2
Owner................................................................. 2
Entire Contract....................................................... 2
Misstatement of Age or Gender......................................... 2
Addition, Deletion or Substitution of Investments..................... 2
Annuity Payment Options............................................... 3
Death Benefit......................................................... 3
Assignment............................................................ 6
Proof of Age, Gender and Survival..................................... 6
Non Participating..................................................... 6
Employee and Agent Purchases.......................................... 6
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 6
Tax Status of the Contract............................................ 6
Taxation of Western Reserve........................................... 9
INVESTMENT EXPERIENCE...................................................... 9
Accumulation Units.................................................... 9
Accumulation Unit Value............................................... 9
Annuity Unit Value and Annuity Payment Rates.......................... 9
Guaranteed Minimum Income Benefit Rider -
Hypothetical Illustrations......................................... 11
HISTORICAL PERFORMANCE DATA ............................................... 12
Money Market Yields................................................... 12
Other Subaccount Yields............................................... 13
Total Returns......................................................... 13
Other Performance Data................................................ 14
Advertising and Sales Literature...................................... 14
PUBLISHED RATINGS.......................................................... 14
ADMINISTRATION............................................................. 15
RECORDS AND REPORTS........................................................ 15
DISTRIBUTION OF THE CONTRACTS.............................................. 15
OTHER PRODUCTS............................................................. 15
CUSTODY OF ASSETS.......................................................... 15
LEGAL MATTERS.............................................................. 15
INDEPENDENT ACCOUNTANTS.................................................... 15
OTHER INFORMATION.......................................................... 16
FINANCIAL STATEMENTS....................................................... 16
<PAGE>
DEFINITIONS OF SPECIAL TERMS
- --------------------------------------------------------------------------------
accumulation period The period between the Contract date and the
maturity date while the Contract is in force.
- --------------------------------------------------------------------------------
accumulation unit value An accounting unit of measure used to
calculate subaccount values during 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 value An accounting unit of measure used to
calculate annuity payments from the
subaccounts after the maturity date.
- --------------------------------------------------------------------------------
age The issue age is the annuitant's age on
his/her birthday immediately preceding the
Contract date. Attained age is the issue age
plus the number of completed Contract years.
When we use the term "age" in this SAI, it
has the same meaning as "attained age" in the
Contract.
- --------------------------------------------------------------------------------
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 surrender charge.
- --------------------------------------------------------------------------------
Code The Internal Revenue Code of 1986, as
amended.
- --------------------------------------------------------------------------------
Contract date The later of the date on which the initial
premium payment is received and the date that
the properly completed application is
received at Western Reserve's administrative
office. It is also the date when, depending
on your state of residence, we allocate your
premium payment(s) either to the reallocation
account or to the fixed account and the
subaccounts you selected on your application.
We measure Monthiversaries, Contract years
and Contract anniversaries from the Contract
date.
- --------------------------------------------------------------------------------
death report day The valuation date on which we receive proof
of annuitant's death and your beneficiary's
election regarding payment.
- --------------------------------------------------------------------------------
fixed account An allocation option under the Contract,
other than the separate account, that
provides for accumulation of premium
payments, and options for annuity payments on
a fixed basis. The fixed account may not be
available in all states.
- --------------------------------------------------------------------------------
fixed account value During the accumulation period, a Contract's
value allocated to the fixed account.
- --------------------------------------------------------------------------------
fund 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.
- --------------------------------------------------------------------------------
Monthiversary The same day in the month as the Contract
date. When there is no date in a calendar
month that coincides with the Contract date,
the Monthiversary is the first day of the
next month.
- --------------------------------------------------------------------------------
NYSE New York Stock Exchange.
- --------------------------------------------------------------------------------
nonqualified Contracts Contracts issued other than in connection
with retirement plans.
- --------------------------------------------------------------------------------
owner (you, your) The person(s) entitled to exercise all rights
under the Contract. The annuitant 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.
- --------------------------------------------------------------------------------
premium payments Amounts paid by an owner or on the owner's
behalf to Western Reserve as consideration
for the benefits provided by the Contract.
When we use the term "premium payment" in
this SAI, it has the same meaning as "net
premium payment" in the Contract, which means
the premium payment less any applicable
premium taxes.
- --------------------------------------------------------------------------------
qualified Contracts Contracts issued in connection with
retirement plans that qualify for special
federal income tax treatment under the Code.
- --------------------------------------------------------------------------------
reallocation account The WRL J.P. Morgan Money Market subaccount.
- --------------------------------------------------------------------------------
reallocation date The date shown on the schedule page of your
Contract when we reallocate all annuity value
held in the reallocation account to the fixed
account and subaccounts you selected. We
place your premium in the reallocation
account only if your state requires us to
return the full premium in the event you
exercise your right to cancel. In all other
states, the reallocation date is the Contract
date.
- --------------------------------------------------------------------------------
separate account WRL Series Annuity Account, a separate
account composed of subaccounts established
to receive and invest premium payments not
allocated to the fixed account.
- --------------------------------------------------------------------------------
separate account value During the accumulation period, a Contract's
value in the separate account, which equals
the total value in each subaccount.
- --------------------------------------------------------------------------------
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 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 NYSE is open for
trading, except when a subaccount's
corresponding portfolio does not value its
shares. Western Reserve is open for business
on each day that the NYSE is open.
- --------------------------------------------------------------------------------
valuation period The period of time over which we determine
the change in the value of the subaccounts in
order to price accumulation units and annuity
units. Each valuation period begins at the
close of normal trading on the NYSE
(currently 4:00 p.m. Eastern time on each
valuation date) and ends at the close of
normal trading of the NYSE on the next
valuation date.
- --------------------------------------------------------------------------------
1
<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 premium 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 joint owner can be named in the Contract application or in a written notice.
The surviving joint owner will become the new owner upon the other joint owner's
death, if one joint owner dies before the annuitant. If the surviving joint
owner dies before the annuitant, the surviving joint owner's estate will become
the owner.
NOTE CAREFULLY. If the surviving joint owner's estate becomes the new owner, and
if no probate estate is opened because the surviving joint owner has precluded
the opening of a probate estate by means of a trust or other instrument, unless
Western Reserve has received written notice of the trust as a successor owner
signed prior to the surviving joint 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 the necessary written
notice has not been received by Western Reserve.
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, 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 cancels any prior choice of 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 premium payments would have
purchased for the correct age or gender. The dollar amount of any underpayment
Western Reserve makes shall be paid in full with the next payment due such
person or the beneficiary. The dollar amount of any overpayment made by Western
Reserve 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 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 shares attributable to an owner's interest in a
subaccount without notice to, and prior approval of, the Securities and Exchange
Commission (the "SEC") 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,
investment or other 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, investment or other conditions warrant.
2
<PAGE>
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 us to be in the best interests
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 the 1940 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 change is filed with and approved by the
appropriate insurance official of the state of Western Reserve's domicile, or
deemed approved in accordance with such law or regulation.
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 as Variable Life Income with 10 years of guaranteed payments.
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 $20 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:
MATURITY DATE ADJUSTED AGE
------------- ------------
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
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. 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
ADJUSTED PARTIAL SURRENDER. A partial surrender will reduce the amount of your
monthly step-up death benefit or compounding minimum death benefit, if selected,
by an amount called the adjusted partial surrender. The reduction depends on the
relationship between the monthly step-up death benefit (or compounding minimum
death benefit), and annuity value. The adjusted partial surrender is the amount
of a partial surrender times the ratio of [(a) divided by (b)] where:
(a) is the amount of either death benefit prior to the excess partial surrender;
and
(b) is the annuity value prior to the excess partial surrender.
THE FOLLOWING EXAMPLES DESCRIBE THE EFFECT OF SURRENDER ON THE MONTHLY STEP-UP
DEATH BENEFIT OR COMPOUNDING MINIMUM DEATH BENEFIT, AND ANNUITY VALUE.
3
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE 1
(Assumed Facts for Example)
- --------------------------------------------------------------------------------
$75,000 current monthly step-up death benefit (MSUDB) or compounding
minimum death benefit (CMDB) before surrender
- --------------------------------------------------------------------------------
$50,000 current annuity value before surrender
- --------------------------------------------------------------------------------
$75,000 current death benefit (larger of annuity value and MSUDB or
CMDB)
- --------------------------------------------------------------------------------
6% current surrender charge percentage
- --------------------------------------------------------------------------------
$15,000 requested partial surrender
- --------------------------------------------------------------------------------
$10,000 surrender charge-free amount
- --------------------------------------------------------------------------------
$5,000 excess partial surrender-EPS (amount subject to surrender
charge)
- --------------------------------------------------------------------------------
$319.15 surrender charge on EPS = 0.06*(5,319.15)
- --------------------------------------------------------------------------------
$5,319.15 reduction in annuity value due to excess partial surrender =
5000 + 319.15
- --------------------------------------------------------------------------------
$22,500 adjusted partial surrender = $15,000* (75,000/50,000)
- --------------------------------------------------------------------------------
$52,500 new MSUDB or CMDB (after partial surrender) =
75,000 - 22,500
- --------------------------------------------------------------------------------
$34,680.85 new annuity value (after partial surrender) =
50,000 - 15,319.15
- --------------------------------------------------------------------------------
SUMMARY:
Reduction in MSUDB or CMDB = $22,500.00
Reduction in annuity value = $15,319.15
NOTE: The MSUDB or CMDB is reduced more than the annuity value since the MSUDB
or CMDB was greater than the annuity value just prior to the partial surrender.
- --------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
- --------------------------------------------------------------------------------
$50,000 current monthly step-up death benefit (MSUDB) or compounding
minimum death benefit (CMDB) before surrender
- --------------------------------------------------------------------------------
$75,000 current annuity value before partial surrender
- --------------------------------------------------------------------------------
$75,000 current death benefit (larger of annuity value and MSUDB or
CMDB)
- --------------------------------------------------------------------------------
6% current surrender charge percentage
- --------------------------------------------------------------------------------
$15,000 requested partial surrender
- --------------------------------------------------------------------------------
$11,250 surrender charge-free amount
- --------------------------------------------------------------------------------
$3,750 excess partial surrender-EPS (amount subject to surrender
charge)
- --------------------------------------------------------------------------------
$239.36 surrender charge on EPS less EIA = 0.06* (3,989.36)
- --------------------------------------------------------------------------------
$3,989.36 reduction in annuity value due to EPS = 3750 + 239.36
- --------------------------------------------------------------------------------
$15,000 adjusted partial surrender = $15,000* (75,000/75,000)
- --------------------------------------------------------------------------------
$35,000 new MSUDB or CMDB (after partial surrender) = 50,000 -15,000
- --------------------------------------------------------------------------------
$59,760.64 new annuity value (after partial surrender) =
75,000 -11,250 - 3,989.36
- --------------------------------------------------------------------------------
SUMMARY:
Reduction in MSUDB or CMDB = $15,000.00
Reduction in annuity value = $15,239.36
NOTE: The MSUDB or CMDB and annuity value are reduced by the same amount since
the annuity value was higher than the MSUDB or CMDB just prior to the partial
surrender.
4
<PAGE>
DEATH OF OWNER. Federal tax law requires that if any owner (including any
surviving joint 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) the 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 owner (or a surviving joint owner) is not the annuitant and dies before
the annuitant:
o if no beneficiary is named and alive, the owner's estate will become the
new owner. The cash value must be distributed within five years of the
former owner's death;
o if the beneficiary is alive and is the owner's spouse, the Contract will
continue with the spouse as the new owner; or
o if the beneficiary is alive and is not the owner's spouse, the beneficiary
will become the new owner. The cash value must be distributed either:
o within five years of the former owner's death; or
o over the lifetime of the new owner, if a natural person, with payments
beginning within one year of the former owner's death; or
o over a period that does not exceed the life expectancy (as defined by
the Code and regulations adopted under the Code) of the new owner, if
a natural person, with payments beginning within one year of the
former owner's death.
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 dies during the accumulation period and the owner is a natural
person other than the annuitant, the owner will automatically become the
annuitant and this Contract will continue. In the event of joint owners, the
younger joint owner will automatically become the new annuitant and this
Contract will continue. If the annuitant dies during the accumulation period and
the owner is either (1) the same individual as the annuitant; or (2) other than
a natural person, then the death benefit proceeds are payable to the
beneficiary. However, in the event of joint owners, if the annuitant dies during
the accumulation period and is the same individual as one of the joint owners,
the surviving joint owner will automatically become the annuitant and this
Contract will continue.
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 annuitant/deceased owner's death, or (2) payments must begin
no later than one year after the annuitant/deceased 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 annuitant/deceased owner's
death. If the sole beneficiary is the annuitant/deceased 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 on page 6.)
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 surrender
during the five-year period. That surrender must be made at the time option (1)
is elected. No surrender charges will apply to this surrender; (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 surrender 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 payments to the beneficiary's estate. The beneficiary
is not permitted to name his or her own beneficiary.
If there are joint owners, the annuitant is not the owner, and the one joint
owner dies prior to the maturity date, the surviving joint owner may surrender
the Contract at any time for the amount of the adjusted annuity value.
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 us. 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.
5
<PAGE>
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 nonqualified 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 us. An assignment will be
effective as of the date accepted by us. 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 be permitted
under the terms of the underlying retirement plan.
PROOF OF AGE, GENDER AND SURVIVAL
We 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, we 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.
NON-PARTICIPATING
The Contract will not share in Western Reserve's surplus earnings; no dividends
will be paid.
EMPLOYEE AND AGENT PURCHASES
The Contract may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the Contract or by their spouse or minor
children, or by an officer, director, trustee or bona fide full-time employee of
Western Reserve or its affiliated companies or their spouse or minor children.
In such a case, we may credit an amount equal to a percentage of each premium
payment to the Contract due to lower acquisition costs we experience on those
purchases. The credit will be reported to the Internal Revenue Service ("IRS")
as taxable income to the employee or registered representative. We may offer, in
our discretion, certain employer sponsored savings plans, reduced or waived fees
and charges including, but not limited to, the surrender charge and the annual
Contract charge, for certain sales under circumstances which may result in
savings of certain costs and expenses. In addition, there may be other
circumstances of which we are not presently aware which could result in reduced
sales or distribution expenses. Credits to the Contract or reductions in these
fees and charges will not be unfairly discriminatory against any owner.
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. (ss.) 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 nonqualified contracts
as well as qualified contracts.
6
<PAGE>
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 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 contract 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 premiums 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, we do 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 nonqualified 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 the 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.
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 us. 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 our Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contract comply with
applicable law.
For qualified plans under sections 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), 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.
We make 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.
7
<PAGE>
INDIVIDUAL RETIREMENT ANNUITIES. In order to qualify as a traditional individual
retirement annuity ("IRA") 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 premium 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 under sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3)
of the Code; (iv) annuity payments or partial surrenders 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 IRAs 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 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 premiums 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 benefit that in some cases may
exceed the greater of the premium 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 premium 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.
8
<PAGE>
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 us and,
accordingly, will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. We do 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 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 us with respect to the separate
account, we may make a charge to the separate account.
INVESTMENT EXPERIENCE
ACCUMULATION UNITS
Allocations of a premium 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 premium
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, premium
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 premium 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 surrenders; 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, any Guaranteed Minimum Income Benefit Rider charge and any transfer
charge.
The value of an accumulation unit was arbitrarily established at $10.00 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 NYSE, on
each day the NYSE is open.
ACCUMULATION UNIT VALUE
The accumulation unit value will vary from one valuation period to the next
depending on the investment returns 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 and
the administrative 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.
During the accumulation period, the mortality and expense risk charge is
deducted at an annual rate of 1.00% of net assets for each day in the valuation
period (1.25% if the compounding minimum death benefit is added) and compensates
us for certain mortality and expense risks. The administrative charge is
deducted at an annual rate of 0.40% of net assets for each day in the valuation
period and compensates us for certain administrative expenses. 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 discussion in this section assumes the Guaranteed Minimum Income Benefit
Rider (the "Rider") is not included in the Contract.
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
9
<PAGE>
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.
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
we determine 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 separate account annuitization 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 maturity date. The Contract also
contains a table for determining the adjusted age of the annuitant.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = ABC
<TABLE>
<S> <C> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume.............................................................................. = $ X
B = Net investment experience 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: $ XYZ = $Q
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
10
<PAGE>
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 = $XY = $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
GUARANTEED MINIMUM INCOME BENEFIT RIDER- HYPOTHETICAL ILLUSTRATIONS
This discussion assumes the Rider is included in the Contract.
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the Rider for a $100,000 premium when annuity payments do not
begin until the Contract anniversary indicated in the left-hand column. These
figures assume that there were no subsequent premium payments or partial
surrenders, that there were no premium taxes and that the $100,000 premium is
annuitized under the Rider. Six different annuity payment options are
illustrated: a male annuitant, a female annuitant and a joint and survivor
annuity, each on a life only and a life with 10-year certain basis. These
hypothetical illustrations assume that the annuitant is (or both annuitants are)
60 years old when the Contract is issued, that the annual growth rate is 6.0%
(once established, an annual growth rate will not change during the life of the
Rider), and that there was no upgrade of the minimum annuitization value. The
figures below are based on an assumed investment return of 3%. Subsequent
payments will never be less than the amount of the first payment (although
subsequent payments will be calculated using a 5% assumed investment return and
a 2.50% daily separate account annuitization charge, provided no upgrade in
minimum annuitization value has occurred).
Illustrations of guaranteed minimum monthly payments based on other assumptions
will be provided upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
RIDER ANNIVERSARY AT
EXERCISE DATE MALE FEMALE JOINT & SURVIVOR
- -------------------------------------------------------------------------------------------------------------------------------
LIFE ONLY LIFE 10 LIFE ONLY LIFE 10 LIFE ONLY LIFE 10
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $ 1,135 $ 1,067 $ 976 $ 949 $ 854 $ 852
- -------------------------------------------------------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- ------------------------------------------------------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
- -------------------------------------------------------------------------------------------------------------------------------
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain
</TABLE>
These hypothetical illustrations should not be deemed representative of past or
future performance of any underlying variable investment option.
Partial surrenders will affect the minimum annuitization value as follows: Each
Contract year, partial surrenders up to the limit of the minimum annuitization
value on the last Contract anniversary multiplied by the annual growth rate
reduce the minimum annuitization value on a dollar-for-dollar basis. Partial
surrenders over this limit will reduce the minimum annuitization value by an
amount equal to the excess partial surrender amount multiplied by the ratio of
the minimum annuitization value immediately prior to the excess partial
surrender to the annuity value immediately prior to the excess partial
surrender.
The amount of the first payment provided by the Rider will be determined by
multiplying each $1,000 of minimum annuitization value by the applicable annuity
factor shown on Schedule I of the Rider. The applicable annuity factor depends
upon the annuitant's (and joint annuitant's, if any) gender (or without regard
to gender if required by law), age, and the Rider payment option selected and is
based on a
11
<PAGE>
guaranteed interest rate of 3% and the "1983 Table A" mortality table improved
to the year 2000 with projection Scale G. Subsequent payments will be calculated
as described in the Rider using a 5% assumed investment return. Subsequent
payments may fluctuate annually in accordance with the investment performance of
the subaccounts. However, subsequent payments are guaranteed to never be less
than the initial payment.
The scheduled payment on each subsequent Contract anniversary after
annuitization using the Rider will equal the greater of the initial payment or
the payment supportable by the annuity units in the selected subaccounts. The
supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a Contract year is
greater than the scheduled payment for that Contract year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a Contract year is less than the scheduled
payment for that Contract year, then there will be a reduction in the number of
annuity units credited to the Contract to fund the deficiency. In the case of a
reduction, you will not participate as fully in the future investment
performance of the subaccounts you selected since fewer annuity units are
credited to your Contract. Purchases and reductions of annuity units will be
allocated to each subaccount on a proportionate basis.
We bear the risk that we will need to make payments if all annuity units have
been used in an attempt to maintain the scheduled payment at the initial payment
level. In such an event, we will make all future payments equal to the initial
payment. Once all the annuity units have been used, the amount of your payment
will not increase or decrease and will not depend upon the performance of any
subaccounts. To compensate us for this risk, the separate account annuitization
charge will be deducted.
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 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 $30 annual Contract charge, calculated on the
basis of a separate account value per Contract of $10,000, which converts that
charge to an annual rate of 0.30% 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 surrender charge that may be assessed at the time of surrender in an
amount ranging up to 7% of the requested amount. The specific surrender charge
percentage applicable to a particular surrender depends on the length of time
premium payments have been held under the Contract and whether surrenders have
been made previously during that Contract year. (See Expenses--Surrender Charge
on page 29 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
12
<PAGE>
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%, assuming no surrender and selection of the standard death benefit without
the Rider.
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 - b + 1)6 -1]
-----
cd
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.
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 $30 annual Contract charge, calculated on the basis of a separate
account value per Contract of $10,000, which converts that charge to an annual
rate of 0.30% of the separate account value. The calculations do not take into
account any premium taxes or any transfer or surrender charges.
Premium taxes currently range from 0% to 3.5% of premium payments depending upon
the jurisdiction in which the Contract is delivered. A surrender charge may be
assessed at the time of surrender in an amount ranging up to 7% of the requested
amount, with the specific percentage applicable to a particular surrender
depending on the length of time premium payments were held under the Contract,
and whether surrenders had been made previously during that Contract year. (See
Expenses--Surrender Charge on page 29 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%, assuming no surrender and
selection of the standard death benefit without the Rider.
TOTAL RETURNS
The total return quotations set forth in the prospectus for all 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, five, and ten-year periods (or, while a subaccount has
been in existence for a period of less than one, five and ten years, for such
lesser period) ended on the date of the most recent balance 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
Where: P = a hypothetical initial payment of $10,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $10,000 payment
made at the beginning of each period at the end of each
period.
For purposes of the total return quotations for all subaccounts, except the WRL
J.P. Morgan Money Market subaccount, the calculations take into account all fees
that are charged under the Contract to all owner accounts during the
accumulation period. Such fees include the mortality and expense risk charge,
the administrative charge and the $30 annual Contract charge, calculated on the
basis of a separate account value per Contract of $10,000, which converts that
charge to an annual rate of 0.30% of the separate account value. (The
calculations may also reflect the mortality and expense risk charge for the
compounding minimum death benefit and the 0.30% charge for the Rider). The
calculations also assume a complete surrender as of the end of the particular
period. The calculations do not reflect any deduction for premium taxes or any
transfer charge that may be applicable to a particular Contract.
13
<PAGE>
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 premium 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 average annual compound rates
of return (T) for the subaccounts based on the inception date of the subaccounts
investing in the underlying portfolios.
We calculate cumulative total returns according to the following formula:
(1 + T)n - 1
Where: T and N are the same values as above
In addition, we may present historic performance 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 1.00% (1.25% if the compounding minimum death benefit is added), the
administrative charge of 0.40%, the Rider charge of 0.30% and the $30 annual
Contract charge (based on a separate account value of $10,000, the annual
Contract charge is translated into an annual charge of 0.30%). 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 premium 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 premium 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 Ratings Services, Moody's Investors Service 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
14
<PAGE>
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 their 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
AFSG Securities Corporation ("AFSG") is the principal underwriter of the
Contracts. AFSG is located at 4333 Edgewood Rd., N.E., Cedar Rapids, Iowa 52499.
AFSG is registered with the SEC under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. 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 sales commissions in an amount equal to 6% of premium payments.
In addition, broker-dealers may receive trail commissions of 0.90% of the
annuity value in each Contract year, starting with the eighth Contract year,
provided the Contract has an annuity value of $5,000 or more. Certain
production, persistency and managerial bonuses may also be paid. Alternatively,
compensation schedules may be structured to pay lower compensation amounts on
premium payments with trail commissions starting at an earlier duration. Subject
to applicable federal and state laws and regulations, 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. 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 the separate 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 other separate account. 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 $10 million, 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 $10 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.
15
<PAGE>
OTHER INFORMATION
A Registration Statement has been filed with the SEC, 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 SEC.
FINANCIAL STATEMENTS
The values of an owner's interest in the separate account will be affected
solely by the investment returns of the selected subaccount(s). Western
Reserve's financial statements, which are included in this SAI, should be
considered only as bearing on our ability to meet our obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the separate account. The financial statements
of the separate account are not fully representative of the subaccounts listed
in the prospectus, as the subaccounts that deduct a separate account annual
expense of 1.65% have not yet commenced operations.
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.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life
Assurance Co. of Ohio and Contract Owners of the
WRL Series Annuity 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 Freedom Variable
Annuity, WRL Freedom Attainer, WRL Freedom Bellwether, WRL Freedom Conqueror
and WRL Freedom Wealth Creator Contracts of the WRL Series Annuity Account (a
separate account of Western Reserve Life Assurance Co. of Ohio, hereafter
referred to as the "Annuity 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 Annuity 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/ PRICEWATERHOUSE COOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999
17
<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.
18
<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.
19
<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.
20
<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.
21
<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.
22
<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.
23
<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.
24
<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.
25
<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.
26
<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.
27
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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% (1.77)%
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.
34
<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.
35
<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.
36
<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) ........................................................ (5.96)% 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.
37
<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.
38
<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.
39
<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.
40
<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.
41
<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.
42
<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.
43
<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:
* 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.
The notes to the financial statements are an integral part of this report.
44
<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:
Sub-Account Contribution Units
- ----------------------------------------------- -------------- -------
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
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.
45
<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.
46
<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):
Purchase of Proceeds of
Sub-Account Securities Securities
- ------------------------------------------ ------------- ------------
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
(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):
Sub-Account
- --------------------------------------
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)
53
47
<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
48
<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.
49
<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.
50
<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.
51
<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.
52
<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.
53
<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
54
<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
55
<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
56
<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 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.
57
<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)
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.
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.
58
<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)
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>
59
<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>
60
<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:
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
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
======== ======== ========
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:
61
<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.
62
<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.
1998 1997 1996
------------- ------------- -------------
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
---------- ---------- ----------
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:
63
<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.
64
<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>
65
<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
66
<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,
67
<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.
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
68
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
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
insurance, annuities and pension products to its customers. As such, the
primary equipment and electronic
69
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
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.
70
<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>
71
<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
for 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 4/
(c) Form of Broker/Dealer Supervisory and Service Agreement
4/
(d) Principal Underwriting Agreement 4/
(e) First Amendment to Principal Underwriting Agreement 4/
(4) (a) Specimen Flexible Payment Variable Accumulation Deferred
Annuity Contract 5/
(b) Guaranteed Minimum Income Benefit Rider GIB01) 5/
(c) Terminal Illness Rider (EA132) 5/
(d) Nursing Care Facility Waiver Endorsement (EA133) 5/
(5) Application for Flexible Payment Variable Accumulation
Deferred Annuity Contract
(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
(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
(12) Not Applicable
C-1
<PAGE>
(13) Not Applicable
(14) Not Applicable
(15) (a) Powers of Attorney 1/
(b) Power of Attorney - James R. Walker 3/
- -------------------------------------
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 Post-Effective Amendment No. 28 to
Form N-1A Registration Statement dated April 24, 1997 (File No. 33-507)
and is incorporated herein by reference.
3/ This exhibit was filed on Post-Effective Amendment No. 7 to Form N-4
Registration Statement dated December 23, 1996 (File No. 33-49556) and
is incorporated herein by reference.
4/ This exhibit was 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.
5/ This exhibit was filed on the Initial Registration Statement on Form
N-4 dated July 12, 1999 (File No. 333-82705) and is incorporated herein
by reference.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- ---- -------------------------- -----------------------------------
<S> <C> <C>
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 Boulevard 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
G. John Hurley (1) Executive Vice President
William H. Geiger (1) Senior Vice President, Secretary,
Corporate Counsel and Group Vice
President - Compliance
Allan J. Hamilton (1) Vice President, Treasurer
and Controller
</TABLE>
(1) 570 Carillon Parkway, St. Petersburg, Florida 33716.
C-2
<PAGE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
VERENGING AEGON - NETHERLANDS MEMBERSHIP ASSOCIATION
AEGON N.V. - NETHERLANDS CORPORATION (51.16%)
TRANSAMERICA CORPORATION AND SUBSIDIARIES (100%) (DE)
AEGON NEDERLAND N.V. - NETHERLANDS CORPORATION (100%)
AEGON NEVAK 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)(DE)
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%)
AEGON FUNDING CORP. (DE) (100%)
FIRST AUSA LIFE INSURANCE COMPANY - INSURANCE HOLDING CO. (MD) (100%)
AUSA LIFE INSURANCE COMPANY, INC. - INSURANCE (NY) (82.33%)
LIFE INVESTORS INSURANCE COMPANY OF AMERICA - INSURANCE (IA) (100%)
BANKERS UNITED LIFE ASSURANCE COMPANY - INSURANCE (IA) (100%)
GREAT AMERICAN INSURANCE AGENCY, INC. (IA) (100%)
LIFE INVESTORS ALLIANCE, LLC (DE) (100%)
PFL LIFE INSURANCE COMPANY - INSURANCE (IA) (100%)
AEGON FINANCIAL SERVICES GROUP, INC. (MN) (100%)
AEGON ASSIGNMENT CORPORATION OF KENTUCKY (KY) (100%)
AEGON ASSIGNMENT CORPORATION (IL) (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 CO. OF OHIO - INSURANCE (OH) (100%)
WRL INVESTMENT MANAGEMENT, INC. - INVESTMENT ADVISER (FL) (100%)
WRL INVESTMENT SERVICES, INC. - TRANSFER AGENT (FL)(100%)
WRL SERIES FUND, INC. - MUTUAL FUND (MD)
ISI INSURANCE AGENCY, INC. AND SUBSIDIARIES (CA) (100%)
AEGON EQUITY GROUP, INC. (FL) (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%)
MONUMENTAL GENERAL LIFE INSURANCE COMPANY OF PUERTO RICO (PR) (51%)
AUSA HOLDING COMPANY - HOLDING COMPANY (MD) (100%)
MONUMENTAL GENERAL INSURANCE GROUP, INC. - HOLDING COMPANY (MD) (100%)
MONUMENTAL GENERAL ADMINISTRATORS, INC. (MD) (100%)
EXECUTIVE MANAGEMENT AND CONSULTANT SERVICES, INC. - CONSULTING
SERVICES (MD) (100%)
TRIP MATE INSURANCE AGENCY, INC. (KS) (100%)
MONUMENTAL GENERAL MASS MARKETING, INC. - MARKETING (MD) (100%)
AUSA FINANCIAL MARKETS, INC. - MARKETING (IA) (100%)
C-3
<PAGE>
ENDEAVOR GROUP (CA) (100%)
ENDEAVOR MANAGEMENT COMPANY (CA) (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. - FINANCIAL COUNSELING FOR EMPLOYEES AND AGENTS OF
AFFILIATED COMPANIES (DE) (100%)
ORBA INSURANCE SERVICES, INC. (CA) (10.56%)
ZAHORIK COMPANY, INC. - BROKER-DEALER (CA) (100%)
ZCI, INC. (AL) (100%)
LONG, MILLER & ASSOCIATES, L.L.C. (CA) (33-1/3%)
AEGON ASSET MANAGEMENT SERVICES, INC. (DE) (100%)
INTERSECURITIES, INC. - BROKER-DEALER (DE) (100%)
ASSOCIATED MARINER FINANCIAL GROUP, INC. - HOLDING COMPANY (MI) (100%)
MARINER FINANCIAL SERVICES, INC. - BROKER/DEALER (MI) (100%)
ASSOCIATED MARINER AGENCY OF HAWAII, INC. - INSURANCE AGENCY (MI)
(100%)
ASSOCIATED MARINER AGENCY OF NEW MEXICO, INC. (MI) (100%)
IDEX INVESTOR SERVICES, INC. - SHAREHOLDER SERVICES (FL) (100%)
IDEX MANAGEMENT, INC. - INVESTMENT ADVISER (DE) (100%)
IDEX MUTUAL FUNDS - MUTUAL FUND (MA)
DIVERSIFIED INVESTMENT ADVISORS, INC. - INVESTMENT ADVISER (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)
CREDITOR RESOURCES, INC. - CREDIT INSURANCE (MI) (100%)
CRC CREDITOR RESOURCES CANADIAN DEALER NETWORK INC. - INSURANCE AGENCY
(CANADA) (100%)
WEINER AGENCY, INC. (MD) (100%)
AEGON USA INVESTMENT MANAGEMENT, INC. - INVESTMENT ADVISER (IA) (100%)
AEGON USA REALTY ADVISORS, INC. - REAL ESTATE INVESTMENT SERVICES (IA)
(100%)
QSC HOLDING, INC. (DE) (100%)
LANDAUER REALTY ADVISORS, INC. - REAL ESTATE COUNSELING (IA) (100%)
LANDAUER ASSOCIATES, INC. - REAL ESTATE COUNSELING (DE) (100%)
LANDAUER REALTY ASSOCIATES, INC. (TX) (100%)
REALTY INFORMATION SYSTEMS, INC. - INFORMATION SYSTEMS FOR REAL ESTATE
INVESTMENT MANAGEMENT (IA) (100%)
USP REAL ESTATE INVESTMENT TRUST - REAL ESTATE INVESTMENT TRUST (IA)
RCC PROPERTIES LIMITED PARTNERSHIP (IA)
Item 27. NUMBER OF CONTRACTOWNERS.
Because the offering has not yet commenced, there are no Contract owners.
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.
C-4
<PAGE>
OHIO GENERAL CORPORATION LAW
Section 1701.13 Authority of corporation.
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
C-5
<PAGE>
(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.
(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.
C-6
<PAGE>
(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 contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or
C-7
<PAGE>
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.
(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.
C-8
<PAGE>
(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
<PAGE>
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, ^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
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH UNDERWRITER
<S> <C> <C>
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 Vice President and Assistant
Secretary
Richard C. Hicks (2) Assistant Vice President and Assistant
Secretary
Nancy C. Hassett (2) Assistant Secretary
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Gina A. Babka (2) Assistant Secretary
</TABLE>
- --------------------------------------
(1) 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, Florida 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 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 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 has duly caused this
Pre-Effective Amendment No. 1 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 22ND day of September, 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
Pre-Effective Amendment No. 1 to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ JOHN R. KENNEY Chairman of the Board, September 22, 1999
- ------------------- Chief Executive Officer
John R. Kenney and President
(Principal Executive
Officer)
/s/ ALLAN J. HAMILTON Vice President, Treasurer September 22, 1999
- ---------------------- and Controller
Allan J. Hamilton
/s/ ALAN M. YAEGER Executive Vice President, September 22, 1999
- ------------------- Acutary and Chief Financial
Alan M. Yaeger Officer
/s/ PATRICK S. BAIRD Director September 22, 1999
- ---------------------
Patrick S. Baird
/s/ LYMAN H. TREADWAY Director September 22, 1999
- ----------------------
Lyman H. Treadway
<PAGE>
/s/JACK E. ZIMMERMAN Director September 22, 1999
- ---------------------
Jack E. Zimmerman
/s/ JAMES R. WALKER Director September 22, 1999
- --------------------
James R. Walker
/s/ THOMAS E. PIERPAN
---------------------
Signed by Thomas E. Pierpan
as Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
5 Application for Flexible Payment Variable
Accumulation Deferred Annuity Contract
9 Opinion and Consent of Thomas E. Pierpan, Esq.
as to Legality of Securities Being Registered
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 5
Application for Flexible Payment Variable Accumulation Deferred Annuity Contract
<PAGE>
WRL FREEDOM PREMIER
VARIABLE ANNUITY APPLICATION
[WRL LOGO]
<PAGE>
APPLICATION INSTRUCTIONS
1 ANNUITANT
- --------------------------------------------------------------------------------
Please provide all of the information requested for the Annuitant. The
Annuitant is the person who will receive the Annuity Payments and on
whose life expectancy payments are based. Provide the Annuitant's Social
Security Number.
2 CONTRACT OWNER
- --------------------------------------------------------------------------------
Complete ONLY if Contract Owner is not the same as the Annuitant.
Please provide all of the information requested for the Contract Owner.
Should the Owner be a Trust, a complete trust date must be supplied. If
this is to be an Individual Retirement Annuity, the Contract Owner must
be the same as the Annuitant. Provide the Contract Owner's Taxpayer
Identification Number. For individuals, this is the Social Security
Number, for corporations, this is the Federal Employer Tax
Identification Number. In the event the contract is Jointly owned,
taxation will be reported under the Social Security Number listed in
this section.
3 JOINT CONTRACT OWNER
- --------------------------------------------------------------------------------
NOTE: IF THIS CONTRACT IS INTENDED TO BE AN INDIVIDUAL RETIREMENT
ANNUITY (IRA), A JOINT CONTRACT OWNER IS NOT PERMITTED.
Joint Owners may be named provided the Joint Owners are husband and
wife. (Distributions from Jointly Owned contracts will be made payable
to both husband and wife.)
4 BENEFICIARY DESIGNATION
- --------------------------------------------------------------------------------
The Primary Beneficiary will receive the death benefit proceeds payable
in the event of the Owner's death, or the Annuitant's death, if the
Owner is not a natural person. If the Primary Beneficiary is already
deceased, the Contingent Beneficiary, if designated, will receive the
death benefit proceeds; otherwise, the proceeds will be paid to the
Owner's estate. In the event of the death of one Joint Owner, the
contract will continue with the surviving Joint Owner as sole Owner. The
relationship of the Beneficiary to the Annuitant must be provided.
5 NAME OF ANNUITY
- --------------------------------------------------------------------------------
The Name of Annuity being applied for must be indicated.
6 TYPE OF PLAN
- --------------------------------------------------------------------------------
The annuity will be issued as the type of plan indicated in this
section.
(IRA SOURCES: TRANSFER - Trustee to Trustee; ROLLOVER/DIRECT ROLLOVER -
Qualified Retirement Plan to IRA, (Trustee to Trustee or Trustee to
Individual/Participant); Conduit - IRA established from a Direct
Rollover with the intent to roll back into another Qualified Retirement
Plan)
7 REPLACEMENT
- --------------------------------------------------------------------------------
The Contract Owner must answer the replacement question.
If replacing a life insurance policy or an annuity contract from another
company, please check the box marked "Yes", and complete the required
form(s). If not replacing a policy or a contract, check the box marked
"No."
8 INITIAL PREMIUM
- --------------------------------------------------------------------------------
Refer to the prospectus for the minimum initial purchase payment,
payable by check, wire transfer* or by an Exchange or Transfer. Indicate
the initial purchase amount if enclosed with the application.
* CONTACT THE HOME OFFICE FOR WIRING INSTRUCTIONS.
9 SPECIAL INSTRUCTIONS
- --------------------------------------------------------------------------------
Complete this section to indicate any special remarks.
10 ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Complete this section if the Contract Owner would like a Statement of
Additional Information.
11 INVESTMENT SELECTION
- --------------------------------------------------------------------------------
Payments may be allocated to any combination of the available
Sub-Accounts, or the Fixed Account. Please indicate each allocation
selected as a whole percentage of the Purchase Payment; note that the
allocations must total 100%.
Future premiums will be allocated as shown in this section, unless the
Contract Owner notifies Western Reserve Life differently in writing.
12 STATEMENT OF OWNER
- --------------------------------------------------------------------------------
The Owner must sign, as indicated, exactly as the name appears in either
Section 1, if Annuitant and Owner are the same, or in Section 2, if
Annuitant and Owner are different. In the event of Joint Owners, the
Joint Owners must sign, as indicated, exactly as the names appear in
Section 2 and Section 3. The State in which the application was written
and the date signed are also required.
NOTE: SOME STATES REQUIRE THAT THE CONTRACT OWNERS(S) ACKNOWLEDGE A
FRAUD WARNING STATEMENT. PLEASE REFER TO THE FRAUD WARNING STATEMENT FOR
YOUR STATE AS INDICATED.
13 BROKER/DEALER INFORMATION
- --------------------------------------------------------------------------------
The Registered Representative signature and the date signed are
required. Complete all of the remaining information by PRINTING CLEARLY.
The Registered Representative must answer the replacement question.
- --------------------------------------------------------------------------------
AA00102
<PAGE>
OPTIONAL FEATURE INSTRUCTIONS
14 TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Your variable annuity contract will automatically receive telephone
transfer and withdrawal privileges described in the applicable
prospectus unless instructions to the contrary are indicated.
Western Reserve Life will not be liable for complying with the telephone
instructions it reasonably believes to be authentic, nor for any loss,
damage, costs or expense in acting on such telephone instructions, and
Owners will bear the risk of any such loss. Western Reserve Life will
employ such procedures to confirm that the telephone instructions are
genuine. If Western Reserve Life does not employ such procedures, it may
be liable for losses due to unauthorized or fraudulent instructions.
Such procedures may include, among others, requiring forms of personal
identification prior to acting upon such telephone instructions,
providing written confirmation of such transactions to Owners and/or
tape recording of telephone transaction instructions received.
15 AUTOMATIC MONTHLY INVESTING
- --------------------------------------------------------------------------------
Complete this section if Automatic Monthly Investing by electronic funds
is desired. A voided, unsigned check from the bank account to be debited
must be attached to the application. Automatic Monthly Investing will be
processed on the date specified herein. If the date an Automatic Monthly
Investing transaction would otherwise be processed falls on a
non-business day, the Automatic Monthly Investing will be processed on
the next business day. The amount debited will be allocated according to
the instructions in Section 11 of the Application, or as subsequently
changed in writing by the Owner. Credit Unions and Savings account may
not be eligible, please consult your banking institution.
ONLY ONE OF THE FOLLOWING OPTIONS IN SECTIONS 16, 18 OR 19 MAY BE
CHOSEN.
16 DOLLAR COST AVERAGING
- --------------------------------------------------------------------------------
Complete this section if Dollar Cost Averaging is desired. If selected,
Western Reserve Life will automatically transfer the stated amount(s)
from the designated Sub-Account(s) or the Fixed Account* to the other
Sub-Account(s) or Fixed Account indicated on the chosen date of each
month. The "Dollar Cost Averaging" feature is a long-term investment
method that provides for regular, level investments over time. Western
Reserve Life makes no guarantee that the Dollar Cost Averaging feature,
if implemented, will result in a profit or protect from loss. To
complete this section, indicate the Sub-Account(s) or Fixed Account*
from which the Dollar Cost Averaging are to be made, one Sub-Account or
Fixed Account* per "From" line. A minimum of $10,000 must be allocated
in each Sub-Account chosen (or Fixed Account*) at the time this option
is initiated. At least $1,000 in the aggregate must be transferred each
month. *NO MORE THAN 1/10 OF THE AMOUNT IN THE FIXED ACCOUNT AT THE
BEGINNING OF THE DOLLAR COST AVERAGING CAN BE TRANSFERRED EACH MONTH.
(NOTE: THIS OPTION IS NOT AVAILABLE IF "AUTOMATIC WITHDRAWAL OR ASSET
REBALANCING" OPTION IS SELECTED.)
17 ADDITIONAL BENEFITS ELECTION
- --------------------------------------------------------------------------------
The additional benefit option allows you to choose either an alternative
Death Benefit in addition to the standard death benefit for the chosen
product, or a minimum annuitization value option for your contact. These
options must be elected at the time the application is taken. The
Guaranteed Minimum Income Benefit and the additional Death Benefit
options are not available if the annuitant is age 74 or older.
18 ASSET REBALANCING
- --------------------------------------------------------------------------------
Complete this section if Asset Rebalancing is desired. If selected,
Western Reserve Life will automatically transfer amounts among the
chosen Sub-Accounts on the frequency selected to maintain a desired
allocation of the annuity purchase value among the various Sub-Accounts
offered. Western Reserve Life makes no guarantee that the Asset
Rebalancing feature, if implemented, will result in a profit or protect
against loss. To be eligible, a minimum initial purchase payment of
$10,000 must accompany this application. *ASSET REBALANCING IS NOT
AVAILABLE FOR ANY AMOUNTS IN THE FIXED ACCOUNT (NOTE: THIS OPTION IS NOT
AVAILABLE IF "AUTOMATIC WITHDRAWAL OR DOLLAR COST AVERAGING" OPTION IS
SELECTED.)
19 AUTOMATIC PARTIAL SURRENDER
- --------------------------------------------------------------------------------
The Owner may select to partially surrender up to 10% of the Contract
value annually, payable in equal annual, semi-annual, quarterly, or
monthly installments of at least $200 per month. To be eligible, a
minimum initial premium of $25,000 must accompany this application. A
penalty tax equal to 10% of the amount of the partial surrenders treated
as taxable income will generally be imposed on the partial surrenders
prior to the Owner's age 59 1/2. Partial surrenders will be processed on
the date specified herein. If the date an Automatic Partial Surrender
transaction would otherwise be processed falls on a non-business day,
the Automatic Partial Surrender will be processed on the next business
day. For Tax-Qualified contracts, or if the Owner is a resident of a
community property state, spousal signature is required. If an alternate
payee is designated, and the payee is a bank account, the Automatic
Partial Surrender will be directly deposited by electronic funds
transfer. If the payee is not a bank, please allow 7 to 10 days for
receipt of funds by mail. Indicate whether or not to withhold Federal
income tax from the partial surrender payments. *AUTOMATIC PARTIAL
SURRENDERS IS NOT AVAILABLE FOR ANY AMOUNTS IN THE FIXED ACCOUNT (NOTE:
THIS OPTION IS NOT AVAILABLE IF "DOLLAR COST AVERAGING OR ASSET
REBALANCING" OPTION IS SELECTED.)
20 APPROVAL OF OPTIONAL FEATURES
- --------------------------------------------------------------------------------
If any of the Optional features available in Section(s) 14, 15, 16, 17,
and 18 have been selected, please complete this section by printing and
signing your name as indicated.
For assistance in completing this application, please call your
dedicated "800" line and dial extension 6525 for our Sales Support Team.
<TABLE>
<S> <C>
PLEASE MAIL APPLICATION AND CHECK PAYABLE TO: IF OVERNIGHT DELIVERY:
Western Reserve Life Assurance Co. of Ohio Western Reserve Life Assurance Co. of Ohio
Attention: Annuity Department Attention: Annuity Department
P.O. Box 9051 8550 Ulmerton Road, Suite 101
Clearwater, FL 33758 Largo, FL 33771
</TABLE>
- --------------------------------------------------------------------------------
AA00102
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO,
P.O. BOX 9051, CLEARWATER, FLORIDA 33758
Variable Annuity Application
1 ANNUITANT
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------------------------------------------------------------
Social Security Number
[ ] male
[ ] female
------------------------------------------------------------------------
Date of Birth (mm/dd/yyyy)
( )
------------------------------------------------------------------------
Daytime Telephone
2 CONTRACT OWNER (IF OTHER THAN ANNUITANT)
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------------------------------------------------------------
Social Security Number or Tax I.D. Number
[ ] male
[ ] female
------------------------------------------------------------------------
Date of Birth (mm/dd/yyyy)
( )
------------------------------------------------------------------------
Daytime Telephone
3 JOINT CONTRACT OWNER (OPTIONAL)
(If Elected - Must Be Spouse of Owner)
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------------------------------------------------------------
Social Security Number or Tax I.D. Number
[ ] male
[ ] female
------------------------------------------------------------------------
Date of Birth (mm/dd/yyyy)
( )
------------------------------------------------------------------------
Daytime Telephone
4 BENEFICIARY DESIGNATION
- --------------------------------------------------------------------------------
PRIMARY BENEFICIARY
Name Relationship to Annuitant Percentage
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
CONTINGENT BENEFICIARY
Name Relationship to Annuitant Percentage
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(IF MORE THAN ONE PRIMARY OR CONTINGENT BENEFICIARY IS DESIGNATED,
PROCEEDS WILL BE DIVIDED EQUALLY AMONG THE SURVIVORS WITHIN THE
CLASSIFICATION UNLESS OTHERWISE INDICATED.)
5 NAME OF ANNUITY
- --------------------------------------------------------------------------------
[ ] WRL Freedom Premier
6 TYPE OF PLAN (See Prospectus For Minimum Contributions)
- --------------------------------------------------------------------------------
[ ] Non-Qualified [ ] SEP/IRA [ ] SIMPLE IRA
[ ] Roth IRA [ ] IRA
(Indicate the source of the IRA below)
[ ] Transfer [ ] Conduit
[ ] Rollover/Direct Rollover
[ ] Conversion: tax year __________________
[ ] Contributory: tax year ________________
[ ] Other
7 REPLACEMENT (REQUIRED)
- --------------------------------------------------------------------------------
Is this annuity intended to replace (in whole or in part) an existing
life insurance policy or annuity contract?
[ ] Yes
[ ] No
If Yes, please provide the name and the policy or contract number below:
------------------------------------------------------------------------
Company
------------------------------------------------------------------------
Policy or Contract Number
- --------------------------------------------------------------------------------
AA00102 [1]
<PAGE>
8 INITIAL PREMIUM
- --------------------------------------------------------------------------------
Make Check Payable to "Western Reserve Life"
$_______________________________________________________________________
[ ] Automatic Monthly Investing (Complete section No. 15)
9 SPECIAL INSTRUCTIONS
- --------------------------------------------------------------------------------
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10 ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
[ ] Yes, Please send me a statement of additional information.
11 INVESTMENT SELECTION**
- --------------------------------------------------------------------------------
WRL Janus Growth ______________________________________________________%
WRL Janus Global ______________________________________________________%
WRL Alger Aggressive Growth ___________________________________________%
WRL VKAM Emerging Growth ______________________________________________%
WRL AEGON Bond ________________________________________________________%
WRL AEGON Balanced ____________________________________________________%
WRL LKCM Strategic Total Return _______________________________________%
WRL Federated Growth & Income _________________________________________%
WRL J.P. Morgan Money Market __________________________________________%
WRL J.P. Morgan Real Estate Securities ________________________________%
WRL Dean Asset Allocation _____________________________________________%
WRL GE U.S. Equity ____________________________________________________%
WRL GE/Scottish Equitable International Equity ________________________%
WRL Third Avenue Value ________________________________________________%
WRL NWQ Value Equity __________________________________________________%
WRL C.A.S.E. Growth ___________________________________________________%
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 _____________________________________%
WRL Dreyfus Mid Cap ___________________________________________________%
Fixed Account _________________________________________________________%
Other _________________________________________________________________%
Other _________________________________________________________________%
** In some states the initial premium payment will be allocated to the
WRL J.P. Morgan Money Market subaccount during the right to examine
period.
12 STATEMENT OF OWNER (IF APPLICABLE, COMPLETE THE STATE SPECIFIC FRAUD
WARNING)
- --------------------------------------------------------------------------------
I hereby represent my answers on this application are true and complete
to the best of my knowledge and belief. I agree that this application
shall be a part of the annuity contract. I have received a current
Prospectus for the contract applied for. I understand that I should
consult my own tax advisor and/or legal counsel as to the consequences
of using this product in conjunction with my own particular tax or
financial plan. I UNDERSTAND THAT UNDER THE CONTRACT APPLIED FOR VALUES
MAY INCREASE OR DECREASE DEPENDING UPON INVESTMENT EXPERIENCE. I also
state that the contract is in accordance with my financial objectives.
* The standard maturity date is the anniversary nearest Annuitant's
age 95. The standard annuity option is variable account life with
120 monthly payments guaranteed. Option to change election is
permitted by the contract.
Under penalty of perjury, I (the owner) certify that my Taxpayer I.D.
Number is correct as it appears on the application and that I am not
subject to backup withholding.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Signed in (State) Date Signed Signature of Contract Owner Signature of Joint Owner
</TABLE>
13 BROKER/DEALER INFORMATION (FOR REGISTERED REPRESENTATIVE USE ONLY)
- --------------------------------------------------------------------------------
I certify that (1) the Applicant signed this completed Application in my
presence; (2) I am authorized and qualified to discuss the contract
herein applied for.
------------------------------------------------------------------------
Registered Representative Signature Date
------------------------------------------------------------------------
Print RR Name, WRL RR Number, Production %, State License (If Applicable)
------------------------------------------------------------------------
Registered Representative Telephone Number
[ ] [ ] [ ] [ ] [ ] High Mid Level
-------------------------
Circle
------------------------------------------------------------------------
Name of Broker/Dealer Dealer Number Dealer Branch
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Print RR Name, WRL RR Number, Production %, State License (If Applicable)
------------------------------------------------------------------------
Print RR Name, WRL RR Number, Production %, State License (If Applicable)
------------------------------------------------------------------------
Registered Representative Fax Number
*Do you have any reason to believe that the contract applied for is to
replace an existing annuity contract or life policy? [ ] Yes [ ] No
- --------------------------------------------------------------------------------
A00102 [2]
<PAGE>
Optional Features
14 TELEPHONE TRANSACTIONS (SEE PROSPECTUS FOR TELEPHONE TRANSACTIONS
PROCEDURES)
- --------------------------------------------------------------------------------
Your variable annuity contract will automatically receive telephone
transfer and withdrawal privileges described in the applicable
prospectus unless instructions to the contrary are indicated below.
These privileges allow you to give the registered representative/agent
of record for your contract authority to make telephone transfers or
withdrawals and to change the allocation of future payments among the
Sub-Accounts and The Fixed Account (restrictions may apply) on your
behalf according to your instructions.
[ ] I do NOT want telephone transfer privileges.
[ ] I do NOT want telephone withdrawal privileges.
15 AUTOMATIC MONTHLY INVESTING (ATTACH VOIDED CHECK)
- --------------------------------------------------------------------------------
[ ] I authorize the making of Purchase Payments by electronic funds
transfer on a monthly basis, in the amount of $_________________,
beginning on the __________ day of each month (except the 29th, 30th, or
31st). I have attached to this form a voided, unsigned check from the
bank account to be debited. I may notify Western Reserve Life in writing
at the Administrative Office to cancel this authorization at any time.
(NOTE: CREDIT UNIONS AND SAVINGS ACCOUNTS MAY NOT BE ELIGIBLE PLEASE
CONSULT YOUR BANKING INSTITUTION.)
16 DOLLAR COST AVERAGING ("DCA") (MINIMUM OF $5,000 IN EACH SUB-ACCOUNT OR
FIXED ACCOUNT* REQUIRED)
- --------------------------------------------------------------------------------
I hereby request and authorize Western Reserve Life to transfer funds
from the selected Sub-Account(s) or Fixed Account* to invest in the
portfolio(s), in the amount indicated below. The transfers are to be
made on the ___________ day of the month (except the 29th, 30th, or 31st
for ___________ months. (minimum of 6 months, maximum of 24 months.) The
minimum total to be transferred each month is $100.
Transfer From: $_____________ $________________ $______________
Bond Fixed Account* Money Market
Transfer To:
___________ $_____________ ________________ $______________
___________ $_____________ ________________ $______________
___________ $_____________ ________________ $______________
Note: The first transfer will take place the month following the
issuance of the contract. I understand that DCA transfers do not
guarantee a profit and do not protect against a loss. I further
understand and agree: (1) Western Reserve Life shall not be subjected to
any claim, loss, liability, cost or expense if it acts in reliance upon
the instructions contained in the authorization; and (2) this
authorization shall not affect the allocation of future net purchase
payments; and (3) once elected, transfers will be processed monthly
until the date Western Reserve Life receives written instructions from
me at the Administrative Office to cancel the monthly DCA transfers. The
scheduled time as indicated above has ended or the date Western Reserve
Life discontinues this DCA transfer privilege.
(* NO MORE THAN 1/10 OF THE AMOUNT IN THE FIXED ACCOUNT AT THE BEGINNING
OF THE DOLLAR COST AVERAGING CAN BE TRANSFERRED EACH MONTH.)
17 DEATH BENEFIT OPTIONS (MUST BE CHOSEN PRIOR TO CONTRACT ISSUE DATE)
- --------------------------------------------------------------------------------
Guaranteed Minimum Death Benefit [ ] Yes [ ] No
Annual 6% Compound Death Benefit [ ] Yes [ ] No
17A ADDITIONAL BENEFITS
- --------------------------------------------------------------------------------
Guaranteed Minimum Income Benefit [ ] Yes [ ] No
18 ASSET REBALANCING (MINIMUM INITIAL PURCHASE PAYMENT OF $5,000)
- --------------------------------------------------------------------------------
I hereby request and authorize Western Reserve Life to automatically
transfer amounts among the chosen Sub-Accounts (as indicated below) on
the frequency selected to maintain a desired allocation of the Annuity
Purchase Value among the various Sub-Accounts offered.
Frequency: [ ] Quarterly [ ] Semi-Annual [ ] Annual [ ] Monthly
%________ WRL Janus Growth
%________ WRL Janus Global
%________ WRL Alger Aggressive Growth
%________ WRL VKAM Emerging Growth
%________ WRL AEGON Bond
%________ WRL AEGON Balanced
%________ WRL LKCM Strategic Total Return
%________ WRL Federated Growth & Income
%________ WRL J.P. Morgan Money Market
%________ WRL J.P. Morgan Real Estate Securities
%________ WRL Dean Asset Allocation
%________ WRL GE U.S. Equity
%________ WRL GE/Scottish Equitable International Equity
%________ WRL Third Avenue Value
%________ WRL NWQ Value Equity
%________ WRL C.A.S.E.
%________ 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
%________ WRL Dreyfus Mid Cap
%________ Other
%________ Other
%________ Other
[ ] Pro-Rata
(THE PERCENT % MUST EQUAL 100%)
Note: Western Reserve Life will effect the initial rebalancing of the
Cash Value on the next such anniversary, in accordance with the
Contract's current Net Purchase Payment Allocation schedule. Asset
Rebalancing will be processed in the frequency requested until the
earlier of: (a) the date Western Reserve Life receives written
instructions from me at the Administrative Office to cancel the Asset
Rebalancing or (b) the date any transfer is made to, or from any
Sub-Account, other than a scheduled rebalancing: or (c) the date Western
Reserve Life discontinues this Asset Rebalancing privilege. Asset
rebalancing is not available for any amounts in the Fixed Account.
APPROVAL SIGNATURES FOR OPTIONS 14, 15, 16 AND 17 ARE REQUIRED ON THE
NEXT PAGE.
- --------------------------------------------------------------------------------
AA00102 [3]
<PAGE>
Optional Features
19 AUTOMATIC PARTIAL SURRENDERS (MINIMUM INITIAL PREMIUM OF $25,000)
- --------------------------------------------------------------------------------
Subject to the provisions of the prospectus and this authorization, I
hereby request and authorize Western Reserve Life to systematically make
partial surrenders of as follows:
<TABLE>
<S> <C>
Amount $______________________________
Frequency: [ ] Annual [ ] Semi-Annual [ ] Quarterly [ ] Monthly
Begin date (mm/dd/yyyy): ______________________(Except 29th, 30th, or 31st)
Type of Partial Surrender (Check One)
[ ] Standard Systematic Partial Surrenders
[ ] 72T/72Q (Substantially Equal Payments)
[ ] RMD (Required Minimum Distribution)
</TABLE>
from the Sub-Accounts shown below and to make payment to me unless a
different payee is named below.
(72T calculation and disclosure must accompany.)
Alternate Payee Designation: If the alternate payee is a Bank Account,
Please attach a voided check for direct deposit by electronic funds
transfer.
NOTE: PROVIDE THE FOLLOWING INFORMATION ONLY IF THE NAME OF THE PAYEE
DIFFERS FROM THE OWNER. WESTERN RESERVE LIFE IS DIRECTED TO MAKE MONTHLY
AUTOMATIC PARTIAL SURRENDER PAYMENTS TO:
________________________________________________________________________
Payee Name or Bank (Attach a voided check for bank payee)
________________________________________________________________________
Bank Account - Routing Number
________________________________________________________________________
Address City State Zip
AUTOMATIC PARTIAL SURRENDERS REQUIRE A MINIMUM INITIAL PREMIUM OF
$25,000 (FIXED ACCOUNT NOT AVAILABLE) AGGREGATE PARTIAL SURRENDER CANNOT
EXCEED 10% OF CASH VALUE ANNUALLY
------------------------------------------------------------------------
Amounts received as partial surrenders from non-tax qualified annuity
contracts prior to the maturity date are first treated as taxable income
to the extent of any gain. Additionally, a penalty tax equal to 10% of
the amount treated as taxable gain will generally be imposed on partial
surrenders made prior to the Owner's age 59 1/2. This authorization
applies only to this Western Reserve Life application/contract being
applied for. A separate authorization must be completed for any
additional Variable Annuity Contracts owned. I understand and agree to
the terms and conditions as set forth in the Prospectus.
ELECTION FOR RECIPIENTS OF PERIODIC PAYMENTS - INSTRUCTIONS
(FAILURE TO COMPLETE THIS SECTION MAY RESULT IN A DELAY OF REQUESTED
WITHDRAWALS)
------------------------------------------------------------------------
[ ] Check box A if you do not want any Federal income tax withheld from
your annuity partial surrender payments.
[ ] Check box B if you do want Federal income tax withheld from your
annuity partial surrender payments.
Even if you elect not to have Federal income tax withheld, you are
liable for payment of Federal income tax on the taxable portion of your
annuity payments. You may also be subject to tax penalties under the
estimated tax payment rules if your payment of estimated tax and
withholding, if any, is inadequate.
(CHECK ONE ONLY)
A [ ] I do not want to have Federal income tax withheld from my
annuity partial surrender payments.
B [ ] I wish to have Federal income tax withheld from my annuity
partial surrender payments: ________________%
(If percentage not indicated, 10% will be withheld.)
Sub-Account Partial Surrender Allocation
$____________ WRL Janus Growth
$____________ WRL Janus Global
$____________ WRL Alger Aggressive Growth
$____________ WRL VKAM Emerging Growth
$____________ WRL AEGON Bond
$____________ WRL AEGON Balanced
$____________ WRL LKCM Strategic Total Return
$____________ WRL Federated Growth & Income
$____________ WRL J.P. Morgan Money Market
$____________ WRL J.P. Morgan Real Estate Securities
$____________ WRL Dean Asset Allocation
$____________ WRL GE U.S. Equity
$____________ WRL GE/Scottish Equitable International Equity
$____________ WRL Third Avenue Value
$____________ WRL NWQ Value Equity
$____________ WRL C.A.S.E. Growth
$____________ WRL Goldman Sachs Growth
$____________ WRL Goldmand 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
$____________ WRL Dreyfus Mid Cap
$____________ WRL Fixed Account
$____________ Other
$____________ Other
20 APPROVAL OF OPTIONAL FEATURES
- --------------------------------------------------------------------------------
By signing below, I hereby attest that I have selected the options
available in any or all Optional Features in Sections 14, 15, 16, 17,
18, and 19, according to the information which I have entered in each
section.
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------------------------------------
Owner's Name - Please Print Owner's Signature Date
---------------------------------------------------------------------------------------------------
Name of Joint Owner/Spouse - Please Print Signature of Joint Owner/Spouse * Date
</TABLE>
* Signature of Spouse required if the contract is a Tax-Qualified plan
or if the Owner is a resident of a community property state.
- --------------------------------------------------------------------------------
AA00102 [4]
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 9051
CLEARWATER, FLORIDA 33758
FRAUD WARNING
The following states require that contract owners acknowledge a fraud warning
statement. Please refer to the fraud warning statement for your state as
indicated below.
For contract owners in ARKANSAS/LOUISIANA
Any person who knowingly presents a false or fraudulent
claim for payment of a loss or benefit or knowingly
presents false information in an application for
insurance is guilty of a crime and may be subject to
fines and confinement in prison.
________________________________________________________
Signature of Contract Owner Date
For contract owners in COLORADO
It is unlawful to knowingly provide false, incomplete,
or misleading facts or information to an insurance
company for the purpose of defrauding or attempting to
defraud the company. Penalties may include imprisonment,
fines, denial of insurance, and civil damages. Any
insurance company or agent of an insurance company who
knowingly provides false, incomplete, or misleading
facts or information to a policyholder or claimant for
the purpose of defrauding or attempting to defraud the
policyholder or claimant with regard to a settlement or
award payable from insurance proceeds shall be reported
to the Colorado Division of Insurance within the
Department of Regulatory Agencies.
________________________________________________________
Signature of Contract Owner Date
For contract owners in DISTRICT OF COLUMBIA
It is a crime to knowingly provide false, incomplete or
misleading information to an insurance company for the
purpose of defrauding the company. Penalties include
imprisonment, fines and denial of insurance benefits.
________________________________________________________
Signature of Contract Owner Date
For contract owners in FLORIDA
Any person who knowingly and with intent to injure,
defraud, or deceive any insurer files a statement of
claim or an application containing any false,
incomplete, or misleading information is guilty of a
felony in the third degree.
________________________________________________________
Signature of Contract Owner Date
For contract owners in KENTUCKY, OHIO and PENNSYLVANIA
Any person who knowingly and with intent to defraud any
insurance company or other person files an application
for insurance or a statement of claim containing any
materially false information or conceals for the purpose
of misleading, information concerning any fact material
thereto commits a fraudulent insurance act, which is a
crime and subjects such person to criminal and civil
penalties.
________________________________________________________
Signature of Contract Owner Date
For contract owners in NEW JERSEY
Any person who includes any false or misleading
information on an application for an insurance policy is
subject to criminal and civil penalties.
________________________________________________________
Signature of Contract Owner Date
For contract owners in NEW MEXICO
Any person who knowingly presents a false or fraudulent
claim for payment of a loss or benefit or knowingly
presents false information in an application for
insurance is guilty of a crime and may be subject to
fines and criminal penalties.
________________________________________________________
Signature of Contract Owner Date
For contract owners in VIRGINIA/MAINE
It is a crime to knowingly provide false, incomplete or
misleading information to an insurance company for the
purpose of defrauding the company. Penalties include
imprisonment, fines and denial of insurance benefits.
________________________________________________________
Signature of Contract Owner Date
- --------------------------------------------------------------------------------
AA00102 [5]
Exhibit 9
Opinion and Consent of Thomas E. Pierpan, Esq. as to Legality of Securities
Being Registered
<PAGE>
WRL Letterhead
September 22, 1999
Board of Directors
Western Reserve Life Assurance
Co. of Ohio
WRL Series Annuity Account
570 Carillon Parkway
St. Petersburg, Florida 33716
Gentlemen:
In my capacity as Vice President, Assistant Secretary and Associate General
Counsel of Western Reserve Life Assurance Co. of Ohio ("WRL"), I have
participated in the preparation and review of this Pre-Effective Amendment No. 1
to the Registration Statement on Form N-4 (File No. 333-82705) filed with the
Securities and Exchange Commission under the Securities Act of 1933 for the
registration of flexible payment variable accumulation deferred annuity
contracts (the "Contracts") to be issued with respect to the WRL Series Annuity
Account (the "Account"). The Account was established on April 12, 1988, by the
Board of Directors of WRL as a separate account for assets applicable to the
Contracts, pursuant to the provisions of Section 3907.15 of the Ohio Revised
Code.
I am of the following opinion:
1. WRL has been duly organized under the laws of Ohio and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provision of Ohio law.
3. Section 3907.15 of the Ohio Revised Code provides that the portion of
the assets of the Account equal to the reserves and other liabilities
for variable benefits under the Contracts is not chargeable with
liabilities arising out of any other business WRL may conduct. Assets
allocated to the fixed account under the Contracts, however, are part
of WRL's general account and are subject to WRL's general liabilities
from business operations.
4. The Contracts, when issued as contemplated by the Registration Statement,
will be legal and binding obligations of WRL in accordance with
their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ THOMAS E. PIERPAN
- ----------------------
Thomas E. Pierpan
Vice President, Assistant Secretary
and Associate General Counsel
Exhibit 10(a)
Written Consent of Sutherland Asbill & Brennan LLP
<PAGE>
S.A.B. Letterhead
September 22, 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 Nos. 333-82705; 811-5672
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information contained in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-82705)
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" in the Statement of Additional Information 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 Pre-Effective Amendment No. 1 to the Registration Statement (Form N-4 No.
333-82705) and related Prospectus of WRL Series Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
September 22, 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 Premier Pre-Effective Amendment No. 1 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 references to us
under the heading "Independent Accountants" in such Statement of Additional
Information.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
September 22, 1999
